Minimum wage for workers likely to increase in next three months

The manner in which the minimum wages for workers are fixed is going to witness a landmark change as the Union government has proposed a set of rules which were adopted while setting the minimum wages for its own officials by the Seventh Pay Commission.

As a result, the minimum wage for workers is set to go up in the next three months, a senior labour and employment ministry official said, requesting anonymity.

For the first time, the labour and employment ministry has made a set of rules prescribing the way in which it will fix the minimum wages and it will cover cost of workers’ family on children education, medical requirements and recreation, in a bid to remove arbitariness. This is a part of the draft Code on Wages (Central) Rules, 2019, for which public comments have been invited by the labour ministry.

The rules are a part of the Code on Wages Act, 2019, passed by Parliament and notified in August this year, which proposed to give minimum wages to all workers across the country, instead of a set of industries.

The Central government has proposed to follow in toto the Supreme Court’s advisory in a ruling in 1992, popularly known as the Raptakos judgment, and recommendations of the 15th Indian Labour Conference (ILC) made in 1957. 

According to the SC advisory, which will be adopted by the Centre, minimum wages for workers are to be fixed in a manner that 25 per cent of it constitutes “expenditure for children education, medical requirement, recreation and expenditure on contingencies.”

Along with it, while setting the minimum wage, the government will keep in mind the expenditure of a worker’s family (of three) towards food, clothing, house rent, fuel and electricity, as per the draft rules.

Most of the components in the minimum wage are proposed to be linked to expenditure on food and clothing. For instance, housing and rent expenditure will constitute 10 per cent of food and clothing expenses. The cost of expenditure by a worker’s family on food with net intake of 2,700 calories per day for three family members and clothing (66 meters cloth per year for the whole family) will be the most important criteria, which is being followed in present day practice as well. Fuel and electricity cost would constitute 20 per cent of the minimum wage.

To be sure, these proposed norms will apply only to railways, mines, oil, aviation, telecom, banking and insurance sectors along with central public sector enterprises, government-owned ports and private contractors engaged by the central government. The norms for all set of industries will be notified by respective state governments, as per the Code on Wages Act, 2019.

The manner of calculating the minimum rate of wages was not prescribed in the government rules so far and has been a bone of contention for both employers and employees, often leading to litigation. For various reasons, including court cases, it took Delhi government more than three years to notify hiking minimum wage for workers by 37 per cent after it had kick-started the process in August 2016.

But there are two schools of thought to the government’s way of fixing the minimum wage in its fresh approach: go with a renewed approach as per present day realities, keeping economic factors in mind, versus stick to the historical norms which are sufficient and were not followed in letter and spirit till date.

“The approach followed by the central government in the draft rules is the right way to go. This was followed by the Seventh Pay Commission, too. It’s a progressive way to recognise that the minimum wage determination process do not change because of time and space. It will definitely lead to hike in minimum wage,” K R Shyam Sundar, labour economist and professor of Human Resources Management at XLRI said.

However, Anoop Satpathy, fellow at V V Giri National Labour Institute (VVGNLI) was of the view that the draft rules were not in tune with the present day realities and didnt factor in socio-economic considerations and labour market situations.

“The parameters of fixing the minimum wage should be contemporary and evidence-based. It should be de-linked to food component and non-food expenses should be based on actual expenditure made by workers. Economic considerations including labour productivity and impact on employment should also be key factors,” Satpathy, who had headed government-appointed expert committee on fixation of minimum wage, said.

The Seventh Pay Commission's recommendations, accepted by the central government in 2016, had considered the Raptakos ruling of the Supreme Court and the ILC recommendations of 1957 while hiking the minimum wage from Rs 7,000 to Rs 18,000.

Draft Code on Wages Rules, 2019

  • Government frames draft rules for fixing minimum wage for railways, mines, oil, aviation and telecom, banking and insurance sectors along with central public sector enterprises, government-owned ports & private contractors engaged by the central government
  • For the first time, 25 per cent of minimum wage component will include expenses of a worker's family on education of children and medical needs
  • States are free to adopt the rules framed by the Centre for other set of industries
  • The minimum wage rates will now be fixed by a committee, keeping in mind the formula prescribed in the draft rules
  • The government will also set a national floor for minimum wages to be followed by states compulsorily
  • According to a government official, the whole process of fixing the fresh set of minimum wages will take about 3 months
  • Minimum wages to vary across skill sets – unskilled, semi-skilled, skilled and highly-skilled and geographies – metro, non-metro and rural areas

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