Universal Minimum Wage: Understanding Floor Wage vs. Minimum Wage Under the Code on Wages, 2019

Introduction

The Code on Wages, 2019 represents a watershed moment in India’s labour law reform, consolidating four separate legislations into a unified framework that extends wage protection to every worker in the country. Enacted on August 8, 2019, this transformative legislation amalgamated the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, into a single, streamlined code.[1] The most revolutionary aspect of this reform is the introduction of universal minimum wage coverage, extending protection to workers in both the organized and unorganized sectors who were previously excluded from wage security. At the heart of this reform lies a dual-tier wage structure comprising the floor wage and minimum wage, concepts that fundamentally reshape how wages are determined and protected across India’s diverse economic landscape.

The Historical Context of Wage Legislation in India

Before understanding the floor wage and minimum wage distinction, it is essential to appreciate the fragmented nature of India’s pre-2019 wage legislation. The Minimum Wages Act, 1948, which governed wage fixation for over seven decades, suffered from significant limitations. It covered only scheduled employments, leaving approximately 60 percent of India’s workforce without any statutory wage protection. Different states had vastly different minimum wage rates, creating regional disparities that often failed to reflect the actual cost of living. Workers in identical occupations received dramatically different wages depending solely on their state of employment, with rates ranging from INR 160 per day in Bihar to INR 423 per day in Delhi under the old framework.[2] This geographical arbitrariness, combined with inconsistent revision mechanisms, necessitated a complete overhaul of the wage determination system.

Understanding the Floor Wage: The National Baseline

Definition and Constitutional Mandate

The floor wage represents a groundbreaking innovation in Indian labour law. Section 9 of the Code on Wages, 2019 empowers the Central Government to fix a floor wage, defined as the absolute minimum wage that must be paid to workers across the country, taking into account minimum living standards. This provision states that “The Central Government shall fix floor wage taking into account minimum living standards of a worker in such manner as may be prescribed.” The floor wage serves as a constitutional guarantee that no worker, regardless of their geographical location or occupation, can be paid below this threshold. Unlike minimum wages that vary by state and occupation, the floor wage establishes a uniform national baseline that protects the dignity of labour throughout India.

Methodology for Determining Floor Wage

The determination of floor wage is governed by a consultative process designed to balance economic realities with worker welfare. Before fixing the floor wage, the Central Government must obtain advice from the Central Advisory Board and consult with State Governments. The Draft Rules under the Code specify that the floor wage should be calculated based on minimum living standards, considering food, clothing, and housing requirements for a family of three consumption units.[3] This calculation draws from recommendations of various expert committees over the decades, including the principles established by the 15th Indian Labour Conference in 1957, which suggested considering factors like food requirements of 2,700 calories per average Indian adult, clothing needs of 72 yards per annum per family, and housing rent corresponding to the minimum area provided under government industrial housing schemes.

Geographical Variations and Revision Mechanisms

Recognizing India’s economic diversity, the Code permits different floor wages for different geographical areas. This flexibility acknowledges that living costs in metropolitan areas significantly exceed those in rural regions. However, the Code mandates that floor wages be revised at intervals, though it does not impose the same mandatory five-year revision requirement that applies to minimum wages. This asymmetry has been criticized by labour experts who argue that floor wage revisions should be equally regular to maintain their effectiveness as a living wage benchmark. The Standing Committee on Labour in 2019 had recommended prescribing a specific methodology for floor wage determination to eliminate arbitrariness, but this recommendation remains partially addressed in the final legislation.

The Minimum Wage: State-Level Determinations

Fixation Authority and Procedure

While the floor wage is fixed by the Central Government, minimum wages are determined by appropriate governments—either Central or State—depending on the nature of the establishment. Section 6 of the Code mandates that appropriate governments fix minimum rates of wages payable to employees, considering factors such as skill levels (unskilled, semi-skilled, skilled, and highly-skilled workers), geographical areas, and arduousness of work including temperature, humidity, hazardous processes, or underground work.[1] The fixation process requires either appointing committees to hold inquiries and make recommendations, or publishing proposals for public comment with at least two months’ notice before implementation. This dual-track approach ensures that wage fixation balances expert opinion with stakeholder feedback.

Components and Structure of Minimum Wages

Minimum wages can comprise three possible structures as outlined in Section 7 of the Code. The first option includes a basic rate of wages plus a dearness allowance that adjusts periodically to match cost of living variations. The second structure combines the basic rate with or without dearness allowance, along with the cash value of concessions for essential commodities supplied at concessional rates. The third option provides an all-inclusive rate incorporating the basic rate, dearness allowance, and cash value of any concessions. This structural flexibility allows governments to adapt wage packages to local economic conditions and employment practices. The dearness allowance component, in particular, serves as an automatic stabilizer, protecting workers from inflation by recalculating wages based on Consumer Price Index changes typically every six months.

Mandatory Revision Requirements

One of the most significant improvements introduced by the Code is the mandatory review and revision of minimum wages at intervals not exceeding five years. Section 8(4) explicitly states that “The appropriate Government shall review or revise minimum rates of wages ordinarily at an interval not exceeding five years.” This provision addresses a chronic problem under the Minimum Wages Act, 1948, where many states failed to revise wages for extended periods, allowing inflation to erode workers’ real incomes. The five-year maximum interval ensures that wage rates remain relevant to contemporary economic conditions, though states retain the flexibility to revise wages more frequently if economic circumstances warrant such action.

The Relationship Between Floor Wage vs. Minimum Wage

The Non-Reduction Principle

The most critical aspect of the dual-tier system is the relationship established in Section 9(2) of the Code, which declares that “The minimum rates of wages fixed by the appropriate Government under section 6 shall not be less than the floor wage.” This provision creates an inviolable floor beneath which no state or sector-specific minimum wage can fall. Furthermore, the Code incorporates a crucial anti-regression clause stating that if existing minimum wages are already higher than the floor wage, governments cannot reduce those wages to align with the floor wage. This protection ensures that the introduction of a national floor wage does not result in downward harmonization of wages in states that have historically maintained higher wage standards.

Bridging Regional Disparities

The floor wage mechanism directly addresses India’s notorious regional wage disparities. States like Kerala, which has historically maintained higher minimum wages, will continue to do so, while states with depressed wage rates will be compelled to elevate their minimum wages to at least the national floor level. This creates a convergence effect, narrowing the gap between the highest and lowest wage states without penalizing states that have invested in better labour standards. For workers in states that previously had no minimum wage coverage for certain occupations, the floor wage provides immediate protection. For example, domestic workers and agricultural labourers in many states lacked any wage protection under the old regime, but now benefit from the universal floor wage guarantee.

Legal Framework Governing Wage Compliance

Prohibition on Underpayment

Section 5 of the Code establishes a clear prohibition: “No employer shall pay to any employee wages less than the minimum rate of wages notified by the appropriate Government.” This provision, combined with the floor wage requirement, creates a two-tiered protection system. Employers must pay at least the state-notified minimum wage for the relevant occupation and skill level, which itself cannot fall below the national floor wage. The definitional clarity provided in Section 2(v) defining “same work or work of a similar nature” as work requiring the same skill, effort, experience, and responsibility under similar working conditions further strengthens enforcement by preventing employers from circumventing wage requirements through minor job classification manipulations.

Enforcement Through Inspector-cum-Facilitators

The Code replaces the traditional inspector regime with Inspector-cum-Facilitators who serve dual functions. These officers, appointed under Section 51, not only conduct inspections but also advise employers and workers on compliance with wage provisions. Before initiating prosecution for wage violations, Inspector-cum-Facilitators must provide employers an opportunity to rectify non-compliance through written directions specifying a compliance period. This facilitative approach aims to encourage voluntary compliance rather than relying solely on punitive measures. However, this opportunity for correction is not available for repeat offenders who commit similar violations within five years of an earlier violation, ensuring that the facilitation mechanism is not abused by chronic violators.

Penalties for Wage Violations

The penalty structure under Section 54 of the Code establishes graded consequences for wage violations. Employers who pay less than the statutorily due amount face fines up to INR 50,000 for first offenses. Significantly more severe penalties apply to repeat offenders: those convicted of similar offenses within five years face imprisonment up to three months, fines up to INR 1,00,000, or both. This escalating penalty structure aims to deter systematic wage theft while providing first-time violators an opportunity to correct their practices. Additionally, Section 45 empowers designated authorities to award compensation up to ten times the claim amount, creating a strong financial disincentive for wage violations beyond the direct criminal penalties.

Judicial Interpretation and Constitutional Framework

The Randhir Singh Precedent

The constitutional foundation for equal pay principles was firmly established in Randhir Singh v. Union of India (1982), where the Supreme Court held that “equal pay for equal work” is not merely an abstract doctrine but a constitutional goal capable of enforcement through Articles 14, 16, and 39(d) of the Constitution.[4] Justice Chinnappa Reddy’s judgment declared that while equal pay for equal work is not explicitly enumerated as a fundamental right, it represents a constitutional mandate derived from the right to equality and the directive principle requiring equal pay for equal work. The Court emphasized that directive principles must be read into fundamental rights as a matter of interpretation, making them judicially enforceable when violations involve irrational discrimination. This precedent directly supports the floor wage mechanism by establishing that wage fixation cannot be arbitrary and must ensure substantive equality.

Application to the Code’s Provisions

The principles articulated in Randhir Singh provide constitutional validation for the Code’s dual-tier wage system. The floor wage serves as a mechanism to eliminate the type of arbitrary wage disparities that the Supreme Court condemned in that case. By establishing a national baseline below which no worker can be paid, the Code operationalizes the constitutional commitment to equal pay for equal work across geographical boundaries. The prohibition against reducing existing minimum wages when they exceed the floor wage reflects the Court’s holding that equality principles prevent downward adjustments designed merely to create uniformity. This jurisprudential foundation insulates the Code’s wage provisions from constitutional challenges based on Articles 14 and 16.

Implementation Challenges and Practical Considerations

Delayed Notification and Enforcement

Despite receiving presidential assent in August 2019, the Code on Wages remains only partially implemented as of 2025. Only provisions related to the constitution of the Central Advisory Board have been enforced through a notification dated December 18, 2020.[5] The substantive wage-related provisions, including the floor wage mechanism, await notification by both central and state governments. This implementation delay stems from the need for states to draft corresponding rules and align their existing wage structures with the new framework. The prolonged transition period has created uncertainty for both employers and workers, as the four pre-existing acts technically remain in force until the Code’s full implementation. This situation underscores a persistent challenge in Indian labour law reform: the gap between legislative enactment and actual enforcement.

Methodological Ambiguities

A significant practical challenge lies in the absence of a clearly prescribed methodology for calculating the floor wage. While the Draft Rules specify considering minimum living standards based on food, clothing, and housing for a family of three consumption units, they do not provide specific quantitative parameters or calculation formulas. This ambiguity grants considerable discretion to the Central Government in determining the floor wage amount, potentially leading to political considerations overshadowing objective needs assessment. Labour economists have highlighted this gap, noting that expert committee recommendations over the decades have proposed varying calculation methods, but the Code does not mandate adherence to any specific approach. Without transparent, formula-based calculations, the floor wage risks becoming a negotiated political figure rather than a scientifically determined living wage.

Comparative Perspective: Floor Wage vs. Living Wage

The floor wage concept in the Code on Wages represents India’s approach to establishing a national wage baseline, but it differs from the “living wage” concept being pursued in international labour standards. A living wage, as defined by the International Labour Organization, encompasses not just subsistence needs but also enables workers and their families to afford decent living standards including healthcare, education, and some discretionary income. India has expressed interest in establishing a living wage framework by 2025 in collaboration with the ILO, which would set an even higher threshold than the current floor wage contemplates. The floor wage focuses primarily on minimum living standards regarding food, clothing, and housing, representing a more modest baseline than comprehensive living wage standards. This distinction is significant: while the floor wage prevents absolute poverty-level wages, it may not provide sufficient income for workers to escape working poverty or achieve meaningful economic security.

Impact on Different Worker Categories

Unorganized Sector Workers

The Code’s universal application represents a transformative change for unorganized sector workers who previously lacked wage protection. Agricultural labourers, domestic workers, construction workers, and other informal sector employees now fall within the Code’s protective ambit. The floor wage mechanism is particularly significant for these workers, as many states had no minimum wage notifications for their occupations under the previous regime. For example, domestic workers in several states operated in a legal vacuum with no statutory wage protection whatsoever. The Code’s universal coverage principle, combined with the floor wage, extends a basic wage guarantee to these vulnerable workers for the first time. However, enforcement challenges remain acute in the informal sector, where employment relationships are often undocumented and workers lack bargaining power to demand statutory wages.

Interstate Migrant Workers

Interstate migrant workers face particular wage vulnerabilities due to their mobility and frequent lack of knowledge about local wage regulations. The floor wage mechanism provides these workers with a portable wage floor that applies regardless of where they work in India. Previously, migrant workers moving from low-wage states to high-wage states often found themselves paid at their origin state’s rates rather than the destination state’s higher rates. The Code’s provisions, particularly the requirement that minimum wages must exceed the floor wage everywhere, create a national baseline that protects migrants from exploitation based on their origin state’s lower wage standards. However, this protection depends heavily on effective implementation and worker awareness, both of which require sustained enforcement efforts.

Economic Arguments and Counterarguments

Employment Effects

Critics of stringent minimum wage and floor wage provisions argue that artificially elevated wages may reduce employment opportunities, particularly in labour-intensive industries where wage costs constitute a significant portion of total expenses. Classical economic theory suggests that wage floors above market-clearing rates create unemployment by pricing low-productivity workers out of the labour market. Some economists have applied this critique to the Code’s floor wage mechanism, suggesting it may discourage hiring in low-wage states and sectors. However, empirical evidence on minimum wage effects in developing economies presents a more nuanced picture. Studies in various Indian states have found that moderate increases in minimum wages have not produced significant negative employment effects, partly because informal sector compliance remains imperfect and partly because productivity gains offset wage costs.

Formalization Incentives

Proponents of the Code’s wage provisions argue that universal floor wages create incentives for formalization by reducing the cost advantage that informal, non-compliant employers enjoy over formal, compliant businesses. When all employers must pay at least the floor wage, formal sector employers face less competition from informal operators who previously undercut them through wage suppression. This leveling effect may encourage informal enterprises to formalize, expanding the tax base and extending social security coverage. Additionally, higher wage floors increase workers’ purchasing power, potentially stimulating demand in the economy. The multiplier effects of wage increases, particularly for low-income workers who spend most of their earnings on consumption, may offset any modest employment reduction through increased economic activity.

International Comparisons and Best Practices

India’s dual-tier wage system with a national floor wage and state-level minimum wages resembles approaches in federal systems like Australia and Canada, where national standards coexist with regional variations. Australia’s national minimum wage, set by the Fair Work Commission, establishes a floor beneath which state awards cannot fall, similar to India’s structure. However, Australian minimum wages are substantially higher relative to median incomes and are adjusted annually based on economic indicators including inflation, productivity growth, and living costs. Canada’s system involves both federal and provincial minimum wages, with workers entitled to the higher applicable rate. These international examples demonstrate that national wage floors can coexist with regional variations while maintaining higher absolute standards than India currently contemplates. Countries like the United Kingdom have successfully implemented national living wage policies that exceed basic minimum wage levels, providing models for India’s aspiration to transition from floor wages to living wages.

Future Directions and Reform Possibilities

As India moves toward full implementation of the Code on Wages, several reforms could strengthen the floor wage mechanism. Establishing a transparent, formula-based methodology for calculating floor wages would reduce discretion and increase predictability. Implementing automatic indexation of floor wages to inflation would maintain their real value without requiring repeated government notifications. Creating regional variations in floor wages based on objective cost-of-living indices could balance national standards with local economic realities more effectively. Strengthening enforcement mechanisms, particularly in the informal sector, remains crucial for translating legal rights into actual wage protection. Enhanced coordination between central and state labour departments, supported by digital wage tracking systems, could improve compliance monitoring. Finally, moving toward living wage standards rather than mere subsistence floor wages would align India with progressive international labour standards and support the government’s goal of inclusive growth.

Conclusion

The Code on Wages, 2019 represents a significant advancement in India’s labour law framework by establishing universal minimum wage coverage and introducing the floor wage concept as a national baseline. The dual-tier structure of floor wages and minimum wages creates a safety net that theoretically protects all workers while allowing states flexibility to set higher standards based on local conditions. The prohibition against wage reductions ensures that progressive states are not penalized for maintaining higher standards. However, the effectiveness of these provisions depends entirely on implementation, which remains incomplete years after enactment. The absence of a clearly defined floor wage calculation methodology, combined with enforcement challenges in the informal sector, raises questions about whether the Code’s promise of universal wage protection will be fully realized. Nevertheless, the Code establishes a legal and institutional framework that, if properly implemented and enforced, could significantly reduce wage inequality and provide genuine economic security to India’s workers. The success of this reform will ultimately be measured not by the elegance of its legislative design, but by its impact on the wages actually received by the most vulnerable workers in India’s economy.

References

[1] The Code on Wages, 2019 (No. 29 of 2019), Ministry of Labour and Employment, Government of India. Available at: https://labour.gov.in/sites/default/files/the_code_on_wages_2019_no._29_of_2019.pdf 

[2] India Briefing. (2025). A Guide to Minimum Wage in India. Available at: https://www.india-briefing.com/news/guide-minimum-wage-india-19406.html/ 

[3] PRS Legislative Research. (2019). Draft Rules under Code on Wages, 2019. Available at: https://prsindia.org/billtrack/draft-rules-under-code-on-wages-2019 

[4] Randhir Singh v. Union of India & Ors., AIR 1982 SC 879. Available at: https://indiankanoon.org/doc/1230349/ 

[5] Neeti Niyaman. (2025). Code on Wages, 2019: Key Provisions Explained. Available at: https://neetiniyaman.com/code-on-wages-2019/ 

Authorized and Published by Dhruvil Kanabar