含羞草社区

含羞草社区 four labour codes have brought the most sweeping overhaul of employment law in decades, consolidating 29 central statutes into a structured and modernised framework. Among the entitlements carried forward is one of maternity benefit – a benefit for expectant women in the workforce. The Social Security Code, 2020 has subsumed the erstwhile Maternity Benefit Act, 1961; however, a significant shift lies in the redefinition of wages under the codes – a change that impacts the calculation of maternity benefits.

The social security code requires employers to pay a maternity benefit to women. This is to be calculated at the “average daily wage” – the average of the woman’s wages for three calendar months immediately preceding the date from which she starts her maternity leave.

Supreme Court expands maternity wages definition

The Supreme Court, in B Shah v Presiding Officer, Labour Court, Coimbatore and Ors, a ruling under the erstwhile legislation, had noted the that the term “wages” is not restricted only to contractual wages, but has a composite meaning covering all remunerations in the nature of cash allowances, incentive bonus, and money value of the concessional supply of food grains and other articles. Further, the court held that female employees should receive an amount equivalent to 100% of the wages which they were previously earning.

The definition under the maternity act is similar to that set out under the Shah case, as wages under the act for the purpose of calculation of maternity benefits include:

• • Cash allowances, including dearness allowance (DA) and house rent allowance (HRA);
  • Incentive bonuses; and
  • The money value of concessional supply of food grains and other articles.

Social security code narrows wage definition

However, the social security code introduces a uniform definition of wages as all remuneration capable of being expressed in terms of money, including basic pay, dearness allowance and retaining allowances. It excludes HRA, incentive bonus and money value of concessional supply of food grains and articles. FAQs released by the Ministry of Labour and Employment further clarify that performance-based incentives and variable component of the salary are not part of wages.

The explicit exclusion of certain pay components could be a potential risk as components that were previously absorbed within the extensive Shah case interpretation and the maternity act may now fall outside the wages for maternity benefit computation.

This may pose an issue for employers since courts have consistently held that maternity benefit laws must be interpreted liberally as beneficial legislation. The interpretation must be guided by the underlying objective of advancing social justice. Employers are expected to adopt a humane and empathetic approach towards women employees, and should refrain from implementing or maintaining any policies, practices or conditions that are in any way detrimental to women employees.

Courts may widen wage definition

Under the erstwhile labour regime in India, courts have taken the view that any payment made consistently across the board may be treated as part of basic pay, and a similar interpretation may continue to apply. In such a case variable income, if paid consistently to all employees, may form part of basic wages.

The shift in the definition of wages under the social security code introduces a structured but potentially narrowing framework for wage computation, replacing the liberal and beneficial approach of the Shah case and the legislative intent of the maternity act.

For employers with complex pay structures, particularly those where a significant portion of remuneration sits in bonus or variable pay, this creates both a compliance ambiguity and a litigation risk. For employees, this brings in the possibility that the new definition, unless interpreted liberally by the courts, could result in them receiving a lower amount than under the older regime.

Indian judiciary has historically stepped in to fill gaps left by legislative reforms. How courts will interpret the social security code’s wage definition, and whether they read it as a ceiling or apply the liberal approach of the Shah case, remains to be seen.

Agrima Awasthi is a counsel and Diksha Singh is an associate at Wadhwa Law Offices