Minimum Wages: Fixation, Components and the Floor Wage

Some words this chapter uses

Minimum rate of wages is the rate the appropriate Government notifies under section 6, below which nobody may be paid.

Floor wage is the national minimum under section 9, below which a State's minimum rate may not be fixed.

Time work is work paid by reference to time: by the hour, the day or the month. Piece work is work paid by reference to output.

Cost of living allowance is the allowance in section 7(1)(a), adjusted to accord as nearly as practicable with the variation in the cost of living index number.

Normal working day is the number of hours the appropriate Government fixes under section 13(1)(a), inclusive of specified intervals.

Overtime rate is the rate for hours worked in excess of a normal working day, fixed by section 14 at not less than twice the normal rate.

Section 5: the obligation

No employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government.

Read how short it is, because the brevity is the point. There is no qualifying employment, no threshold of establishment size, no exception. Every employer as defined in section 2(l), every employee as defined in section 2(k), which includes managerial and administrative work and carries no wage ceiling.

And "wages" means what section 2(y) says, so the fifty per cent. rule in its first proviso applies here: an employer cannot satisfy section 5 by paying a nominal basic wage and calling the rest an allowance, because the excess over one-half is added back into wages.

Section 6: what is fixed, and how it is expressed

6(1): subject to section 9, the appropriate Government shall fix the minimum rate of wages payable to employees in accordance with section 8. The obligation is mandatory, and it is expressly subject to section 9, the floor wage.

6(2): it shall fix a minimum rate (a) for time work; or (b) for piece work.

6(3): where employees are employed on piece work, the appropriate Government shall also fix a minimum rate of wages for securing such employees a minimum rate of wages on a time work basis.

Sub-section (3) is the protection for piece workers and it should be explained. A piece rate that looks generous per unit is worthless if the work available is thin or the material is poor, because the worker's earnings depend on output he may not be able to achieve. Fixing a time-work equivalent guarantees him a floor measured by the hours he has given rather than the pieces he has finished.

6(4): a minimum rate on a time work basis may be fixed by the hour, by the day, or by the month.

6(5): where rates are fixed by the hour, day or month, the manner of calculating the wages shall be as prescribed.

Section 7: what a minimum rate may consist of

A minimum rate fixed or revised under section 8 may consist of:

• (a) a basic rate of wages and an allowance adjusted, at such intervals and in such manner as the appropriate Government directs, to accord as nearly as practicable with the variation in the cost of living index number applicable to those workers, called the cost of living allowance; or
• (b) a basic rate of wages with or without the cost of living allowance, and the cash value of concessions in respect of supplies of essential commodities at concession rates, where so authorised; or
• (c) an all-inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of the concessions, if any.

7(2): the cost of living allowance and the cash value of the concessions shall be computed by such authority as the appropriate Government appoints by notification, at such intervals and in accordance with such directions as it gives.

The three structures answer different situations. Structure (a) suits an economy with rising prices, because the allowance moves with the index without a fresh fixation. Structure (b) recognises concessional supplies, which matter where the employer runs a store or provides grain. Structure (c) is a single figure, simplest to administer and slowest to respond to inflation.

And note the indexation point. Under (a) and (b) the cost of living allowance is adjusted at intervals by a computing authority, so the rate keeps pace between revisions. Under (c) it does not, and the worker waits for the next revision under section 8.

Section 8: the procedure for fixing and revising

8(1): in fixing minimum rates for the first time, or in revising them, the appropriate Government shall either:

• (a) appoint as many committees as it considers necessary to hold enquiries and recommend in respect of the fixation or revision; or
• (b) by notification publish its proposals for the information of persons likely to be affected, and specify a date not less than two months from the notification on which the proposals shall be taken into consideration.

These are the two classic methods and they have names worth knowing. Method (a) is the committee method: an enquiry first, then a recommendation. Method (b) is the notification method: publish the proposal, let those affected respond, then decide. The Government chooses.

8(2): the composition of a committee. It shall consist of persons:

• (a) representing employers;
• (b) representing employees, equal in number to the employers' representatives; and
• (c) independent persons, not exceeding one-third of the total members.

That composition is the ILO's tripartite method again, and it is worth saying so: employers and employees in equal number, with a capped independent element. Compare the Grievance Redressal Committee in section 4 of the Industrial Relations Code, which is equally balanced between the two sides, and the ILO Conference itself, described in [The International Labour Organisation].

8(3): the decision. After considering the committee's recommendation, or all representations received before the specified date, the appropriate Government shall by notification fix or revise the minimum rates; and unless the notification otherwise provides, it shall come into force on the expiry of three months from the date of its issue.

Proviso: where the Government proposes to revise by the notification method, it shall also consult the concerned Advisory Board constituted under section 42.

Two points. The three-month default gives employers time to adjust payrolls, and the words "unless the notification otherwise provides" let the Government bring a rate in sooner where it chooses. And the proviso adds a consultation requirement to the notification method only, which balances the fact that the committee method already involves both sides.

8(4): the revision interval. The appropriate Government shall review or revise minimum rates of wages ordinarily at an interval not exceeding five years.

This is a real obligation and a common exam point. Under the 1948 Act rates in some employments went unrevised for very long periods, which made the minimum wage nominal. Section 8(4) fixes a maximum interval, softened by "ordinarily".

Section 9: the floor wage

9(1): the Central Government shall fix floor wage taking into account minimum living standards of a worker in such manner as may be prescribed. Proviso: different floor wages may be fixed for different geographical areas.

9(2): the minimum rates fixed by the appropriate Government under section 6 shall not be less than the floor wage; and if the minimum rate fixed earlier is more than the floor wage, the appropriate Government shall not reduce it.

9(3): the Central Government may, before fixing the floor wage, obtain the advice of the Central Advisory Board constituted under section 42(1) and consult State Governments in the prescribed manner.

Four things to say about this section, and it is the most examinable in the chapter.

It is new. The Minimum Wages Act 1948 had no national floor. Each appropriate Government fixed rates for its scheduled employments, and nothing sat underneath.

The criterion is stated in the section: minimum living standards of a worker. That is the first time an Indian statute has tied the wage floor to living standards in the operative provision rather than leaving it to policy.

It permits regional variation. The proviso allows different floor wages for different geographical areas, which recognises that living costs differ across India while keeping a floor everywhere.

And sub-section (2) works in both directions, which students miss. A State may not fix a minimum rate below the floor; and a State whose existing rate is above the floor may not reduce it to the floor. The floor is a floor, not a ceiling and not a target.

Note also that section 6(1) is expressly "subject to the provisions of section 9", so the relationship is built into the fixing power itself. And section 9(3) links the floor to the Central Advisory Board, whose provisions were the ones commenced early, in December 2020, as [The Code on Wages: Object, Application and Commencement] explains.

Sections 10 to 14: the working rules

These five sections deal with the practical situations that arise once a rate exists.

Section 10: less than a normal working day. An employee whose minimum rate has been fixed by the day, who works on any day for less than the requisite number of hours constituting a normal working day, is entitled to wages as if he had worked a full normal working day.

Proviso: he is not so entitled where (i) his failure to work is caused by his own unwillingness to work and not by the employer's omission to provide work; or (ii) in such other cases and circumstances as may be prescribed.

The section allocates the risk of a short day to the employer, which is right: the worker attended, and it is the employer who failed to provide a full day's work. The proviso returns the risk to the worker where the shortfall is his own doing.

Section 11: two or more classes of work. Where an employee does two or more classes of work to each of which a different minimum rate applies, the employer shall pay him, in respect of the time respectively occupied in each class, wages at not less than the minimum rate in force for that class.

So the calculation is done class by class, on the time spent in each, and the employer may not pay the lower rate for the whole day.

Section 12: piece work where only a time rate is fixed. Where a person is employed on piece work for which a minimum time rate and not a minimum piece rate has been fixed, the employer shall pay him wages at not less than the minimum time rate.

This is the companion of section 6(3) and it closes the obvious gap: an employer cannot escape the time rate by engaging the worker on piece terms.

Section 13: hours of work. Where minimum rates have been fixed, the appropriate Government may:

• (a) fix the number of hours of work constituting a normal working day, inclusive of one or more specified intervals;
• (b) provide for a day of rest in every period of seven days, to be allowed to all employees or a specified class, and for the payment of remuneration in respect of such days of rest;
• (c) provide for payment for work on a day of rest at a rate not less than the overtime rate.

13(2): those provisions apply only to such extent and subject to such conditions as may be prescribed to certain classes, namely employees engaged in an emergency which could not have been foreseen or prevented, and employees engaged in work of a preparatory or complementary nature which must necessarily be carried on outside the general working limits, among others.

Three features. The weekly day of rest is paid, by clause (b). Work on a rest day is paid at not less than the overtime rate, by clause (c). And clause (a)'s normal working day is what section 10 and section 14 both refer to, so section 13 has to be read before either.

Section 14: overtime. Where an employee whose minimum rate has been fixed by the hour, by the day, or by such longer wage period as may be prescribed, works on any day in excess of the number of hours constituting a normal working day, the employer shall pay him, for every hour or part of an hour so worked in excess, at the overtime rate, which shall not be less than twice the normal rate of wages.

Three points, and the third is often missed. The rate is not less than twice the normal rate, so it is a floor and a higher rate may be prescribed or agreed. It is calculated per hour or part of an hour, so a fraction of an hour is paid. And it depends on there being a normal working day fixed under section 13(1)(a), which is why the two sections belong together.

Note also the relationship with section 2(y). Overtime allowance is excluded from wages by clause (h) for most purposes, but the second proviso brings it back in for payment of wages and for equal wages to all genders. So overtime is not part of the base on which the minimum rate is tested, and it is part of what must be paid on time under Chapter III.

A worked example

The facts. A packaging establishment in Wada. The appropriate Government has fixed a minimum rate of 500 rupees for a normal working day of eight hours, on the all-inclusive basis in section 7(1)(c). The Central Government's floor wage for the area is 450 rupees a day.

Is the State's rate lawful? Yes. Section 9(2) requires only that the minimum rate be not less than the floor wage, and 500 exceeds 450.

Suppose the Central Government raises the floor wage to 520. The State must raise its minimum rate to at least 520, because section 9(2) forbids a rate below the floor. Suppose instead the Central Government lowers the floor to 400. The State may not reduce its rate from 500, because section 9(2)'s second limb forbids reducing a rate already fixed higher than the floor.

Meera attends and the employer has work for only five hours. Section 10: her rate is fixed by the day, and she is entitled to wages as if she had worked a full normal working day, that is 500 rupees, because the shortfall was the employer's omission to provide work.

Change it: Meera leaves after five hours because she does not wish to work on. The proviso to section 10 applies: her failure to work was caused by her own unwillingness and not by the employer's omission, so she is not entitled to a full day.

Rakesh does four hours of packing, for which the rate is 500 a day, and four hours of machine operation, for which the rate is 600 a day. Section 11: he is paid for the time occupied in each class at not less than the minimum rate for that class, so four hours at the packing rate and four at the operating rate, and the employer may not pay the whole day at 500.

Sunita is engaged on piece work, but only a minimum time rate has been fixed for her class. Section 12: the employer must pay her at not less than the minimum time rate, whatever her output. And where a piece rate has been fixed, section 6(3) required the Government to fix a time-work equivalent to secure her a floor.

Meera works eleven hours on a day when the normal working day is eight. Section 14: for the three excess hours, and for any part of an hour, she must be paid at the overtime rate, not less than twice the normal rate of wages. If the normal rate works out at 62.50 an hour, the overtime rate is at least 125 an hour, so at least 375 for the three hours in addition to her day's wage.

She is asked to work on her weekly day of rest. Under section 13(1)(b) the day of rest is itself remunerated where the Government has so provided, and under section 13(1)(c) work done on a day of rest is paid at not less than the overtime rate.

Finally, revision. The rate of 500 was fixed six years ago. Section 8(4) requires the appropriate Government to review or revise ordinarily at an interval not exceeding five years, so a revision is overdue. When it revises, it must use the committee method under section 8(1)(a) or the notification method under section 8(1)(b) with at least two months for representations, and if it uses the notification method it must also consult the concerned Advisory Board under the proviso to section 8(3). The revised rate comes into force on the expiry of three months from the notification unless the notification provides otherwise.

What this does NOT mean

It does not mean minimum wages apply only to listed employments. There are no scheduled employments in the Code; section 5 binds every employer as to every employee.

It does not mean the floor wage is the minimum wage. It is the floor below which a minimum rate may not be fixed, and a State fixing a higher rate may not reduce it.

It does not mean the floor wage is uniform across India. The proviso to section 9(1) permits different floor wages for different geographical areas.

It does not mean a short working day costs the worker. Section 10 entitles him to a full day's wages unless the shortfall is due to his own unwillingness.

It does not mean a piece worker has no floor. Section 6(3) requires a time-work equivalent to be fixed, and section 12 requires the time rate to be paid where no piece rate has been fixed.

It does not mean overtime is included in wages for every purpose. Clause (h) of section 2(y) excludes it, and the second proviso brings it back only for payment of wages and for equal wages to all genders.

It does not mean rates must be revised every five years exactly. Section 8(4) says ordinarily at an interval not exceeding five years.

Limits, criticism and amendments

The floor wage is the Code's most praised and most doubted provision. Praised, because a national floor tied to minimum living standards is something Indian law has never had. Doubted, because its content is left entirely to the manner prescribed and to the Central Government's judgment, and a floor set low enough would leave the position exactly as it was. The section fixes the criterion and not the method.

Universality without inspection is a limited gain. Extending minimum wages to every employment matters only if somebody enforces it, and the enforcement machinery in section 51, the Inspector-cum-Facilitator, is lighter than the inspectorate the 1948 Act had.

Section 8(4)'s "ordinarily" is a real weakness, since a Government that lets ten years pass has not clearly breached the section.

And the all-inclusive rate under section 7(1)(c) is not indexed, so where a Government chooses that structure the real value of the minimum wage falls between revisions.

Against that, three provisions are genuine advances: the abolition of scheduled employments, the floor wage, and the express requirement in section 6(3) and section 12 that a piece worker be secured a time-based floor.

Quick revision

• Section 5: no employer shall pay any employee less than the notified minimum rate. No scheduled employments.
• Section 6: the appropriate Government shall fix rates, subject to section 9; for time work or piece work; where piece work, also a time-work equivalent, 6(3); time rates by the hour, day or month.
• Section 7: a rate may consist of (a) basic rate plus cost of living allowance; (b) basic rate with or without that allowance plus the cash value of concessional supplies; or (c) an all-inclusive rate. A notified authority computes the allowance and the cash value.
• Section 8: fix or revise by the committee method, 8(1)(a), or the notification method with not less than two months for representations, 8(1)(b). Committee: employers, an equal number of employees' representatives, and independent persons not exceeding one-third. Notification comes into force on the expiry of three months unless it provides otherwise; the notification method also requires consultation of the Advisory Board. Review or revise ordinarily at intervals not exceeding five years.
• Section 9: the Central Government shall fix a floor wage by reference to minimum living standards; different floor wages for different geographical areas; no minimum rate below it, and no reduction of a higher rate already fixed; the Central Government may obtain the advice of the Central Advisory Board and consult State Governments.
• Section 10: works less than a normal working day, full day's wages, unless the failure is due to his own unwillingness. Section 11: two or more classes, each at its own rate for the time occupied. Section 12: piece work with only a time rate fixed, pay the time rate. Section 13: the Government may fix the normal working day, a paid weekly day of rest, and payment for work on a rest day at not less than the overtime rate. Section 14: overtime at not less than twice the normal rate, per hour or part of an hour.

Test yourself

1. State the obligation in section 5 and explain why it is wider than the law it replaced. Section 5 provides that no employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government. It is wider than the Minimum Wages Act 1948 because that Act applied minimum rates only to "scheduled employments", that is employments listed in its Schedule, so a worker in an unlisted employment had no statutory minimum wage. The expression appears nowhere in the Code, and "employee" in section 2(k) is defined widely enough to include skilled, semi-skilled and unskilled, manual, operational, supervisory, managerial, administrative, technical and clerical work, with no wage ceiling.

2. Explain the floor wage. Section 9(1) requires the Central Government to fix a floor wage taking into account the minimum living standards of a worker, in the prescribed manner, and permits different floor wages for different geographical areas. Section 9(2) provides that minimum rates fixed by the appropriate Government under section 6 shall not be less than the floor wage, and that where a minimum rate fixed earlier is more than the floor wage the appropriate Government shall not reduce it. Section 9(3) permits the Central Government, before fixing the floor wage, to obtain the advice of the Central Advisory Board constituted under section 42(1) and to consult State Governments. It is new: the Minimum Wages Act 1948 contained no national floor.

3. Describe the procedure for fixing minimum wages. Under section 8(1) the appropriate Government shall either appoint as many committees as it considers necessary to hold enquiries and recommend, or by notification publish its proposals for the information of persons likely to be affected and specify a date not less than two months from the notification on which the proposals shall be taken into consideration. Under section 8(2) a committee consists of persons representing employers, an equal number representing employees, and independent persons not exceeding one-third of the total. Under section 8(3), after considering the recommendation or the representations, the Government fixes or revises the rates by notification, which comes into force on the expiry of three months from its issue unless it otherwise provides; and where the notification method is used for a revision, it must also consult the concerned Advisory Board constituted under section 42. Under section 8(4) it must review or revise ordinarily at intervals not exceeding five years.

4. An employee attends but the employer has work for only half a day. What is he entitled to? Under section 10, an employee whose minimum rate has been fixed by the day and who works on any day for less than the requisite number of hours constituting a normal working day is entitled to receive wages for that day as if he had worked a full normal working day. The proviso denies that entitlement where his failure to work is caused by his own unwillingness to work and not by the omission of the employer to provide him with work, and in such other cases and circumstances as may be prescribed.

5. How is overtime paid? Under section 14, where an employee whose minimum rate has been fixed by the hour, by the day or by such longer wage period as may be prescribed works on any day in excess of the number of hours constituting a normal working day, the employer shall pay him for every hour, or part of an hour, so worked in excess at the overtime rate, which shall not be less than twice the normal rate of wages. The normal working day is fixed by the appropriate Government under section 13(1)(a). Section 13(1)(c) separately provides for payment for work on a day of rest at a rate not less than the overtime rate.

6. What protection does a piece worker have? Two provisions. Under section 6(3), where employees are employed on piece work the appropriate Government must also fix a minimum rate of wages for securing them a minimum rate on a time work basis, so that a worker whose output is limited by thin work or poor material still has a floor measured by the hours he has given. Under section 12, where a person is employed on piece work for which a minimum time rate and not a minimum piece rate has been fixed, the employer must pay him at not less than the minimum time rate, so an employer cannot escape the time rate by engaging the worker on piece terms.