LAW OF WAGES

UNIT 1: PAYMENT OF WAGES ACT, 1936

Regulatory Framework

Provides a legal framework for the timely payment of wages to workers.

Object and Scope

Aims to ensure regular and timely payment of wages without unauthorized deductions to
employees in certain sectors.

Definitions

Key terms include wages, employer, employee, and wage period.

Responsibility for Payment of Wages

The employer is responsible for paying wages on time and without delay.

Fixation of Wage Period

Wage periods may be daily, weekly, fortnightly, or monthly, but not exceeding one month.

Time of Payment of Wages

Wages should be paid by the 7th of the month in establishments with fewer than 1,000
employees, and by the 10th for others.

Wages to be Paid in Current Coin or Currency Notes or by Cheque or Bank Transfer

Wages must be paid in legal tender, through cheque, or credited directly into the employee's
bank account.

Deductions from the Wages of an Employee

Deductions can only be made as per legal provisions, such as fines, absence, damage, or
recovery of advances.

Fines

Can be imposed only for specific reasons, and the total fines must not exceed a certain
percentage of wages.

Maintenance of Registers and Records

Employers must maintain wage registers and records detailing wage payments, deductions, and
employee details.

Claims Arising Out of Deductions from Wages or Delay in Payment

Employees can claim for unjustified deductions or delays in wage payment. Penalties exist for
frivolous or vexatious claims.

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UNIT II: MINIMUM WAGES ACT, 1948

Regulatory Framework

Governs the minimum wage rates and ensures employees receive at least the statutory
minimum wage.

Object and Scope

Ensures workers in certain industries are paid a minimum wage to sustain a standard of living.

Important Definitions

Appropriate Government (Section 2(b)): Refers to Central or State Government depending on

employment.

Employee (Section 2(i)): Any person employed for hire or reward.

Employer (Section 2(e)): Includes any person responsible for hiring or paying wages to
employees.

Scheduled Employment (Section 2(g)): Employment specified in the schedule of the Act.

Fixation of Minimum Rates of Wages [Section 3(1)(A)]

The government determines the minimum wages based on skill level, region, and industry.

Revision of Minimum Wages

Minimum wages are revised periodically by the government.

Manner of Fixation/Revision of Minimum Wages

Based on various factors like cost of living, regional disparities, and economic conditions.

Minimum Rate of Wages (Section 4)

Consists of a basic rate and cost of living allowance.

Procedure for Fixing and Revising Minimum Wages (Section 5)

Two methods:

First Method [Section 5(1)(a)]: Committees and sub-committees are formed to gather
information.

Second Method [Section 5(1)(b)]: Notification of rates in the official gazette for public feedback.

Advisory Board

A board constituted to advise on fixing minimum wages.

Central Advisory Board

Advises the Central Government on wage-related matters.

Minimum Wage – Whether to be Paid in Cash or Kind

Typically paid in cash, but in certain circumstances, payment in kind may be allowed.

Payment of Minimum Wages is Obligatory on Employer (Section 12)

Employers must comply with the prescribed minimum wage rates.

Fixing Hours for a Normal Working Day (Section 13)

The Act prescribes standard working hours and mandatory rest intervals.

Payment of Overtime (Section 14)

Overtime must be paid at double the normal wage rate.

Wages of a Worker Who Works Less than a Normal Working Day (Section 15)

Provisions for workers unable to complete the full working day due to employer action.

Minimum Time-Rates for Piece Work (Section 17)

Ensures minimum wages even for piece-rate workers.

Maintenance of Registers and Records (Section 18)

Employers must keep detailed wage records for inspection.

Authority and Claims (Section 20-21)

Claims for underpayment or non-payment of wages can be filed before an authority.

Offences and Penalties

Penalties are imposed for violations of the Act, such as non-payment of minimum wages.

UNIT III: PAYMENT OF BONUS ACT, 1965

Regulatory Framework

Mandates the payment of bonuses to employees in specific establishments based on

profit-sharing.

Object and Scope of the Act

Ensures a portion of profits is shared with employees through bonuses.

Application of the Act

Applicable to factories and establishments with a minimum number of employees.

Act Not to Apply to Certain Classes of Employees

Excludes employees in managerial roles or drawing wages above a specified threshold.

Important Definitions

Accounting Year: The year for which profit and loss accounts are prepared, used to calculate the
bonus.

Allocable Surplus

The portion of the company's available surplus that is allocated for bonus payments to
employees. It is calculated after setting aside reserves, taxes, and other statutory expenses.

Available Surplus
Refers to the total surplus of the company for the accounting year after deducting prior tax
obligations and expenses. It serves as the base for calculating the allocable surplus for bonus
distribution.

Award

A legal determination or decision made by a labor court, tribunal, or arbitrator concerning wage
disputes, including bonus matters.

Corporation

A body corporate established under any Central, Provincial, or State Act. It can be either public
or private sector entities that are eligible to pay bonuses to their employees based on the Act.

Employee

Any person (other than an apprentice) employed on a salary or wage in any industry to perform
skilled, unskilled, manual, or clerical work.

Employer

The person responsible for hiring, paying wages, and managing workers in any establishment or
factory. In the case of public sector organizations, the employer could be the government.

Establishment in Private Sector

Any non-governmental industrial or commercial establishment where goods are produced or

services are provided for profit.

Establishment in Public Sector

Government-owned establishments where employees are entitled to bonuses based on certain

conditions, such as profitability.

Salary or Wage
Basic salary or wages plus dearness allowance, excluding overtime, gratuity, and other
allowances. It serves as the base for bonus calculation.

Establishment - Meaning of

Refers to any place where any business, trade, or industry is carried out, including factories,
shops, and commercial enterprises.

Calculation of Amount Payable as Bonus

The bonus is calculated as a percentage of the allocable surplus, with a minimum bonus of
8.33% and a maximum of 20% of the employee’s annual salary or wages, depending on the
available surplus.

Eligibility for Bonus and its Payment

Employees earning below a specified salary threshold and having worked for at least 30 days in
a financial year are eligible for bonuses. Bonuses must be paid within 8 months after the
accounting year ends.

Bonus Linked with Production or Productivity

Employers can offer bonuses linked to production or productivity levels, but it must still adhere
to the minimum bonus rate specified by the law.

Power of Exemption

The government has the authority to exempt certain establishments or industries from the
provisions of the Act if it is deemed necessary for public interest or economic conditions.

Penalties

Violations of the Act, such as non-payment or underpayment of bonuses, can result in fines and
imprisonment for employers.

Offences by Companies
If a company violates provisions of the Act, the persons responsible for the company’s
management (such as directors) are held accountable unless they can prove they had no
involvement in the offense.

UNIT IV: EQUAL REMUNERATION ACT, 1976

Regulatory Framework

This Act ensures that men and women receive equal pay for equal work in the same
establishment, aiming to eliminate gender-based wage discrimination.

Object and Scope

The primary objective is to ensure equal remuneration for men and women for the same work or
work of a similar nature. The Act applies to both private and public sector establishments.

Definitions

Same Work or Work of a Similar Nature: Work requiring similar skill, effort, and responsibility,
performed under similar working conditions.

Act to Have Overriding Effect

The Act overrides all other laws, contracts, or agreements if there is any inconsistency in
ensuring equal pay for men and women.

Duty of Employer to Pay Equal Remuneration to Men and Women Workers

Employers are obligated to pay equal wages to men and women performing the same or similar
work. Any discrepancy in pay based on gender is prohibited.

Discrimination Not to Be Made While Recruiting Men and Women

Employers are prohibited from discriminating between men and women during the hiring
process for the same or similar job roles.

Authorities for Hearing and Deciding Claims and Complaints

Designated authorities are appointed to hear and decide claims related to wage discrimination
and unequal remuneration.

Maintenance of Registers

Employers must maintain registers that record the remuneration of all workers, demonstrating
compliance with the Act.

Penalty

Violating the provisions of the Act can result in fines and penalties for employers, including
imprisonment, depending on the nature and severity of the violation.

These notes cover the key elements of the Payment of Bonus Act, 1965 and Equal
Remuneration Act, 1976 for a better understanding of the wage-related legal framework.

Additionally explained:

1. Fixation of Wage Period (Payment of Wages Act, 1936)

It's important to note that while the wage period can be daily, weekly, fortnightly, or monthly, the
Act mandates that wages must be paid on time after the end of the wage period. This is
essential to avoid any financial strain on employees who rely on timely payment.

Clarification on different wage period practices: daily wage employees may get paid at the end
of the day, while monthly wage employees may receive their payment at the end of each month.

2. Deductions from Wages (Payment of Wages Act, 1936)

Not all deductions are allowed. Only statutory deductions (like taxes, contributions to Provident
Fund, or deductions for damage or loss) are permissible. The total deductions must not exceed
50% of the wages for any wage period.

Unauthorized deductions could lead to employer penalties. This provision protects employees
from arbitrary reductions in wages.

3. Claims Arising Out of Deductions or Delay in Payment

While claims can be filed if wages are unjustly deducted or delayed, employees must be aware
of the limitation period. Claims must generally be made within a specific time frame (e.g., 12
months from the date of the deduction or delay). Beyond this, claims may not be entertained
unless the delay was due to exceptional circumstances.

4. Minimum Wage Revision (Minimum Wages Act, 1948)

The revision of minimum wages takes into account several factors, including inflation, cost of
living, and wage trends in the industry. This ensures that the wages remain sufficient to cover
basic living costs over time.

The role of the Advisory Board becomes crucial here. The board, composed of employers,
employees, and independent persons, offers a balanced view in setting wages.

5. First and Second Method of Fixation (Minimum Wages Act, 1948)

The First Method (Committee Method) is more participatory as it involves consultation with
representatives of employers and employees. This is typically preferred as it gathers direct
feedback from stakeholders.

The Second Method (Notification Method) is used when the government directly notifies the
wage rate, often in urgent situations or when consultation is not feasible.

6. Minimum Wage – Payment in Kind

While the law primarily mandates payment in cash, the allowance for payment in kind is only
under exceptional circumstances. These must be authorized by the government, and such
payments should not replace the entire wage amount. This ensures that employees can meet
their cash needs.

7. Offences and Penalties (Both Acts)

Both Acts provide penalties for violations. The penalties may range from fines to imprisonment,
depending on the severity of the offence. For instance, deliberate non-payment of wages or the
payment of less than the minimum wage can lead to serious consequences for employers,
including imprisonment.

8. Payment of Bonus (Payment of Bonus Act, 1965)

Calculation of Bonus: Bonuses are calculated based on the profits of the establishment, but a
minimum bonus (typically 8.33% of wages) is guaranteed even if the company doesn’t make a
profit.

Eligibility: Only employees earning below a certain wage threshold are entitled to receive
bonuses. Higher-paid employees, as well as managerial staff, are excluded.

Bonus Linked to Productivity: The bonus is usually tied to the performance of the establishment.
This encourages a sense of ownership among employees and motivates them to improve
productivity.

9. Authority and Claims under the Minimum Wages Act, 1948

It is crucial for employees to know that under this Act, they can approach a specific authority
(such as a Labour Commissioner) to settle claims related to underpayment or non-payment of
minimum wages. The authority can investigate and order the payment of back wages along with
compensation.

10. Application of Acts to Specific Industries

While these acts apply to several industries, each state government can add industries to the
list of those covered by minimum wage laws. Therefore, it’s essential to check which specific
sectors and types of employment are covered under both the Payment of Wages Act, 1936 and
the Minimum Wages Act, 1948 in a particular region.

11. Allocable Surplus & Available Surplus

Allocable Surplus: This is the portion of the available surplus that is set aside specifically for
paying bonuses to employees. Generally, 67% of the available surplus is considered allocable.
For companies paying taxes under the Income Tax Act, 60% of the available surplus is
allocable. This helps ensure employees share in the profits while still allowing the company to
retain some funds for other purposes.

Available Surplus: Available surplus is calculated by deducting items like depreciation, taxes,
and reserves from the gross profits of the company. This is the "pool" from which the bonus is
allocated. This concept ensures that bonus payments are made based on the real profits of the
company and not on gross income.

12. Calculation of Bonus

The minimum bonus payable is 8.33% of the employee’s wage or salary (subject to a wage
ceiling). Even if the company is making losses, it must pay this minimum bonus. The maximum
bonus, capped at 20%, is paid only if the company has sufficient available surplus.

If wages exceed the prescribed limit (currently ₹7,000 or the minimum wage for scheduled
employment, whichever is higher), bonuses are calculated based on ₹7,000 (or the minimum
wage).

This ensures that employees are protected even in lean years while still benefiting from the
company's success during profitable periods.

13. Eligibility for Bonus and its Payment

Employees who earn less than a certain wage ceiling (currently ₹21,000 per month) are eligible
for bonuses under the Act. This wage limit ensures that the law benefits low-income and
lower-middle-income workers. Employees who have worked for at least 30 days in a financial
year are entitled to a bonus.

Employers must ensure that the bonus is paid within 8 months after the end of the financial
year, helping workers receive their dues promptly.

14. Bonus Linked with Production or Productivity

While the minimum bonus of 8.33% is mandatory, companies can link additional bonus
payments to production or productivity goals. This practice incentivizes employees to improve
efficiency and output, benefiting both the employees and the employer.

However, even if such bonus systems are in place, the minimum bonus requirement remains
non-negotiable.

15. Offences by Companies

In the case of non-compliance with the Act (such as not paying the required bonus), the
company and those responsible for its day-to-day affairs (such as directors or managers) can be
held accountable. This provision ensures that corporate executives are vigilant in adhering to
the law.
16. Duty of Employer to Pay Equal Remuneration

This section emphasizes that the employer is bound by law to pay equal remuneration to both
men and women for doing the same work or work of a similar nature. Failure to comply with this
can result in legal action against the employer. This provision is essential to eliminating wage
discrimination based on gender.

Same Work or Work of a Similar Nature is defined as jobs requiring the same skill, effort, and
responsibility performed under similar working conditions. This is particularly important to
prevent employers from subtly altering job descriptions to justify wage differences between male
and female employees.

17. Discrimination Not to Be Made While Recruiting Men and Women

This provision ensures that men and women are given equal opportunities in recruitment without
bias based on gender. It aims to promote gender equality right from the hiring stage.

This provision protects women from being discriminated against based on stereotypes or
assumptions about their physical capacity or societal roles, ensuring they have equal access to
jobs traditionally dominated by men.

18. Authorities for Hearing and Deciding Claims and Complaints

Specific authorities are appointed under the Act to hear and resolve claims related to wage
discrimination. Employees who feel they have been denied equal remuneration can approach
these authorities for redress. This legal recourse empowers workers to challenge discriminatory
practices without fear of retribution.

19. Maintenance of Registers

Employers are required to maintain proper documentation showing compliance with the Act,
such as wage records that demonstrate equal pay for men and women in similar roles. These
records must be available for inspection by authorities, ensuring that compliance with the Act is
properly monitored.

20. Penalties
Non-compliance with the Equal Remuneration Act can result in fines and imprisonment for the
employer. These penalties serve as a deterrent against wage discrimination and provide
recourse for employees affected by unequal pay practices.

Additional Points for Consideration:

Overriding Effect of the Equal Remuneration Act:

This Act supersedes all other laws or contracts if there is any conflict regarding remuneration
equality. This means even if an employment contract specifies unequal pay for men and women,
the provisions of this Act will take precedence, and the contract would be void in that regard.
This clause strengthens the Act by ensuring that its provisions cannot be bypassed through
agreements or contracts.

Exemptions:

While the Payment of Bonus Act grants the government the power to exempt certain industries
or establishments under certain circumstances (like economic hardship or in the public interest),
no such broad exemptions exist under the Equal Remuneration Act. This highlights the
importance placed on wage equality in all sectors.