In this article, Prachetha Nidhi Verma of I.I.M.T & School of Law discusses the obligations of employer under the Payment of Wages Act, 1936.

Introduction

With the growth of industries in India, problems relating to the payment of wages to workmen employed in the industry took an ugly turn. The workers were not paid their wages at regular intervals. There was no uniformity and no regulation in the payment system. The employers made hefty deductions out of the wages of the workers for petty issues. The employees were paid peanuts in the name of wages. To control this menace, the Payment of Wages Act, 1936 was enacted with the object to regulate the regular payment of wages and to keep in check the unlawful deductions for certain classes of employment. This Act came into force on 23rd April 1936. Let us now discuss the obligations of the employer under this Act.

An Obligation to pay wages on time and in an authorized form

a. Who has the responsibility of payment of wages within the organization as per the Act?

According to Section 3 of the Payment of Wages Act, 1936, every employer is responsible to make the payments of wages to all the persons employed under him. Check out the table below in order to understand who will be responsible as an employer in the different establishments.

What wage-period should be fixed by the employer?In Section 4(2) of the Payment of Wages Act, 1939, it is indicated that no wage-period i.e. the period in which a worker receives his or her wage, shall exceed the period of one month. Illustration: X is an employee in ABC factory, his wage period is of 40 days i.e. he receives his wages every 40 days. According to the law, X’s employer shall be liable for fixing a wage period exceeding a period of one month.

When should an employer pay the wages?

As per Section 5,
1. The employer shall pay the wages:

• In the case where there is less than 1000 worker employed in the factory- before the expiry of the 7th day after the last day of the wage period i.e. the day on he should be getting his wages.

Illustration- Anand, an employee works in XYZ factory consisting of 800 workers. He gets his wages on 20th of every month. In the month of January 2018, his wages get delayed. According to the law, Anand should get his pay before the expiry of 27th January which is the 7th day after the last day of the wage period that is 20th january. It should not be delayed later than 27th january.

1. In any other case- before the expiry of the 10th day after the last day of the wage period.
2. In the case where the employee is terminated, the wages earned by him has to be paid by the employer before the end of the second working day from the day of termination. Illustration-Manish, an employee works in ABC factory. His employment is terminated on 10th January 2018 on the grounds of misconduct. According to the above law, it is mandatory that the employer pays him the wages last by 20th January 2018 and not a day later than that.
3. The employer shall make all the payment on working day.

What is the authorised mode of payment of wages?

According to Section 6 of the Act, the employer shall pay the wages in current coin or currency notes and by cheques or by crediting the wages in the employee’s bank account after obtaining his written authority. Thus, payment in kind or bitcoin will not be acceptable. Illustration- X, an employee gets paid Rs.3000 every month by his employer A. In January, X is given 300 kg of sugarcane instead of his wages of Rs.1500. This form of wages is prohibited by the Act.

An Obligation to maintain registers and records:

• As per Section 13(A) of the Act, the employer is obligated to make registers and records in order to maintain a list of the particulars of employees in relation to the following matters:
• The work done by him,
• Wages paid to him,
• The deductions made from their wages etc.
• The employer has to preserve these records for three years from the date on which last entry was done.

Duty not to make any unlawful deductions from the wages

Deductions from wages are not permitted unless they are strict as per the grounds and procedures given under the Payment of Wages Act,1936.

a. What is a deduction under the Act?

Any payment made by the employee to his employer or his agent shall be deemed to be a deduction under this Act.

b. What does not amount to a deduction?

Any loss resulting from the imposition of the following penalties shall not be a deduction under this Act:

• The refusal to provide an increment or promotion;
• The reduction to a lower post or to a lower stage in a scale;
• Suspension.

c. What are unlawful deductions?

Deductions other than those authorised under the section 7 of the Payment of Wages Act,1936 are unlawful deductions. For example, Deduction of Rs.300 from the wages of an employee for buying the supply of raw materials for the factory is an unlawful deduction, since it is the duty of the employer to provide the materials required by the employees to carry on their work.

List of authorised deductions is mentioned in section 7 of the Payment of Wages Act,1936. It is an exhaustive list and any deductions from the wages of the employees made on the ground other than those mentioned under section 7 will be termed as an unlawful deduction. Some of the authorised grounds are:

• Fine,
• Absence from duty,
• Deduction of income tax payable by the employee,
• Deductions for repayment of advances from a provident fund, etc.

d. What is the maximum amount of the deduction that an employer can do? (Section 7(3))

List of deductions for which rules are provided in the Act.

What are the rules for imposing fines on the employee?

An employer can impose fine on the employee through Section 7(2)(a), which is an authorised deduction under the Act. Section 8 of the Act states the obligations of the employer before imposing any fines on the employee, which are:

• The employer can impose only those fines that are mentioned in the list of “acts and omissions” made by him, which must identify acts and omissions from within the list already approved by the state government or the authorised appropriate authority for the entire industry.  
• Notice specifying the employer’s list of “acts and omissions” owing to which fines can be imposed on the employee should be displayed in the conspicuous part of the work premises.
• No fines should be imposed on the employee until he has been given an opportunity of showing cause against the fine.
• The total amount of fine imposed should not exceed 3% of the employee’s wages.
•  No fine to be imposed on any employee below the age of 15 years.
• No fine imposed on any employee shall be recovered from him through installments. Also, the fine shall not be recovered from the employee after the expiry of 90 days from the date on which it was imposed.
• All fines to be recorded in the register maintained by the persons responsible for fixation of wages under section 3. These fines should be credited to the common fund and to be utilized for the benefit of the employees.

What are the rules that an employer should follow before deducting wages for absence from duty?

An employer can deduct wages for absence from the duty through Section 7(2)(b) which is an authorised deduction under the Act. Section 9 of the Act prescribes the mechanism for application of such deduction of wages in respect of employees who are absent from duty. The guidelines are provided below:

• The employer can deduct the amount of wages for the absence from the duty in the same proportion as the employee’s absence bears to the total time he was obliged to do the work. Illustration: If the salary of an employee is Rs.72,000 annually. X (an employee) absents himself from the work for one whole month, then his employer cannot deduct more than Rs. 6,000/- (72,000/12).
• If 10 or more workers, acting in concert, absent themselves

1. Without giving notice that is required by the employment.
2. Without any reasonable cause

Then the employer cannot make deductions more than amount exceeding wages of 8 days.

Anant Ram v. District Magistrate, Jodhpur (AIR 1956 Raj 145) – It was held in this case that the absence of work must be voluntary. Hence no deduction can be made under section 7, clause (2), when the absence from the duty is for the period between employee’s dismissal and reinstatement as such absence cannot be said to be voluntary.

What are the rules that an employer should follow before deducting wages for payments to cooperative societies and insurance schemes?

An employer can deduct for payments to cooperative societies through Section 7(2)(j), which is authorised under the Act. According to Section 13, Deductions shall be made by the employer subject to the conditions as imposed by the appropriate government.

What are the rules that an employer should follow before deducting wages for damage or loss?

An employer can deduct wages for damage or loss through Section 7(2)(c), which is authorised under the Act. According to Section 10,

• The employer shall not deduct the wages exceeding the amount of damage or loss of goods occurred due to neglect or default of the employee. Also, it is to be ensured that the employee had the custody of the goods which were so damaged.
• The employer is bound to give an opportunity to the employee for showing cause before deducting any wages.

M/S Rampur Engineering Co. Ltd. v. City Magistrate (AIR 1966 All 544)– It was observed by Allahabad High Court that the deduction for loss of electric bulbs and tools that were given to the employees for their own personal use is a valid deduction.

What are the rules that an employer should follow before deducting wages for house accommodation or services rendered?

An employer can deduct wages for house accommodation through Section 7(2)(d) and for services rendered through section 7(2)(e), which is authorised under the Act. According to section 11, An employer cannot deduct wages exceeding an amount which is equivalent to the value of house accommodation or any other service supplied. Such deduction can only be made if such service or accommodation has been accepted by the employee.

What are the rules that an employer should follow before deducting wages for recovery of loans?

An employer can deduct wages for recovery of loans through Section 7(2)(ff), which is authorised under the Act.

According to section 12A, The employer is bound to follow the rules made by the appropriate government in this behalf.

What are the rules that an employer should follow before deducting wages for recovery of advances?

An employer can deduct wages for recovery of advances through Section 7(2)(f), which is authorised under the Act. According to section 12,

• For the advances that are given after employment has commenced– The employer is bound to follow the rules and conditions made by the appropriate government.
• For the advances that are given before the employment period begins– The employer shall recover the same from the first payment of wages of such employee. But no recovery shall be done by the employer in the case where the advance is given for travelling expenses.

Conclusion

It is mandatory for the employer to carefully comply with his obligations under the Act in order to prevent himself from being punished under section 20 of the Act. The duties of the employers that were discussed above have significantly curbed the exploitation of the workers employed in the industries. The workers are now in a better position in comparison to the earlier situations of the workers. Though we have come a long way, still there is a need to fully execute, implement and keep a check on the employer in order to ensure the objectives of the Act.