India Hikes Wage Ceiling under Payment of Wages Act
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.
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.
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.
India Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, Indonesia, Russia, the Silk Road, & Vietnam. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout India and the Asian region. We maintain offices in Delhi and Mumbai and throughout China, South-East Asia, India, and Russia. For assistance with India investment issues or into Asia overall, please contact us at email@example.com or visit us at www.dezshira.com.
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
The third edition of Tax, Accounting and Audit in India is updated for 2017, and provides an overview of the fundamentals of India’s tax, accounting, and audit regime. The guide also includes a detailed introduction of the Goods and Services Tax (GST) that was launched on July 1, 2017, representing the complete transformation of India’s indirect taxation structure.
In this issue of India Briefing Magazine, we discuss payroll processing and reporting in India, and the various regulations and tax norms that impact salary and wage computation. Further, we explain India’s complex social security system and gratuity law, and how it applies to companies. Finally, we describe the importance of IT infrastructure, compliance, and confidentiality when processing payroll in India.