Laws On Liability Of The Employer With Regards To Payment Of Wages

KEY TAKEAWAYS

  • For every work done by the employees of an organization, the employer is obliged to pay a wage or salary as a form of return paid to the employee.
  • The provisions of Payment of Wages Act, 1936, and Minimum Wages Act, 1948, in addition to laws like the Payment of Bonus Act, 1965, the Contract Labour (Regulation and Abolition) Act, 1970 and the Equal Remuneration Act, 1976 were the laws that governed the payment of wages and salaries of employees.
  • The Bombay High Court in the case of Arvind Mills Ltd. v. K.R. Gadgil (AIR 1941 Bom. 26), while dealing with the definition of wages as given in the provisions of Sec. 2(vi) and Sec. 7 of Payment of Wages Act held that the expression "wages" means wages earned and not potential wages.
  • The provisions of the Payment of Wages Act deal with the instances where the employers have the liability to pay compensation.
  • A new code, titled the Code on Wages, was promulgated in 2019 to bring changes to the wage and salary structure.
  • The recently introduced code has now replaced the aforementioned acts.

INTRODUCTION

Like every other country, India has laws that regulate the payment of wages and salaries to employees and employers.

The importance of a law in this subject cannot be understated, as the laws guarantee payment of wages and salaries to employees by the employers for the work done by them.

Before the promulgation of the Code of Wages in 2019, payment of wages and salaries to employees were regulated by the provisions of the Payment of Wages Act, 1936, in addition to further laws like the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

The new wage code, introduced in 2019, seeks to regulate wages and salaries in all forms of employment by combining the aforementioned acts and, later, repealing them.

The new wage code provides for penalties in instances where compliance of the law by the employers is lacking. The fine for the same ranges between Rs. 20,000 and Rs. 1,00,000.

Contract labourers and workers are also covered by this code. The provisions of Sec. 2(g) of the Code defines a contract labourer as a worker who shall be deemed to be employed in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer and includes inter-State migrant worker but does not include a worker (other than part-time employee).

FURTHER DETAILS

Unlike the provisions of the Payment of Wages Act, which was applicable to employees drawing salary below a statutory limit, and the provisions of the Minimum Wages Act, which was deemed to be applicable for employees employed and engaged in scheduled establishments, the Code emphasizes uniform applicability of the provisions dealing with timely payment of wages to all employees irrespective of the wage structure, the wage ceiling and sector.

But it is equally important to touch on the provisions of the Payment of Wages Act, which was one of the earliest acts that dealt with payment of wages and salaries to employees by the employers. One of the key tenets of the Payment of Wages Act was the ceiling with regards to the applicability of the provisions of the act. It stated that employees earning less than Rs. 24,000 per month were to be covered by the provisions of the act. However, the provisions of the Code seek to remove the barrier. The Code is applicable to every employee working in all forms of employment irrespective of wage structure and sector.

In Union of India v. K.M. Shankarappa ((2001) 1 S.C.C. 582), the court held that the executive has to obey judicial orders. Without enacting an appropriate legislation, the executive or the legislature cannot set at naught a judicial order.

With regards to deductions, the provisions of Sec. 7 of Payment of Wages Act state that the total amount of deductions should not exceed 75% of wages of the employee in any wage period if whole or part of the deductions is meant for the payments to cooperative societies. In other cases it should not exceed 50%. The new Code, however, state that the deductions should not exceed 50% of the employee’s total wage irrespective of the field the employee is working in. Under the Code, the employee’s wages may be deducted on the following grounds:
a. Fines,
b. Absence of duty,
c. Accommodation given by the employer,
d. Recovery of advances given to the employee,
e. Deduction for payment of trade union fees or contribution to social security schemes, or
f. Deductions from income tax.

In Payment of Wages Inspector v. Surajmal Mehta (1969 AIR 590), the court held that the provisions of Sec. 7 provide that wages shall be paid without any deductions except those authorized by the Act and sec. 8 provides that no fine shall be imposed on any employed person save in respect of such acts or omissions on his part as the employer with the previous approval of the State Government or the prescribed authority may have specified by notice.

FURTHER COMPARISONS BETWEEN THE WAGE CODE AND PAYMENT OF WAGES ACT, 1936

A basic comparison between the Payment of Wages Act, 1936, and the new Wage Code can be made with regards to the definition of wage in itself. Under the provisions of Sec. 2(s) of the Payment of Wages Act, “wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.

The definition of wage under the provisions of Sec. 2(y) of the new Code includes:

(i)Basic pay;
(ii) Dearness allowance; and
(iii) Retaining allowance, if any,

But does not include––

(a) Any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment;
(b) 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;
(c) Any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;
(d) Any conveyance allowance or the value of any travelling concession;
(e) Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment;
(f) House rent allowance;
(g) Remuneration payable under any award or settlement between the parties or order of a court or Tribunal;
(h) Any overtime allowance;
(i) Any commission payable to the employee;
(j) Any gratuity payable on the termination of employment;
(k) Any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment.

Another comparison between the Payment of Wages Act and the Wage Code can be made with regards to modes of payment of wages. Sec. 6 of the Payment of Wages Act state that all wages shall be paid in current coin or currency notes or in both.

Provided that the employer may, after obtaining the written authorization of the employed person, pay him the wages either by cheque or by crediting the wages in his bank account.

The new Code, however, states that wages can be paid in coins, currency notes, cheques, by crediting to the bank account of the employee or through electronic mode. The new Code seeks to give freedom to the employer to introduce wage periods as either: daily, weekly, fortnightly or monthly.

The new Code, however, seeks to bring more accountability towards the employer. The provisions of Sec. 55 of the Code state as follows:

(1) If the person committing an offence under this Code is a company, every person who, at the time the offence was committed was in charge of, and was responsible to the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) Notwithstanding anything contained in sub-section (1), where an offence under the Code had been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

The provisions of Sec. 54 of the Code state that if the employer pays to any employee less than the amount due to such employee, the employer shall be liable to fine of Rs. 50,000. If the employer repeats the same offence, he shall be deemed to be liable to imprisonment of 5 years from the date of commission of first offence and on commission of second offence, he shall be deemed to imprisonment of three months or fine which may extend to Rs. 1, 00, 000, or both.

The provisions of Sec. 63 of the Code provide an opportunity for the employer to prove his innocence before the court. To the satisfaction of the court, if the employer can prove that he had used due diligence to enforce the execution of this Code and that the other person committed the offence in question without his knowledge, consent or connivance, he can be deemed to be innocent by the court.

Therefore, it can be stated that the new Code brings more accountability and liability towards the employer.

CONCLUSION

Therefore, it can be conclusively stated that the new Wage Code brings more accountability and more inclusivity. The new Code seeks to increase basic pay, as it states that wage should be at least 50% of the total salary the employee is getting. This will, in turn, result in a change in the other components such as provident funds, gratuity and contribution, as the calculations for the same is based on the definition of wages. The restructuring promulgated by the Code may result in reduction of take-home salary and may result in increase of contribution to retirement benefits. Therefore, it can be stated that the new Code will bring changes to every aspect of payment of wages.

 

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