India’s New Code on Wages Clarifies a Chaotic Situation

By on March 26, 2020

Executive Summary of an article written by
Vijita Verma
Infosys Limited

With the ongoing trade war between China and the United States, a number of U.S. companies are gradually shifting their business operations to set up branch offices and working centers in India. 

The 2019 Code on Wages will affect U.S. companies who currently have operations in India, and those who intend to start new operations there. It does away with multiple filing requirements and affects cash flows by relaxing/restructuring social security contributions by employers.

The Wage Code came into effect in August 2019, and repeals several previous labor laws. 

Some of the key changes are abolition of wage ceiling and economic sector distinctions; uniform applicability of the provisions of timely payment of wages to employees in the organized sector as well as certain unorganized workers; a single definition of “wages”; a new concept of “floor wages” fixed by the central government, bringing consistency across different state governments and employers; and a mandatory bonus in the event the employee is drawing a minimum amount of wages and has worked for 30 days in an accounting year, irrespective of whether the employer has any allocable surplus during the previous accounting year.

The Code has been welcomed by employees across India by addressing issues of gender-based disparity, ensuring fair and timely payment of wages and settlement post termination or resignation. It is seen as a definite positive step towards labor reform, one that has been long awaited. Only time will determine its true merit.

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