HR Law Hotline August 31, 2017

India’s Federal Labour Law on Payment of Wages - Increase in Salary Threshold

  • The Payment of Wages Act, 1936, is an important federal level labour law
  • The law regulates payment of wages to employees
  • The wage ceiling for applicability has been increased to Rs. 24,000 (~US$ 375) per month

The Indian government has increased the monthly salary threshold for applicability of the Payment of Wages Act, 1936 (“Wages Act”), from Rs. 18,000 (~US$280) per month to Rs. 24,000 (~US$375) per month. As a result of this change, which is effective from August 28, 2017, a larger population of the workers shall get covered. This threshold was previously changed in September 2012 prior to which it was Rs. 10,000 (~US$ 155).

The Wages Act is a federal law which regulates the payment of wages to certain classes of employed persons. It contains provisions in relation to, inter alia, the responsibility for payment of wages, fixing of wage-periods, time of payment of wages, and maintenance of registers and records.

The Wages Act defines the term "wages1” as follows:

"Wages" means all remuneration (whether by way of salary, allowances, or otherwise) expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were ful­filled, be payable to a person employed in respect of his employment or of work done in such employment, and includes-

  1. any remuneration payable under any award or settlement between the parties or order of a Court;
  2. any remuneration to which the person employed is entitled in respect of overtime work or holidays or any leave period;
  3. any additional remuneration payable under the terms of employment (whether called a bonus or by any other name);
  4. 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;
  5. 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-

  1. 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;
  2. 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 State Government;
  3. any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
  4. any travelling allowance or the value of any travelling concession;
  5. any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or
  6. any gratuity payable on the termination of employment in cases other than those specified in sub-clause (d).

Besides the Wages Act, this definition is also referred to in numerous other Indian labour enactments, including the Industrial Disputes Act, 1947, the Industrial Employment (Standing Orders) Act, 1946, and the Contract Labour (Regulation and Abolition) Act, 1970, which are some of the most important labour laws of India. Some state-specific shops and establishments acts (“SEAs”) have also made the Wages Act applicable to all shops and commercial establishments in their respective States. However, the increase in the wage threshold may not directly have an impact in those cases given the way those provisions have been drafted.

One of the most important provisions of the Wages Act relates to the nature and extent of deductions that may be made from wages, thereby protecting employees from unauthorised deductions. It also provides the circumstances for which fines may be levied on employees, the nature of deductions that can be made in absence from duty, deductions of any damage or loss caused by an employee, deductions for services supplied by the employer (such as house accommodation), deductions for recovery of advances or loans granted to employees and deductions for social security (provident fund) contributions and insurance coverage for employees.

Given that the Parliament is currently considering enacting the Labour Code on Wages, which will consolidate the Wages Act, the Minimum Wages Act, 1948, Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976, the reason for such an increase in the salary threshold to the Wages Act at this stage is unclear. It would also have been helpful if the government could publish the basis for the increase along with some statistics on the impact and the extent of the working class population that are likely to get covered by this increase. As such, no other Indian labour law contains such a high salary threshold for its applicability and this amendment could eventually pave way for an increase in the salary limit in other labour laws, including the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the Employees’ State Insurance Act, 1948, and the Payment of Bonus Act, 1965, which currently have lower thresholds. The Labour Code on Wages also proposes a national level base for minimum wages which is expected to be far higher than the current rates of minimum wages in most states. All of this would substantially increase the labour cost in the country and may make India less competitive globally.

Nishanth Ravindran & Vikram Shroff

You can direct your queries or comments to the authors

1Section 2(vi) of the Payment of Wages Act, 1936

Nishith Desai Associates 2013. All rights reserved.