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A guide on Work and Wages in India


It can be a complicated process for foreign businesses to comprehend and account for national minimum wages in India because they differ by state and are further divided into categories based on geography, industry, skill level, and work being performed.

The Minimum Wages Act of 1948 has long held the primary legal authority on minimum wage rates. The 2019 Code on Wages Act, announced in August, now applies to this situation. The Equal Remuneration Act of 1976, the Minimum Wages Act of 1948 and the Payment of Wages Act of 1936 are all superseded by the Code on Wages Act.

Employers can only pay employees the legally mandated national-level minimum wage under the new wage code. Furthermore, the federal government and individual states must examine and adjust minimum wages no more frequently than once every five years. This blog will examine the facets of labour and salary structure in India, including the kinds of minimum daily wage rates and the rights and benefits employees are entitled to.

The Stage of Work and Wages in India

The Indian economy is characterised by industry-wise wage norms, with a significant portion of the workforce employed in unorganised sectors such as agriculture and small-scale manufacturing. According to a report by the International Labour Organization (ILO), around 93% of the country’s workforce is employed in the informal sector. Low daily wages, lack of social, poor working conditions, and security benefits characterise this sector.

The agriculture sector is the largest employer in the country, with around 50% of the workforce engaged in agricultural activities. However, farmers in India face a range of challenges, including low productivity, limited access to technology and credit, and poor market infrastructure. As a result, many farmers earn low wages and need help to improve their living standards.

The manufacturing sector is another major employer in India, with approximately 15% of the workforce engaged in manufacturing activities. However, the sector is characterised by poor salary structure and working conditions, with many workers earning less than the minimum wage. The lack of job security and social security benefits is also a significant concern for workers in the manufacturing sector.

Minimum wage calculation process in India

The government calculates the minimum wage considerations code in India with the help of the Minimum Wages Act of 1948. The Act lays out the guidelines for determining the national minimum wage, which includes factors such as the cost of living, the worker’s skill level, and the work’s nature.
Determining the minimum monthly wage begins with the chief labour commissioner surveying to assess the price of living in different regions of the country. This survey considers the cost of food, clothing, housing, and other necessities. The survey results calculate the minimum wage for different regions of the country.

The next point in the key labour legislation is to consider the worker’s skill level. The government classifies workers into different skill levels: unskilled workers, gig workers, remote workers, inter-state migrant workers, and skilled workers. The salary structure for each skill level is determined based on the cost of living and the nature of the work.

How to understand labour costs in India?

A minimum wage plan of about INR 178 (USD 2.16) per day, or about INR 5,340 (about USD 65) for a monthly wage period, makes India the most cost-effective place in Asia to find workers. This is the bare minimum salary, although salaries vary by location and other factors.

Recent reports indicate that the median monthly income in India is INR 32,840 (USD 422). Compared to other Southeast Asian economies, including Vietnam (USD 160), Thailand (USD 220), and Malaysia (USD 258), Picodi found that India’s average minimum salary in 2021 was only INR 7,753 (USD 95).

According to most media reports, the Minimum Wages Act of India sets the minimum wage at INR 2,250 per month and the highest income at INR 70,000 per month. However, the typical wage in India is just about INR 29,400 (approximately USD 377.82). Salaries are said to be greater in highly trained professional service industries like software and consultancy work than in manufacturing and construction.

The World Bank estimates that more than 471 million people actively seek employment in India. As a result, many state governments, including Andhra Pradesh, provide tax incentives to businesses that create jobs within the state.

Essential Provisions under Minimum Wages Act

The following list includes the key elements of the Minimum Wages Act of 1948:

1. Minimum Rates of Wages

The minimum wages that employers must pay to employees must be determined by the relevant government, according to Section 3 of the Act. This Section does state that the pay rate will be updated every five years, though. The government must periodically change a base pay rate and a special allowance to reflect the employees’ cost of living.

2. Advisory Board

The appropriate government is required by Section 7 to form advisory boards to oversee the work of the committees and subcommittees indicated in Section 5. It must also advise the committees on setting and amending minimum wage rates.

3. Committees

The members of committees, subcommittees, and advisory boards must be appointed by the relevant government, according to Section 9 of the Act. These committees must have equal representatives from employers and workers participating in planned employment.

4. Fixing Daily Work Hours

When an employee puts in more time than the allotted number of hours that make up a typical workday, the employer is responsible for paying him for each hour or portion of an hour at the overtime rate set under this Act or any applicable law currently in effect.

5. Maintainence of Registers and Records

Every employer is required by Section 18 of the Minimum Wages Act, 1948, to keep records and registers detailing the number of workers under his employ, the job performed by those workers, the wages paid to those workers, and the receipts supplied to those workers.

Challenges faced by Workers in India

1. Low Wages

India’s economy is growing, but the average income is still low, and many employees make less than the minimum wage. This is especially true for workers in the unorganised sector, who are not covered by labour regulations.

2. Poor Working Conditions

Many workers in the unorganised sector frequently operate in hazardous environments. Many employees in the formal sector are also undertrained to handle dangerous materials and must be given proper safety equipment.

3. Lack of Job Security

Many workers in the unorganised sector are not covered by labour regulations and are, therefore, quickly and abruptly fired. Many formal sector employees also work under contracts and are therefore ineligible for social security benefits, including pensions, health insurance, and gratuities.

Minimum wage factors impacting India

1. Ability to Pay

The wage code rate depends on an industry’s ability to pay basic salaries; if a company is losing money, it could not be able to pay higher wages. A successful business may offer higher wages to entice qualified candidates and skilled labourers. Workers receive better pay during a prosperous period because management wants to distribute the profits with labour.

2. Demand and Supply

The demand and supply dynamics in the labour market, which operate at the local and national levels, affect the wage rates. When there is a greater need for a certain kind of skilled labour and less supply, salaries will rise. On the other hand, if there is a more excellent supply than there is a need, people will be accessible at lower salary rates as well.

3. Prevailing Market Rates

The industry standard or similar businesses nearby will be the foundation for setting wage rates. When a unit or company offers little compensation, employees quit anytime they find work elsewhere. The company can only keep good employees for a short time.

4. Cost of Living

In many businesses, wage levels correlate to the company’s cost of living, ensuring workers are paid a fair basic salary. The cost of living and annual returns are significant factors in determining wage rates. Workers will take a salary that could provide them with a minimal living level.

A wage adjustment will also be made based on the price index number, which refers to relative price changes between the two periods or places. Workers will demand higher wages when the price index rises and reduces their ability to buy goods and services. Regular pay raises may not be necessary if prices remain steady.

5. Indian Government Regulations

The central government may enact legislation establishing a minimum basic salary to improve working conditions for workers. This might guarantee them a minimal standard of living. Employers aim to take advantage of workers by giving them low salaries in less developed nations where the negotiating power of the labour force is weak.

The Minimum Wages Act of 1948 in India allows the state governments to set the minimum wages for workers. Similar to this, numerous other significant pieces of legislation adopted by the government aid in raising wages.

Wrapping up

Many workers in India are paid poor basic salaries and are subjected to unsafe working conditions, yet the issue of work and wages continues to spark debate. Although the economy is expanding, many Indian employees still lack access to social security, and the average income is poor. Low salaries, unsafe working conditions, insecurity in the workplace, and a lack of social security benefits are just some of the problems that Indian workers face. The government and businesses in India need to address these wage codes so that employees can earn a living wage and qualify for social protection.

There is a lot of paperwork and spreadsheets you have to work on as an HR to regulate with the Wages Act of India fully. sumHR is dedicated to changing this reality! We are here to support HR teams striving for HR empowerment and success. Visit us today!

Frequently Asked Questions

1. Who is covered by the Act?

People who work in specific classes of labour or in scheduled employments for which minimum wages have been set are covered by the Act

2. What is a minimum wage?

Wages periodically established or changed by the government for scheduled employment are minimum wages. They consist of the basic wage plus variable dearness allowance.

3. Who are the Minimum Wage Act inspectors?

Under the aforementioned Act, officers with the ranks of assistant labour officers, assistant commissioners of labour, deputy commissioners of labour, etc., are inspectors.

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