The Employment – Unemployment Survey of 2011-12, presented by the National Sample Survey Office (NSSO), the total workforce of India is 474.23 million. However, out of this total workforce, only 8 per cent belong to the formal sector, and the remaining 92 per cent are working in the informal sector. Additionally, 60 percent of the growth of GDP is due to the contribution of these informal sector workers.
According to the Indian Constitution, the Government of India is required to create employment opportunities and ensure that all workers (formal and informal sectors) have access to a reasonable standard of living that includes all socioeconomic and other welfare opportunities.
Adhering to the Constitution of India, the Indian Government in the year 1948, right after independence, introduced legislation named the Minimum Wages Act of 1948. The legislative intent behind the Act was to make sure that workers in the informal sector receive at least a minimum amount of money as wages to avoid exploitation. However, before this Act, the Payment of Wages Act of 1936 was introduced. The Act made efforts so that informal sector workers could be linked with mainstream development by providing minimum wages, which can be utilised to increase living standards and benefit social development schemes.
Payment of Wages Act, 1936
Since labourers and workers constituted the oppressed class, the concern of arbitrary deductions from wages and payments of wages that were not uniform was not given much attention. However, in 1925, a private Bill known as the Weekly Payment of Wages Bill was presented in the Legislative Assembly that dealt with these issues. However, at that time, the government rejected the Bill by claiming that the problem was already under assessment.
The Indian Government maintained a connection with the regional or state-level administrations in 1926. It encouraged them to look into and gather the necessary data, materials, etc., about the challenges, as mentioned earlier, faced by the oppressed classes, specifically workers and labourers.
The information gathered made it clearly evident that the problems, which included the employers’ arbitrary deduction of large amounts of money from wages and the inconsistent and delayed distribution of payments, which left workers in the most precarious of circumstances, were quite real.
The Royal Commission on Labour was established in 1929 under the chairmanship of John Henry Whitley. The commission was established to investigate and evaluate the current working conditions in factories and other production sites in pre-independent India. The Commission provided the data collected from the provincial governments in British India. It was given the responsibility to do extensive research on the physical and mental well-being, productivity, access to health services, and living standards of the workforce, as well as on the relationships between employers and employees. Also, the Commission had to offer suggestions for the betterment of the workers. The Government of India collected information from the provincial governments.
The report by the Royal Commission on Labour (1929) covered a wide range of problems faced by workers in various manufacturing facilities, including textiles, leather goods, underground mining, steam engines, and silvicultural factories, as well as employees engaged in public service departments. It covered nearly all of the problems that employees experience, from low pay, long working hours, and no leave considering bad health and well-being, no accommodation, lack or absence of trade unions, the establishment of workmen’s compensation fund, industrial disputes, etc.
The report is so thorough that almost all worker welfare legislation and economic laws currently in existence, such as the Trade Union Act of 1926, the Industrial Disputes Act of 1947, the Payment of Wages Act of 1936, and the Minimum Wages Act of 1948, etc.
Definition of Wages
The term wages has been defined as all remuneration (whether by way of salary, allowances, or otherwise) payable to a person employed in respect of his employment or of work done in such employment. Under the Payment of Wages Act, wages include:
- Any remuneration payable under any award or settlement between the parties or order of a Court;
- Any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period;
- Any additional remuneration payable under the terms of employment (whether called a bonus or by any other name);
- Any sum which by reason of the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment of such sum, whether with or without deductions, but does not provide for the time within which the payment is to be made;
- Any sum to which the person employed is entitled under any scheme framed under any law for the time being in force, but does not include:
- Any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a Court;
- The value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government;
- Any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
- Any travelling allowance or the value of any travelling concession;
- Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or
- Any gratuity payable on the termination of employment.
Due Date for Salary Payment and Wages
As per the provisions of the Payment of Wages Act, 1936, wages need to be paid to employees before the expiry of the 7th day of the last day of the wage period, where number of employees are less than 1000. In case the number of employee is less than 1000, wages must be paid before the expiry of the 10th day of the last day of the wage period.
Further, wages must be paid only on working day and not on holiday. In case employment of any person is terminated, the wages earned by him must be paid before the expiry of the second working day from the date of termination.
Mode of Payment of Salary and Wages
Salary and wages should be paid only in current coins or currency notes or both. The wages can also be paid by cheque or by crediting into bank account, however, in order to do so, the employer has to obtain written authorization from the employed person.
Deductions from Salary or Wages under the Payment of Wages Act
The employer is allowed to deduct the following from the salary or wages of an employee under the Payment of Wages Act.
- Fines;
- Deduction for absence from the duty;
- Deduction for the damage to or loss of goods of employed person;
- Deduction for house accommodation supplies by the employer;
- Deduction for the amenities and service supplied by employer;
- Deduction for recovery of advances and interest, and adjustment of overpayment;
- Deductions for recovery of loans from any fund constituted for the welfare of labour;
- Deduction for income tax payable by the employed person;
- Deduction on orders of a court or other authority;
- Deduction for subscription and repayment of advance from any Provident Fund;
- Deduction for payments to cooperative societies;
- Deduction of premium for LIC policy on written authorization of the employed person; or any other investment for Post Office Saving Schemes;
The total amount of deductions should not exceed 50 % of the wages of the employee in any wage period. If whole or part of the deductions is meant for the payments to co- operative societies, then the deductions cannot exceed 75%.
Delay in Salary Payment or Wages
When there is delay in payment of wages or any deduction has been made from the wages, in such case, application can be made to the authority. Following is the list of person, who can make application to the authority:
- The person himself; or
- Any legal practitioner; or
- Any official of a registered trade union, duly authorized in writing;
- Any inspector; or
- Any other person acting with the permission of the authority.
The authority, on receipt of application, will hear the applicant and the employer or other person responsible for delay in payment of wages. On being satisfied, the authority may direct the employer to refund the excess deduction or may direct to make payment of wages together with the payment of compensation. The compensation amount cannot exceed 10 times the amount deducted and cannot exceed INR 3000, but the same should not be less than INR 1500.
Compensation is not payable in cases where authority is satisfied that:
- The delay was due to bona fide error / dispute as to the amount payable to the employed person;
- The person responsible was unable to make payment due to exceptional circumstances, even though exercised due diligence;
- The delay was due to the failure of the employed person to apply for or accept payment.
An appeal can be filed against the order of the authority, within 30 days before court of small causes and / or before the district court.
Penalty under Payment of Wages Act
Penalty for Contravension
When person responsible for the payment of wages to an employed person contravenes any of the provisions of sections of the payment of wages act than the person would be liable to pay penalty amount. The penalty amount, however, varies with regard to different sections as contravened.
Penalty for Not Maintaining Records
When person required to maintain any records or register or furnish any information or return, fails to maintain the register or records or willfully refuses or neglects to furnish any information, such offence would be punishable with fine which will not be less than INR 1,500/- but which could extend to INR 7,500/-.
Penalty for Serial Offenders
Where any person who has been convicted of any offence punishable under this Act is again guilty of an offence involving contravention of the same provision, he would be punishable on a subsequent conviction with imprisonment for a term which
shall not be less than one month but which may extend to six months and fine payable would be not less than INR 3,750/- but which could extend to INR 22,500/- or both.
Ludhiana Hands Tools Association v. Union of India (2020)
The issue, in this case, revolves around clause (iii) of the Ministry of Home Affairs order in 2020 concerning worker migration and the COVID-19 lockdown.
Parties to the case
| Petitioner | Ludhiana Hands Tools Association |
| Respondent | Union of India |
| Representatives of Petitioner | Mr. Jamshed P. Cama (Senior Advocate), Mr. Jawahar Raja (Advocate), Mr. Krishan Kumar, (Advocate on record). |
| Representative for Respondent | Mr. Tushar Mehta (Solicitor General), Mr. Pukhrambam Ramesh Kumar (Advocate on record). |
| Judges | 3-Judge Bench consisting of Hon’ble Mr. Justice L. Nageswara Rao, Hon’ble Mr. Justice Sanjay Kishan Kaul, and Hon’ble Mr. Justice B.R. Gavai. |
Facts of the case
In the case of Ludhiana Hands Tools Association v. Union of India (2020), a Public Interest Litigation (PIL) was filed before the Apex Court under Article 32 of the Indian Constitution, asserting that the order is outside the purview of the government under the Disaster Management Act as this Act facilitates the Commission to combat natural and man-made disasters and is not formed for the objective of addressing the employers’ failure to pay wages during the lockdown. Due to this, the statute under which it was passed does not apply to this order. Aside from being arbitrary and in violation of Articles 14, Article 19(1)(g) as well as Section 300A of the Indian Constitution, Section 10(2)(i) of the Disaster Management Act of 2005, which has been read in the manner described above, must be scrapped.
Judgment as given by the Bench
Although it has ordered that no deterrent measures be taken against the petitioners, the Supreme Court has indeed given the temporary remedy in this case.
The same arguments were put out in the other case, Twin City Industrial Employers Association v. Union of India (2020); however, the Supreme Court refrained from interfering with the Ministry’s ruling preventing small-size businesses from having to pay their workers any wages.
In both cases, the Apex Court issued inconsistent rulings; nonetheless, in the first, the Payment of Wages Act’s provisions are being violated because the workers’ payments are not being paid on time.
Moreover, in this case, the Apex Court also made reference to a landmark judgement of Anant Ram v. District Magistrate of Jodhpur (1956). In this case, it was held that in order to be eligible for a payment deduction on the ground of absence from work, such absence should be voluntary. Therefore, no deduction must be made under Section 7(2) when an employee is absent from work during the time between being fired and being reinstated because such an absence cannot be characterised as voluntary.
FAQs
What is the objective of payment of wages Act, 1936?
The Payment of Wages Act of 1936 was enacted to avoid unnecessary delays in wage payment and prevent unlawful deductions from wages.
What is the payment of wages Act, 1936?
The Payment of Wages Act, 1936, governs how employers pay wages (direct and indirect). The statute is intended to remedy employees who have been subjected to unlawful deductions from their salaries and unjustifiable delays in the payment of their earnings.