Wage Measurement and

connected issues in India

Presentation by
Biju Varkkey
Indian Institute of Management Ahmedabad
India
 PROFILE OF INDIA
Total no: of States and Union 28 States and 7 Union
Territories Territories
Total no: of revenue districts 602
Total population 1028 million (2000)
Annual Per capita income Rs. 10,254 / US $ 520
(for 2000-01)
GDP Rs. 18,95,843 crores (for
2000-01
Total workforce 315 million
Organized 29.61 million
Unorganized 285.39 million
INDIA : HUMAN DEVELOPMENT
INDEX

Life expectancy at birth (years) (HDI), 2002 63.7 y

Adult literacy rate (% ages 15 and above) ( 61.3

HDI), 2002

GDP per capita (PPP US$) (HDI), 2002 2,670

Employment : Organized Sector.
No’s in million

Factories 10.47
Mines 0.49
Plantations 1.09
Shops and Establishments 5.00
Motor Transport 0.71
Services 3.86
Ports 0.022
Central/State Governments 7.000
Total 27.762
Year (1999-2000)
 Employment: Unorganized
• It is difficult to correctly arrive at the
employment numbers, under different
categories in the unorganized sector.

• However, agriculture & related activities

continues to be the dominating sector
accounting for 70% of unorganized sector
employment. Construction will be the next
largest sector.
 Differences: organized and
unorganized sectors.
• The organized sector enjoys better conditions of
work, protection under labor laws, are better
unionized and most enjoy collective bargaining
rights when compared to their unorganized
sector counter parts.
• On the other hand, the degree of protection &
trade union rights available for unorganized
sector is limited :– however, varies depending on
extend of unionization/political climate of the
state. (Kerala/West-Bengal). In such cases they
enjoy near equal protection.
Differences: Government, Public and Private
sector workers.
• Government workers enjoy high level of job protection,
trade union representation without collective bargaining
rights.
• Public Sector workers enjoy trade union and collective
bargaining rights.
• Private sector workers enjoy trade union and collective
bargaining rights like public sector. Current trend to non-
union workplaces.
• Right to strike for government employees – prohibited by
Supreme Court of India in 2002.
Officers/executives in any sector – no trade union,
collective bargaining rights.
Framework for wage calculation
• Organized Sector:-
– The `day’, `week’ and `month’ are the basic units for
wages calculation. Used in combination.
– Normal working week is five days (for government) five
half days/ six days.
`Hour’ is generally not a unit for wage calculation. (In
newer sectors like IT, ITES hour is becoming a
standard).
– Wage payment is made monthly.
Unorganized sector:
`Day’ is the common unit of calculation. In certain cases
piece rate wages is in vogue, as well as hourly wages.
 CONSTITUTION of India ON
WAGES
• Directive Principles

• Article 39

There is equal pay for equal work for both men and women; 

Article 43

Living wage, etc., for workers.- `The State shall endeavor to

secure, by suitable legislation or economic organisation or in any
other way, to all workers, agricultural, industrial or otherwise, work,
a living wage, conditions of work ensuring a decent standard of life
and full enjoyment of leisure and social and cultural opportunities
and, in particular, the State shall endeavour to promote cottage
industries on an individual or co-operative basis in rural areas.’ 
 Government and Wages in
India.
• Government has been intervening from
time to time, but the process was slow.
• For unorganized sector – legislations and
for others through various institutions.
• Initial interventions (modern) were by
British 1860 (though different kings too
had their own rules)
• Committee on Fair Wages : 1946,
provided a modern framework.
 National Wage Policy for India.
• As of now, India does not have a formal national
wage policy, though the issue has been discussed
several times.
The government has direct and indirect control over
wage levels, which has been exercised through
different institutions.

(Top salaries of PSU’s and Private Sector are strictly

regulated, though the degree has been diminishing,
particularly in Private Sector – This has led to
phenomenal differentials between Private and Public).
Committee on Fair Wages 1946
• Minimum Wage: - bare subsistence of worker,
enough for health, efficiency and working capability.

• Fair wage: Above minimum wage

• Living wage: male worker not to provide for himself,

but for family – not just bare necessities but frugal
comfort, education for children, social security etc.
• Need based minimum wage.
 Institutions involved in wage
determination.
• Wages Legislation. (covers organized/unorganized)
• Wage Boards (covering select private and public
sectors).
Pay Commission (for government/Public Sector).
Collective Bargaining (for covered workers).
Government Directives/Special commissions

• Salary Surveys/Compensation Consultants – for

private sector, non officer cadre.
 Wages Legislation
• Minimum Wages Act 1948
• Payment of Wages Act 1936.
• Equal Remuneration Act 1976
• Companies Act 1952.

• Other (s):
• Payment of Bonus Act
 Definion of Wages
• Minimum wages Act:

Wages" means all remuneration, capable of being expressed in

terms of money, which would, if the terms of the contract of
employment, express or implied, were fulfilled, be payable to a
person employed in respect of his employment or of work done in
such employment [and includes house rent allowance],

but does not include- 

(i) the value of- (a) any house, accommodation, supply of light, water,
medical attendance, or (b) any other amenity or any service
excluded by general or special order of the appropriate
government; 
(ii) any contribution paid by the employer to any pension fund or
provident fund or under any scheme of social insurance; 
(iii) any travelling allowance or the value of any travelling concession; 
(iv) any sum paid to the person employed to defray special expenses
entailed on him by the nature of his employment; or 
 Who is eligible for Minimum
wages?
• "employee" means any person who is employed for hire or reward
to do any work, skilled or unskilled, manual or clerical, in a
scheduled employment in respect of which minimum rates of wages
have been fixed; and includes an out-worker to whom any articles or
materials are given out by another person to be made up, cleaned,
washed, altered, ornamented, finished, repaired, adapted or
otherwise processed for sale for the purposes of the trade or
business of that other person where the process is to be carried out
either in the home of the out-worker or in some other premises not
being premises under the control and management of that other
person; and also includes an employee declared to be an employee
by the appropriate government; but does not include any member of
the Armed Forces of the,8[Union].
Calculation of Minimum Wages:
• 15th Indian Labor Conference:
– Standard working family of 1 man(earning)+ 1 women
(wife) + 2 children.
– 2700 calories for adult 80% for wife and 60% for child
(daily)
– 72 yards of cloth per annum.
– Government rental cost for housing
– 20% of above for fuel, lighting, miscellaneous.

– This formed the basis for calculation.

 Minimum Wages: present
situation.
• Idea of National Minimum wages not
accepted.
• Hence minimum wages determined by
center/state government for different
occupations. Now total 200 occupations
covered.
• For same occupation , minimum wages
vary from state to state.
• Declared on per day basis for 8 hour work.
 Wage Indexation.
• The system of DA (Dearness Allowance) to take
care of effects of inflation. (cost of living).
• Indexation can be fixed or variable (indexation
value decreases as income rises).
• Consumer Price Index used as the basis.
• Clearly followed in organized sector.
• On some states minimum wages revised
periodically, so no requirement for indexisation.
– (Freeze in DA)
 Payment of Wages Act 1936

• Introduced to ensure that wages are not

withheld, no wrongful deductions made and
payment is made in such manner that wage
earner will benefit. (objective was to reduce
effects of payment in kind for work done).

• Act has limitations – agriculture not covered.

 Current Situation.
• Payment in kind reducing. (only kind may be
very rare) combination of cash and kind.
• Organized sector moving into Commercial Bank
linked transactions. (ATM’s/Cheque).
• Non-payment of wages still a cause for industrial
dispute in organized sector.

• Non-payment of wages dealt as police complaint

(criminal offence) in unorganized sector.
 Equal Remuneration Act 1976
• Payment of equal wages for men and
women workers for same work or work of
same nature.

• However discrimination exists in terms of

definition as: difficult work (men) and easy
work (work) in same workplace.
• Also depending on type of employment
contracts
Types of employment contracts.
• Organized Sector • Un-organized Sector

• Permanent worker. • Inherited worker.

• Contract Worker.
• Contract worker.
• Badali Worker
(substitute) • Casual worker.
• Beck and call worker.
• Casual Worker (daily
wages). • Free labour/Help.
• Bonded/Child (illegal)
• Apprentice/Trainee.
 Bonus Payment
• Payment of Bonus Act.
– 8.33% minimum bonus and 20% maximum,
even for loss making organizations.
– Workers earning up to Rs 3500 (?) per month
alone eligible.
– Government employees (earning limit applied)
also given bonus, declared yearly.

In un-organized sector, one month equivalent

(during festivals) is like a norm –
 Working Hours
• Formal sector :- Factories Act
• No adult workers shall be required or allowed to work in a factory for
more than forty-eight hours in any week. (51)

• Subject to the provisions of section 51, no adult worker shall be

required or allowed to work in a factory for more than nine hours in
any day.

• The periods of work of an adult worker in a factory shall be so

arranged that inclusive of his intervals for rest under section 55, they
shall not spread over more than ten and a half hours in any day :
Provided that the Chief Inspector may, for reasons to be specified in
in writing, increase the spread over up to twelve hours.
 Working hours –contd .
• Shops and commercial establishments
Act-
• No employee in any establishment shall be
required to work for more eight hours in any day
and 48 hours in any week. (Section X of THE KERALA SHOPS
AND COMMERCIAL ESTABLISHMENTS ACT, 1960 )

• Informal Sector:
• Based on conventions – `sunrise to sunset’ unless
the sector/location is unionized.

• Government – 45 hours.
 Overtime payment.
• Workers under factories Act are eligible for
overtime payment, for excess of 30
minutes - at twice the rates.
• Working on off days, holidays also eligible
for overtime.
• Overtime specified under Minimum
Wages Act.
• Government has abolished overtime in
gov/Public Sector (now compensatory off).
 Wage Boards.
• Tripartite Wage Boards consists of equal
representatives of employers and workers and
an independent Chairman.
• Determined the wages and other remuneration
to be given to the workers in industries, where
wage boards are formed .
• Wage bargaining mostly took place at the
industry level, and through Government
controlled wage boards.
• First Wage Board (Divatia Wage Board) was
constituted in May, 1956
 Pay Commission:- (government
employees)
GOI appoints pay commissions to determine the wages
(monthly) and conditions of work of government
employees, including armed forces.

Till now 5 commissions have been appointed

State Governments also appoint commissions for state

government employees.

Central and State pay commission reports considered a

bench mark for organized sector.
 Wage determination: Bargainable
Category in Public and Private
Sectors.
• PSUs collective bargaining (national/industry level)
exists – but not very free. Government sets limits.
(LCF).

• Some private sector also join the PSUs (banks) for

wage negotiations, if the union is common.

• In private sector - enterprise level bargaining is

accepted. But they too try to keep wages under
check.
 Wage Determination: Non
barganiable category in Public
Sector.
• Set by the government.
 Wage Determination: Non
Bargainable Category – Private
Sector.
• Difference between Sunrise and
Traditional Sectors.
• This is where freedom exists.
• Executive salaries have been shooting
through the roof in India, particularly in
sunrise sectors like IT, Bio – Tech.
• In fact, NRI;s from North America are
coming back since they find that earning
potential is high.
 Taxation Issues
• Only in organized sector, three stage tax
rate on wages. Only very few people
covered (or actually pay taxes).

• 15%, 20%, 30% depending on annual

income.

• No tax below Rs 1 lakh.

• Reforms are progressing
 Agencies Involved in Collection of
Wages Data
• Government:
– Central Statistical Organisation.
– National Sample Survey Organisation
– Labour Bureau under Ministry of Labour, GOI.
– Ministry of Agriculture – Agricultural Survey.
Private:
Consulting companies keep track of executive
remuneration.
Comprehensive Source of wages Absent.