Minimum Wages: Fixation, Components and the Floor Wage

In one line

Every employer must pay at least the minimum rate the appropriate Government has notified; that rate is fixed after a committee enquiry or a published proposal, must be revised about every five years, and can never be lower than the national floor wage the Central Government sets.

In exam wording: section 5 of the Code on Wages 2019 provides that no employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government; section 6 requires the appropriate Government to fix minimum rates for time work and for piece work and permits fixation by the hour, the day or the month; section 7 states the components a minimum rate may consist of; section 8 prescribes the committee method and the notification method of fixing and revising rates, and requires review or revision ordinarily at intervals not exceeding five years; section 9 requires the Central Government to fix a floor wage taking into account minimum living standards, below which no minimum rate may fall; and sections 10 to 14 deal with short working days, two or more classes of work, piece work, hours of work, and overtime at not less than twice the normal rate.

Why the law has this at all

A wage is fixed by a bargain, and Module I explained why that bargain is not between equals. Where labour is plentiful and the worker cannot wait, the market clears at a wage nobody could live on, and it does so without anybody behaving unlawfully.

A minimum wage is the answer, and it is a blunt one. The State fixes a floor and forbids any bargain below it. That interferes with freedom of contract, and it is justified on the ground that the freedom was illusory.

The 1948 Act accepted the principle and then hedged it, and the hedge is what the Code removes. Minimum wages applied only to scheduled employments, that is those listed in the Act's Schedule. The list grew over the years, but it never covered everything, and a worker in an unlisted employment had no minimum wage at all.

The Code makes the principle general. Section 5 says simply that no employer shall pay any employee less than the notified minimum rate. There is no schedule and no category.

And it adds something the 1948 Act never had: a national floor. Section 9 requires the Central Government to fix a floor wage by reference to the minimum living standards of a worker, and no State's minimum rate may go below it. Under the old scheme each State fixed its own rates with nothing underneath them, and the rates in the poorer States were correspondingly low.