November 30, 2025

Penalties and Prosecution Under the Code on Wages 2019: Consequences of Non-Compliance

The Code on Wages, 2019, represents a landmark reform in India’s labour law landscape by consolidating four major wage-related legislations into a unified framework. Receiving presidential assent on August 8, 2019, this legislation brings together the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. What sets this code apart is its comprehensive system of penalties and prosecution designed to ensure employer accountability. Rather than simply stating wage requirements, the Code on Wages 2019 establishes clear consequences for non-compliance escalating penalties, prosecution procedures, and enforcement mechanisms that make wage violations costly for employers.

Understanding the Regulatory Framework

The Code on Wages applies universally to all employees across both organized and unorganized sectors, marking a significant departure from the previous regime where coverage was limited by wage ceilings and employment categories [2]. The Central Government retains jurisdiction over wage-related matters for establishments in railways, mines, oil fields, major ports, air transport services, telecommunications, banking, insurance, and public sector undertakings. State governments, meanwhile, govern wage determinations for all other establishments. This bifurcated approach ensures that wage regulation remains responsive to both national priorities and regional economic conditions.

One of the Code’s foundational elements is the concept of a “floor wage” to be fixed by the Central Government, taking into account the living standards of workers. This floor wage serves as a baseline below which no state government can set minimum wages, thereby addressing regional disparities while maintaining a minimum standard of living across the country. The appropriate governments must revise and review minimum wages at intervals not exceeding five years, ensuring that wage rates keep pace with economic changes and cost of living adjustments.

The Inspector-cum-Facilitator System

A significant innovation in the Code is the replacement of traditional inspectors with “Inspector-cum-Facilitators” appointed under Section 51 [3]. This fundamental shift in enforcement philosophy recognizes that compliance is best achieved through a combination of advisory support and regulatory oversight rather than purely punitive measures. The Inspector-cum-Facilitator serves a dual role: facilitating employer compliance through guidance and advice while retaining the authority to conduct inspections and initiate enforcement actions when necessary.

The Code empowers the appropriate government to establish an inspection scheme that includes provisions for web-based inspections and electronic calling of information related to inspections. This technology-driven approach enhances transparency and reduces the scope for discretionary or arbitrary enforcement actions. The Inspector-cum-Facilitator system also provides for randomized selection of inspections, ensuring that enforcement efforts are distributed fairly and that no particular employer faces disproportionate scrutiny without justification.

Graded Penalty Structure under the Code on Wages 2019

Section 54 of the Code establishes a carefully calibrated penalty structure that distinguishes between different types of violations and their severity [4]. For the offense of paying an employee less than the amount due under the Wage on Code 2019 provisions, a first-time offender faces a fine that may extend to fifty thousand rupees. This penalty addresses what is perhaps the most direct form of non-compliance: underpayment of wages that employees are legally entitled to receive. The monetary penalty serves as both a punishment for the violation and a deterrent against future non-compliance.

The Wage on Code takes a significantly stricter stance on repeat violations. If an employer, having been convicted of underpayment, commits a similar offense within five years from the date of the first violation, the consequences escalate dramatically. The second and subsequent violations attract imprisonment for a term that may extend to three months, a fine that may extend to one lakh rupees, or both. This escalating penalty structure reflects the legislative intent to give employers a fair opportunity to correct their practices while imposing serious consequences for persistent non-compliance.

For contraventions of other provisions, rules, or orders under the Code that do not involve direct wage underpayment, the penalty framework is somewhat less severe but still substantial. A first offense attracts a fine that may extend to twenty thousand rupees. Again, the Code provides for escalation in cases of repeated violations. If an employer commits a similar offense within five years of the first violation, the penalty increases to imprisonment for up to one month, a fine extending to forty thousand rupees, or both. This differentiated approach recognizes that while all violations deserve consequences, some breaches are more directly harmful to workers than others.

The Code also addresses the specific issue of record-keeping failures. Section 54(2) provides that if an employer fails to maintain records or maintains them improperly, they face a fine that may extend to ten thousand rupees. Proper maintenance of employment records, wage registers, and related documentation is essential for enforcement authorities to verify compliance and for workers to establish their entitlements. By penalizing record-keeping failures separately, the Code underscores the importance of transparent documentation in wage administration.

Prosecution Procedures and Safeguards

Section 52 establishes the framework for cognizance of offenses under the Code [5]. A court will take notice of an offense based on a complaint filed by the appropriate government, an authorized officer, an affected employee, a registered trade union, or an Inspector-cum-Facilitator. This broad standing provision ensures that wage violations can be brought to judicial attention through multiple channels, preventing employers from escaping accountability due to institutional inertia or worker vulnerability. Metropolitan Magistrates or Judicial Magistrates of the First Class have jurisdiction to hear and decide cases under the Code.

A critical procedural safeguard appears in Section 54(3), which requires the Inspector-cum-Facilitator to provide employers with an opportunity to comply before initiating prosecution proceedings. Before filing charges for violations of provisions other than wage underpayment or record-keeping failures, the Inspector-cum-Facilitator must issue a written direction specifying a time period for compliance. If the employer rectifies the violation within the stipulated period, no prosecution will be initiated. This provision acknowledges that many compliance failures stem from ignorance, inadvertence, or administrative difficulties rather than willful disregard of legal obligations.

However, this opportunity for compliance is explicitly denied to repeat offenders. If an employer commits a violation of the same nature within five years of a first violation, the Inspector-cum-Facilitator must initiate prosecution without offering any opportunity to rectify the breach. This exception to the compliance-first approach ensures that employers who demonstrate a pattern of non-compliance cannot indefinitely avoid criminal sanctions by making last-minute corrections each time they are caught.

Corporate Liability and Compounding of Offenses

Section 55 addresses offenses committed by companies, establishing that when a corporate entity violates the Wage on Code, both the company and every person who was in charge of and responsible for the conduct of the company’s business at the time of the offense shall be deemed guilty [6]. This provision prevents corporate employers from shielding individual decision-makers behind the corporate veil. However, it also provides a defense: a person can avoid liability by proving that the offense was committed without their knowledge or consent and that they had exercised all due diligence to prevent the commission of the offense.

The Wage on Code, 2019 recognizes that not all violations warrant criminal prosecution to conclusion. Section 56 provides for the compounding of certain offenses by a Gazetted Officer specified by the appropriate government. Offenses punishable only with fines, or with fines along with imprisonment, may be compounded for an amount not exceeding half the maximum fine authorized for the offense. This compounding mechanism serves multiple purposes: it reduces the burden on the criminal justice system, provides employers with a path to resolve violations through administrative settlement, and ensures that enforcement resources can be directed toward more serious or persistent violations.

Administrative Penalties Under Section 53 of the Code on Wages 2019

Section 53 of the Code on Wages 2019 establishes an alternative enforcement mechanism through administrative officers [7]. The appropriate government appoints officers not below the rank of Under Secretary to the Government of India or equivalent State Government officers to impose penalties in certain specified cases. These officers have the authority to adjudicate violations related to wage underpayment, contraventions of other Code provisions, and record-keeping failures, as well as violations of Section 56(7) concerning the composition of offenses. This administrative adjudication system provides a faster, less formal alternative to criminal prosecution for straightforward violations where the facts are not in serious dispute.

Judicial Interpretation and Legal Precedents

While the Code on Wages, 2019, has not yet generated extensive case law due to its phased implementation, the judicial interpretation of its predecessor statutes provides valuable guidance. In the landmark case of Bijay Cotton Mills Ltd. v. State of Ajmer, the Supreme Court upheld the constitutional validity of minimum wage legislation against challenges under Article 19(1)(g) of the Constitution [8]. The Court held that restricting an employer’s freedom to pay whatever wages they choose does not constitute an unreasonable restriction on the freedom to carry on business, particularly when such restrictions serve the constitutional goal of ensuring a living wage for workers as envisaged in Article 43.

The Supreme Court’s judgment in Unichoyi v. State of Kerala further reinforced this principle, observing that in an underdeveloped economy facing large-scale unemployment, workers might accept starvation wages out of desperation [9]. The Court recognized that minimum wage legislation serves to protect vulnerable workers from exploitation arising from their weak bargaining position. This judicial philosophy underlies the penalty provisions in the Code on Wages: employers who violate wage protections are not merely breaching contractual obligations but are undermining constitutional values and exploiting economic power imbalances.

Balancing Compliance and Business Ease

The penalties and prosecution framework under the Code on Wages reflects a deliberate effort to balance strict enforcement with ease of doing business. Unlike some previous legislation, where even first-time violations could result in imprisonment, the Code generally reserves custodial sentences for repeat offenders or those who demonstrate persistent disregard for their legal obligations. This approach aligns with the broader objective of India’s labour law reforms: to create an environment where compliance is achievable and violations are addressed proportionately.

The requirement that Inspector-cum-Facilitators provide compliance opportunities before initiating prosecution reflects an understanding that employers, particularly small and medium enterprises, may sometimes struggle with the complexities of labour law compliance. By giving employers a chance to correct violations once they are identified, the Code encourages voluntary compliance and reduces the adversarial nature of enforcement. At the same time, by explicitly denying this opportunity to repeat offenders, the Code on Wages ensures that employers cannot treat occasional penalties as merely a cost of doing business.

Implementation Challenges and Enforcement Realities

Despite the well-structured penalty framework, several challenges may affect the Code’s enforcement effectiveness. The requirement for written directions before prosecution, while promoting fairness, could potentially weaken deterrence if employers perceive they will always receive a warning before facing consequences. Additionally, the absence of mandatory timelines for claim disposal may lead to delays in adjudication, particularly in areas with high case volumes and limited administrative capacity.

The Code’s success in deterring violations will ultimately depend on the consistent and visible enforcement of its provisions. Research on regulatory compliance suggests that the certainty of detection and punishment often matters more than the severity of penalties. If employers believe they are unlikely to be caught or that enforcement is lax, even substantial penalties may fail to achieve their deterrent effect. The Code’s provision for web-based inspections and randomized selection of establishments for inspection represents an effort to enhance enforcement consistency and transparency.

Conclusion

The penalty and prosecution provisions of the Code on Wages, 2019, establish a nuanced enforcement regime that seeks to ensure employer compliance while respecting the practical realities of business operations. Through graded penalties that escalate for repeat violations, opportunities for voluntary compliance before prosecution, and a mix of criminal and administrative enforcement mechanisms, the Code creates multiple pathways for addressing wage violations. The framework reflects lessons learned from decades of labour law enforcement in India, attempting to correct weaknesses in previous legislation while maintaining strong protections for workers’ rights.

As implementation of the Code continues across Indian states, the effectiveness of its penalty provisions will become clearer. The true test will be whether these provisions succeed in changing employer behaviour, reducing wage violations, and ensuring that India’s workforce receives the wages they are legally entitled to. Given that the unorganized sector employs the vast majority of India’s workers and has historically been difficult to regulate, the Code’s enforcement mechanisms must prove robust enough to reach beyond traditional establishments while remaining practical enough to be consistently applied. Only time and careful monitoring will reveal whether the Code’s carefully calibrated approach to penalties and prosecution achieves its twin goals of protecting workers and promoting business compliance.

References

By Chandni Joshi
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