India Hikes Wage Ceiling under Payment of Wages Act

Posted by Reading Time: 4 minutes
By Srinivas Raman

India’s federal government recently increased the monthly salary ceiling from US$280 (Rs 18,000) to US$375 (Rs 24,000) – widening the ambit of workers covered under the provisions of the Payment of Wages Act of 1936.

The Payment of Wages Act is a federal law that regulates the disbursement of wages and salaries to certain categories of employed persons in India. These categories broadly cover any person employed in any factory or industrial establishment as well as any other class of establishment, which the federal government may prescribe.

The Act fixes the wage-periods, time of payment of wages, the manner and mode of making deductions (employee’s provident fund contribution, life insurance premium, fines, deductions for absence from duty, deductions for damage or loss of goods of the employer), and mandates the maintenance of registers and records. Employees who earn a monthly salary as specified under the Act are covered under its provisions.

Wages under the Payment of Wages Act

It is important to understand the meaning of ‘wages’ under the Act.

‘Wages’ refers to all forms of monetary remuneration, which are payable to an employee for services rendered under the terms of employment. This includes any remuneration payable under court orders, overtime work compensation, bonus, and any other remuneration payable under the law in force.

However, ‘wages’ as understood by the Act does not include the following forms of additional remuneration: traveling allowance, employer’s contribution to provident fund, gratuity, remuneration arising out of profit sharing schemes, house rent allowance, and other amenities.

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Payment of wages to contract labor in India

The Payment of Wages Act applies to contract labor employed by any establishment covered under the Act. However, the terms of employment as well as mode of payment of wages for contract labor employed in sectors not covered under the Act are regulated by the Contact Labour (Regulation and Abolition) Act, 1970 and its ancillary Rules.

Recently, the federal government notified a small but significant amendment to the Rules. Under the erstwhile Rules, all wages were required to be paid only through cash. However, the amendment now allows employers to pay wages through cash, check, or by crediting the amount to the employee’s bank account.

This amendment endorses the less-cash economy initiative of the government. It additionally ensures timely payment of wages while facilitating compliance.

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Impact on employers

The increase in the wage ceiling will affect doing business in India as employers will now have a larger number of employees covered under the Act. This will correspondingly increase the burden of compliance with the provisions of the Act.

Consequently, employers may need to re-evaluate the number of employees under their payroll who come under the revised salary ceiling, and make payroll-related changes, accordingly.

Compliance with the multiplicity of labor laws in India is a daunting and complicated task. Keeping this in mind, the federal government is in the midst of overhauling the labor and employment law framework to simplify and consolidate labor regulation.

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