In the ever-evolving landscape of Indian employment law, a new term is taking centre stage: the Floor Wage. As India shifts from the legacy of the Minimum Wages Act, 1948, to the modern Code on Wages, 2019 (implemented as part of the four new Labour Codes), understanding this concept is no longer optional; it’s a business imperative.
Think of it as the “Universal Baseline” that ensures no worker in India, whether in a high-rise in Mumbai or a farm in rural Bihar, falls below a certain standard of living.
What is the Floor Wage?
Under Section 9 of the Code on Wages, 2019, the Central Government is empowered to fix a “Floor Wage.” Unlike the previous regime where states could set their own baselines independently, the Floor Wage acts as a mandatory baseline for the entire country (or specific regions).
- The Intent: To ensure a minimum living standard across India.
- The Criteria: The Floor Wage is determined after consultation with the Central Advisory Board, using socio-economic benchmarks such as household consumption units, nutrition, clothing, housing, and education/medical needs. These criteria are based on expert committee recommendations rather than being spelled out directly in the statute.
How the Two-Tier System Works
Imagine the Floor Wage as the foundation of a building and the State Minimum Wage as the floor you actually walk on.
- The Center Sets the Floor: The Central Government notifies the Floor Wage after consulting the Central Advisory Board.
- States Build Upwards: Each State Government (the “Appropriate Government”) sets its own Minimum Wage.
- The Rule of Supremacy: The State Minimum Wage cannot be lower than the Floor Wage.
- The Anti-Regression Clause: If a state’s current minimum wage is already higher than the new Floor Wage, they cannot reduce it.
Example
For illustration, suppose the Central Government sets the National Floor Wage at ₹500 per day:
- Scenario A: State X currently has a minimum wage of ₹450. They must increase it to at least ₹500.
- Scenario B: State Y currently has a minimum wage of ₹650. They cannot drop it to ₹500; it must remain at ₹650 or higher.
(Note: These figures are hypothetical examples for clarity, not official notifications.)
Key Compliance Challenges for Employers
While the Floor Wage simplifies the baseline, it introduces new “Compliance Challenges” that HR departments need to navigate:
- Regional Variations: The Center can set different floor wages for different geographical areas (e.g., metropolitan vs. rural). Employers must track which “Floor” applies to their specific office location.
- Universal Applicability: Unlike the old laws that only covered scheduled employments (certain industries), the new Code applies to all employees in both organized and unorganized sectors.
- Revision Cycles: The Floor Wage will be reviewed and revised at regular intervals (likely every five years), requiring periodic payroll audits.
- Implementation Timelines: Employers must monitor both central and state notifications to ensure compliance with the latest applicable rates.
Disclaimer: This content is provided for educational and informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy of the information based on the Code on Wages, 2019 and subsequent notifications up to 2026, labour laws are subject to state-specific rules and judicial interpretations. Employers should verify both central and state notifications before applying wage structures. Readers are advised to consult with a qualified legal professional before making any business or compliance decisions.