In a sign that the Indian government intends to get serious about overhauling the country’s labour laws, it is proposing to introduce a Wage Code Bill during Parliament’s winter session to guarantee minimum wages across the country.
The draft Bill also aims to streamline how wages are defined by combining four wage-related laws – the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. The move is in line with the government’s stated objective of improving India’s position in the World Bank’s annual ease-of-doing-business assessment rankings.
In total, it plans to combine 44 labour-related Acts into four codes, which will cover wages, industrial relations, social security and working conditions. Despite having a myriad number of labour laws, India does not have any national minimum wage legislation in force today. Instead each state decides on its own minimum wage rules – a scenario that can make it difficult for businesses to determine their exact costs.
The situation also means that informal workers do not receive social security or health benefits, while the implementation of minimum wage laws likewise tends to be lax.
But of the country’s total workforce of 400 million, estimates show that less than 10% work in the formal, or organised, economy. In other words, the vast majority of India’s workers are employed in the informal sector and have no access to basic employment rights.
In the above figure, we see the gap between regular workers (employed in the formal, organised sector) and workers in the informal sector.
“To make proper use of the country’s demographic dividend, the government will need to train workers effectively and also build out appropriate infrastructure.”
Draft national policy for domestic workers
Domestic workers are a prime example of members of the informal economy. Due to their large numbers, the Ministry of Labour and Employment is currently working on a draft national policy to provide them with more protection.
It is proposing to set a minimum salary of US$135 (Rs 9,000) per month for full-time household helpers, along with other benefits including social security coverage and mandatory leave.
The draft also sets out provisions against sexual harassment and bonded labour, and suggests that workers should be provided with maternity leave as well as compulsory paid leave of 15 days a year. Domestic workers should also be given the right to a safe working environment, a system for redressing grievances and the right to pursue education, the policy states.
Curbing potential abuse
These proposals are in line with International Labour Organization standards, to which India has already signed up. Also recommended is the setting of minimum monthly wages for unskilled, semiskilled, and highly-skilled categories of domestic workers.
The draft policy has likewise attempted to curb potential abuse by job placement agencies. Therefore, such agencies will be required to provide workers with social security coverage including medical and health insurance, and will only be allowed to charge them a one-off 15-day salary payment.
Studies show that India has a total of 30 million domestic workers in both the formal and informal economy. As a result, if implemented, the proposed policy would be of significant benefit to them.
States leading the way
Paving the way for the rest of the country, the western state of Rajasthan recently implemented its own minimum wage policy. The state government fixed a minimum wage of US$85 (Rs 5,642) for domestic workers per month, which came into effect in January 2016.
To compensate for any overtime, employers will have to pay double the minimum wage per hour for each hour worked beyond the limits of a normal eighthour working day. Violators will face prosecution and workers will be eligible for compensation of up to ten times the differential between the minimum wage level and the amount they actually received.
In September, Assam also followed Rajasthan’s example. It released a draft law setting the proposed minimum wage at US$0.4 (Rs 30) per hour for part-time employment and US$108 (Rs 7,200) per month for full-time work.
Domestic workers will likewise be entitled to a Variable Dearness Allowance (VDA), which is usually only available to public sector employees. The VDA is based on the Consumer Price Index and is adjusted in line with it every six months.
Skills deficits
The Indian workforce is expected to reach 900 million by 2020. But to make proper use of the country’s demographic dividend, the government will need to train workers effectively and also build out appropriate infrastructure.
For example, some studies show that around 80% of engineers in India are unemployable. This means that domestic and foreign companies have to train fresh graduates for up to a year before they can start work. Tata, a large multinational conglomerate based in India, already does this, as does US-based aircraft manufacturer, Boeing.
In order to address the country’s skills deficit, the government has launched two skills development programs at a cost of around US$3.29 billion to help train up its workforce by 2020. For instance, analysts estimate that India will need around 90,000 aerospace and defense factory workers in the coming decade.
In addition, recruitment agencies have said that the country faces talent shortages in relation to IT personnel, accounting & finance staff, project and sales managers, customer service representatives, technicians, quality controllers, and buying & selling procurement staff, among others.
Into the future
In order to transform India into the manufacturing and economic powerhouse it wants to become, the government must reform the country’s British colonial era labour laws. It also needs to invest in better quality educational and vocational institutions, while improving on other initiatives such as apprenticeship schemes.
Although the draft laws outlined above are headed in the right direction, informal workers still make up a significant proportion of the Indian workforce. As a result, the government will need to prioritise equipping such workers with the right vocational skills while also ensuring they receive the benefits due to them. This situation remains a challenge.
This article was first published on Asia Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.
In a sign that the Indian government intends to get serious about overhauling the country’s labour laws, it is proposing to introduce a Wage Code Bill during Parliament’s winter session to guarantee minimum wages across the country.
The draft Bill also aims to streamline how wages are defined by combining four wage-related laws – the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. The move is in line with the government’s stated objective of improving India’s position in the World Bank’s annual ease-of-doing-business assessment rankings.
In total, it plans to combine 44 labour-related Acts into four codes, which will cover wages, industrial relations, social security and working conditions. Despite having a myriad number of labour laws, India does not have any national minimum wage legislation in force today. Instead each state decides on its own minimum wage rules – a scenario that can make it difficult for businesses to determine their exact costs.
The situation also means that informal workers do not receive social security or health benefits, while the implementation of minimum wage laws likewise tends to be lax.
But of the country’s total workforce of 400 million, estimates show that less than 10% work in the formal, or organised, economy. In other words, the vast majority of India’s workers are employed in the informal sector and have no access to basic employment rights.
In the above figure, we see the gap between regular workers (employed in the formal, organised sector) and workers in the informal sector.
“To make proper use of the country’s demographic dividend, the government will need to train workers effectively and also build out appropriate infrastructure.”
Draft national policy for domestic workers
Domestic workers are a prime example of members of the informal economy. Due to their large numbers, the Ministry of Labour and Employment is currently working on a draft national policy to provide them with more protection.
It is proposing to set a minimum salary of US$135 (Rs 9,000) per month for full-time household helpers, along with other benefits including social security coverage and mandatory leave.
The draft also sets out provisions against sexual harassment and bonded labour, and suggests that workers should be provided with maternity leave as well as compulsory paid leave of 15 days a year. Domestic workers should also be given the right to a safe working environment, a system for redressing grievances and the right to pursue education, the policy states.
Curbing potential abuse
These proposals are in line with International Labour Organization standards, to which India has already signed up. Also recommended is the setting of minimum monthly wages for unskilled, semiskilled, and highly-skilled categories of domestic workers.
The draft policy has likewise attempted to curb potential abuse by job placement agencies. Therefore, such agencies will be required to provide workers with social security coverage including medical and health insurance, and will only be allowed to charge them a one-off 15-day salary payment.
Studies show that India has a total of 30 million domestic workers in both the formal and informal economy. As a result, if implemented, the proposed policy would be of significant benefit to them.
States leading the way
Paving the way for the rest of the country, the western state of Rajasthan recently implemented its own minimum wage policy. The state government fixed a minimum wage of US$85 (Rs 5,642) for domestic workers per month, which came into effect in January 2016.
To compensate for any overtime, employers will have to pay double the minimum wage per hour for each hour worked beyond the limits of a normal eighthour working day. Violators will face prosecution and workers will be eligible for compensation of up to ten times the differential between the minimum wage level and the amount they actually received.
In September, Assam also followed Rajasthan’s example. It released a draft law setting the proposed minimum wage at US$0.4 (Rs 30) per hour for part-time employment and US$108 (Rs 7,200) per month for full-time work.
Domestic workers will likewise be entitled to a Variable Dearness Allowance (VDA), which is usually only available to public sector employees. The VDA is based on the Consumer Price Index and is adjusted in line with it every six months.
Skills deficits
The Indian workforce is expected to reach 900 million by 2020. But to make proper use of the country’s demographic dividend, the government will need to train workers effectively and also build out appropriate infrastructure.
For example, some studies show that around 80% of engineers in India are unemployable. This means that domestic and foreign companies have to train fresh graduates for up to a year before they can start work. Tata, a large multinational conglomerate based in India, already does this, as does US-based aircraft manufacturer, Boeing.
In order to address the country’s skills deficit, the government has launched two skills development programs at a cost of around US$3.29 billion to help train up its workforce by 2020. For instance, analysts estimate that India will need around 90,000 aerospace and defense factory workers in the coming decade.
In addition, recruitment agencies have said that the country faces talent shortages in relation to IT personnel, accounting & finance staff, project and sales managers, customer service representatives, technicians, quality controllers, and buying & selling procurement staff, among others.
Into the future
In order to transform India into the manufacturing and economic powerhouse it wants to become, the government must reform the country’s British colonial era labour laws. It also needs to invest in better quality educational and vocational institutions, while improving on other initiatives such as apprenticeship schemes.
Although the draft laws outlined above are headed in the right direction, informal workers still make up a significant proportion of the Indian workforce. As a result, the government will need to prioritise equipping such workers with the right vocational skills while also ensuring they receive the benefits due to them. This situation remains a challenge.
This article was first published on Asia Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about the firm can be found at: www.dezshira.com.
