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Payment of Wages

Payment of Wages

Payment of Wages Act

The main objective for the introduction of the Payment of Wages Act, 1936, is to avoid unnecessary delay in the payment of wages and to prevent unauthorized deductions from the wages.

Applicability of Payment of Wages Act

As per section 1(6) of the Payment of Wages Act, the wages averaging less than INR 6,500 per month are covered and protected by the Act. Further, the Act is applicable to the payment of wages to persons employed in factories, upon railways, or in other establishment as specified in the Payment of Wages Act.

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:

  1. The delay was due to bona fide error / dispute as to the amount payable to the employed person;
  2. The person responsible was unable to make payment due to exceptional circumstances, even though exercised due diligence;
  3. 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

The following are some of the penal provisions under the 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.