Govt begins national floor wage exercise. What changes for workers?

The national floor wage is intended to create a common minimum wage benchmark across India while allowing states to account for regional differences

The government has started the process of fixing India's first statutory national floor wage under the Code on Wages, 2019, nearly six years after Parliament passed the law. The labour ministry has begun consultations with states and is preparing to constitute the Central Advisory Board.

 

India has, until now, followed a National Floor Level Minimum Wage (NFLMW), a non-binding benchmark that states were advised to consider while fixing minimum wages. Once the relevant provisions of the Code on Wages are implemented, the floor wage will become part of the statutory wage framework.

 

Here's what it means.

What is a national floor wage?

A national floor wage is the “minimum benchmark” fixed by the Union government below which no state or Union Territory can set its statutory minimum wage.

 

 

Section 9 of the Code on Wages, 2019 empowers the Union government to fix a floor wage after taking into account the minimum living standards of workers. The law also allows different floor wages for different geographical areas.

 

It further provides that if a state's existing minimum wage is already higher than the floor wage, the state cannot reduce it to match the national floor.

 

The floor wage is, therefore, not the wage every worker will receive. Instead, it sets the legal minimum benchmark that states must follow while fixing their own minimum wages.

How is it different from a state's minimum wage?

The national floor wage and minimum wages serve different purposes.

 

The floor wage is fixed by the Union government and acts as the lowest permissible benchmark across the country.

 

The minimum wage is fixed by the appropriate government, either the Centre or the states, for workers under their respective jurisdictions. Under the Code on Wages, governments may classify minimum wages based on skill levels, geographical areas and, where necessary, the nature of work.

 

This means minimum wages will continue to vary across states because living costs, labour markets and economic conditions differ. However, no state will be allowed to notify a minimum wage below the national floor.

Why did India earlier have a National Floor Level Minimum Wage?

India introduced the concept of the National Floor Level Minimum Wage in 1991 after the National Commission on Rural Labour recommended a national benchmark to reduce wide differences in wages across states.

 

Unlike the proposed floor wage under the Code on Wages, the earlier National Floor Level Minimum Wage was only an advisory benchmark. States were requested to ensure that their minimum wages did not fall below it, but there was no statutory requirement to do so.

 

The government revised the benchmark periodically to reflect changes in inflation. The last revision took effect on July 1, 2015, when the National Floor Level Minimum Wage was increased from ₹137 to ₹160 per day, following an increase in the Consumer Price Index for Industrial Workers (CPI-IW).

What changes under the Code on Wages?

The biggest change is that the floor wage moves from an advisory concept to one recognised in law.

 

The Code on Wages requires the Central government to fix the floor wage after considering the minimum living standards of workers and consulting state governments. It may also seek the advice of the Central Advisory Board before notifying the floor wage.

 

The Code also expands the coverage of minimum wages. Under the earlier Minimum Wages Act, 1948, minimum wages largely applied to scheduled employments. The Code extends the minimum wage framework to all employees and requires governments to ordinarily review or revise wage rates at intervals not exceeding five years.

Why is the labour ministry conducting this exercise now?

Although Parliament enacted the Code on Wages in 2019, many of its provisions required rules, consultations and coordination with states before implementation.

 

Business Standard reported that the labour ministry has now begun consultations with states and is preparing to constitute the Central Advisory Board. The Board's advice, along with inputs from state governments, will help determine the floor wage and whether different geographical regions require different benchmarks.

 

The exercise also comes amid changing inflation levels and differences in living costs across states, factors that the Code allows the government to consider while fixing the floor wage.

Will workers across India receive the same minimum wage?

No.

 

The Code does not create a single national minimum wage.

 

Instead, it creates a national floor wage, below which states cannot go. States will continue to notify their own minimum wages based on local conditions, industries, skill levels and geographical differences. A state that already pays higher minimum wages can continue to do so.

 

In practice, workers in states with higher living costs are likely to continue receiving higher statutory minimum wages than workers elsewhere.