MODULE 3

REMUNERATION FOR LABOUR

Remuneration for Labour

1. Concepts of wages (minimum wages, fair wages, living wages, Need-based minimum
wages)
2. Disparity in wages in different sectors, need for rationalization and national approach
3. Wage Board and Pay Commission
4. Principles of Wage Fixation
5. Concept of bonus - Computation of bonus

Meaning and Definition of Wage

According to Section 2(h) of the Minimum Wages Act, 1948 the term “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:
 The value of any house accommodation, supply of light, water, medical attendance or
any other amenity or any service excluded by general or special order of the
appropriate government.
 Any contribution paid by the employer to any person fund or provident fund or under
any scheme of social insurance
 Any traveling allowance or the value of any traveling concession
 Any sum paid to the person employed to defray special expenses entailed on him by
the nature of his employment
 Any gratuity payable on discharge

Minimum Wage
 The term Minimum Wage has not been defined in the Minimum Wages Act, 1948.
 It is the lowest wage in the scale below which the efficiency of a worker is likely to be
inspired.
 It includes not only the bare physical necessities but also a modicum of comfort
otherwise known as conventional necessities.
 The minimum wages must therefore provide not merely for the bare subsistence of
life but also for the preservation of the efficient of the worker.
 The minimum wage must also provide for the same measure of education, medical
requirements and amenities.
 Where a person provides labor or service to another for remuneration which is less
than the minimum wages, such labor is ‘forced labor’ within the meaning if Article 23
of the Indian Constitution and thereby entitles the person to invoke Article 32 or
Article 226 of the Constitution of India.
 The concept of fair wages was to be dynamic. There is no reason to assume that fair
wages fixed years ago should continue to be fair wages for all time and any fixation of
minimum wages, should be taken not as minimum wages but as fair wages because it
is above the fair wages once fixed.
Components of Minimum Wages under the Minimum Wages Act
 Section 4 of the Minimum Wages Act, 1948 explains the components of minimum
wages.
 Minimum wages can be comprised of:
 Basic wages and a special allowance that can be adjusted periodically to match the
changes in the cost of living for the workers in specific scheduled employments.
 Basic wages with or without a cost of living allowance and the value of concessions
provided for essential commodities at discounted rates, if authorized.
 An all-inclusive rate that covers basic wages, cost of living allowance, and any
concessions provided.
 The calculation of cost of living allowance and the value of concessions for essential
commodities at discounted rates will be done by the relevant authority. The intervals
and guidelines for such calculations will be determined by the appropriate
government.

Fair Wage
 Fair wage is a mean between the living wage and the minimum wage.
 A fair wage is related to fair work-load and the earning capacity.
 It is more than minimum wage but less than the living wage.
 It is to be approximate to the need-based minimum, in the sense that the wage is
adequate to cover the normal needs of the average employee regarded as a human
being in a civilized society.
 Fair wage is fixed, taking into consideration, the present economic position and
further prospects of the industry.
 Between the two limits of Living Wage and Minimum Wage, actual wage would
depend upon a consideration of certain factors namely:
 The productivity off labor
 The prevailing rates of wages in the same industry for similar occupations in
the same or similar occupation in the same or neighboring localities
 The level of national income and its distribution
 The place of the industry in the economy of the country
 The concept of fair wages involves a rate sufficiently high to enable the worker to
provide a standard family with food, shelter, clothing, medical care and education for
children appropriate to his status in life but not at a rate exceeding the wage-earning
capacity of the class of establishment concerned. As time passed and prices rise even
the fair wage fixed for the time being tends to sag downwards and then revision
becomes necessary.

Living Wage
 The concept of “Living Wage” is the wage rate which prevails in most of the
economically advanced countries.
 The term living wage has not been defined under the Minimum Wages Act, 1948.
 As per the South Australian Act, 1912, it means a sum sufficient for the normal and
reasonable needs of the average employee living in a locality, where the work under
consideration is done or is to be done.
 The living wage must provide not merely for absolutely essentials such as food,
shelter and clothing but for condition of frugal comfort, estimated by current human
standard.
  Living wages are wages without which working people cannot live and perform their
duties as a citizen.
 It varies from country to country depending upon the price level of necessaries of life,
and it is determined by the socio-economic conditions of a particular country.
 The living wage should enable the wage earner to provide for himself and his family
not merely the bare essentials of food, clothing and shelter but the measure of frugal
comfort including education for the children protection against ill health,
requirements for essential social needs and a measure of insurance against the more
important misfortune including old age.
 There is no statutory definition for the term ‘living wage’.
 As per Article 43 of the Constitution, the state shall endeavor to secure to all workers
living wages, conditions of ensuring a decent standard of life and full enjoyment of
leisure and social and cultural opportunities.

Need-based Minimum Wages

 The Indian Labour Conference in 1957 suggested that the minimum wage should be
based on people's needs and should ensure that industrial workers have their basic
requirements met, regardless of other factors.
 The need-based minimum wage is calculated using the following criteria:
o It considers a standard working class family to consist of 3 people who earn
money, and it doesn't take into account the earnings of women, children, and
adolescents.
o The minimum food requirements are determined based on the recommended
intake of 2,700 calories per day for an average Indian adult with moderate
activity, as suggested by Dr. Akroyd.
o Clothing needs are estimated at 18 yards per person per year, so for a family of
4, it would be a total of 72 yards.
o Housing costs should be based on the minimum rent charged by the
government in any area for houses provided under the Subsidized Housing
Scheme for low-income groups.
o Fuel, lighting, and other miscellaneous expenses should make up 20% of the
total minimum wage.
 However, the Minimum Wages Act of 1948 does not provide a specific definition of
the minimum wage. Employers tend to follow the definition given by the Committee
on Fair Wages in 1948, while trade unions prefer to consider the concept of a need-
based minimum wage.

Wage Fixation
Fixation of Minimum Rates of Wages [Section 3(1)(A)]
 Section 3 of the law states that the government responsible for a particular area must
determine the minimum wage rates for employees in specific types of jobs listed in
Part I and Part II of the Schedule. The government can also add more jobs to the list
through notification.
 For jobs listed in Part II, the minimum wage rates may not be set for the entire state.
Certain parts of the state may be excluded from the minimum wage requirement.
However, for jobs listed in Part I, the minimum wage rates must be determined for the
entire state without excluding any parts.
 The minimum wage rates do not have to be the same everywhere. Different rates can
be set for different zones or localities.
  The constitutional validity of Section 3 was challenged in the Bijoy Cotton Mills case.
The Supreme Court ruled that although setting minimum wage rates restricts the
freedom of contract guaranteed by Article 19(1)(g) of the Constitution, these
restrictions are not unreasonable. They are imposed in the public interest and to fulfil
one of the Directive Principles of State Policy stated in Article 43 of the Constitution.
 According to Section 3(1)(a), the government has the option to not set minimum wage
rates for a scheduled employment if fewer than 1000 employees in the entire state are
engaged in that job. However, if the government becomes aware that the number of
employees has increased to 1000 or more, they must establish a minimum wage rate
for that employment.
Manner of Fixation of Minimum Wages
 Section 3(2) of the law allows the government to set minimum wage rates for
different types of work:
o Minimum Time Rate: This applies to jobs where employees are paid based on
the hours they work.
o Minimum Piece Rate: This applies to jobs where employees are paid based on
the number of pieces they produce or complete.
o Guaranteed Time Rate: This is for employees working on a piece-rate basis to
ensure they earn a minimum wage based on the time they spend working. It
prevents workers from earning less than the minimum wage if the piece rate is
too low.
o Overtime Rate: This is a minimum rate that applies when employees work
extra hours beyond their regular working hours, regardless of whether they are
paid by time or piece rate.
 Section 3(3) allows for different minimum wage rates to be set in various situations:
o Different scheduled employments: Each type of job can have its own
minimum wage rate.
o Different classes of work within the same job: Different categories of work
within a specific job can have different minimum wage rates.
o Adults, adolescents, children, and apprentices: Minimum wage rates can vary
based on the age and status of the employee.
o Different localities: Minimum wage rates can differ based on the location or
area where the work is performed.
 The law also provides flexibility in determining the wage period for calculating
minimum wages. It can be fixed by the hour, day, month, or other larger periods as
prescribed. If the Payment of Wages Act, 1936, specifies a wage period, then the
minimum wages must be calculated accordingly.
Procedure for fixing wages (Section 5)
Two methods can be used to fix or revise minimum wage rates:
 Committee Method: The government can appoint committees to hold inquiries and
provide advice on the wage rates. After considering the committee's
recommendations, the government will issue a notification in the Official Gazette to
fix or revise the minimum wage rates. The rates will come into effect on a specified
date or after three months if no date is mentioned.
 Notification Method: The government will publish its wage rate proposals in the
Official Gazette and provide a two-month period for affected parties to submit their
representations. The government will consider the representations and consult the
Advisory Board before issuing a notification to fix or revise the minimum wage rates.
 The new rates will come into effect on a specified date or after three months if no date
is mentioned. Retroactive revisions are also possible.
The Advisory Board
 The Advisory Board is established by the government under Section 7 of the Act.
 Its purpose is to coordinate the work of committees and sub-committees appointed
under Section 5 and provide general advice to the government regarding minimum
wage fixation and revision.
 The board consists of representatives nominated by the government, including equal
numbers of employers and employees from the scheduled employment, and
independent members (up to 1/3 of the total members). An independent person is
someone who is neither an employer nor an employee in the relevant employment.
 The board's chairman is appointed by the government.
Central Advisory Board
 The Central Government appoints a Central Advisory Board under Section 8 of the
Act.
 The board advises the Central and State Governments on fixing and revising
minimum wage rates and other matters related to the Minimum Wages Act.
 It also coordinates the work of advisory boards.
 The board consists of representatives nominated by the Central Government,
including equal numbers of employers and employees from the scheduled
employment, and independent members (up to 1/3 of the total members). The Central
Government appoints the board's chairman.

Wage Board

Historical Background
 Wage Boards have a long history in the Indian Industrial Relations Systems.
 In 1931, the Royal Commission on Labour recommended the establishment of Wage
Boards for determining wages.
 The First Five Year Plan envisioned setting up permanent Wage Boards at the state
and central levels to comprehensively address wage-related issues.
 However, this recommendation was not given enough attention, and wage disputes
continued to be resolved through Industrial Tribunals.
 The Second Plan recognized Wage Boards as a more acceptable mechanism for
decision-making, involving responsible roles for parties involved.

Establishment of Wage Boards

 The first Wage Board was established in 1957 for the cotton textile industry.
 Since then, more industries have been included under Wage Boards.

Objectives of Wage Boards:

 Improve industrial relations climate
 Represent consumer/public interests
 Standardize wage structure within the industry
 Align wage settlements with the government's social and economic policies.

Composition of Wage Boards

 1. Tripartite in nature: Consists of a chairperson, an equal number of employer and
employee representatives, and two independent members (an economist and a
consumer's representative).
2. Chairperson appointed by the appropriate Government in consultation with the Chief
Justice of the relevant High Court or Supreme Court.
3. Members representing employers and employees appointed by the appropriate
Government based on recommendations from their respective representative
organizations.

Functions of Wage Boards

 Primary function: Determine wages for employees in the industry.
 The Government or recognized employer/employee organizations can refer other
matters for determination by the Wage Board.

Procedure of Wage Boards

The Wage Board follows prescribed procedures, but in the absence of government-prescribed
procedures, they can develop their own procedures.

Criteria for Wage Board Award

 When developing a wage structure, the Wage Board considers various factors such as
industry needs, payment systems, prevailing wages, covered worker categories,
capacity to pay, employment levels, and public interest.
 Wage boards may also handle additional tasks like considering bonus grants and
creating gratuity schemes.

Award of Wage Board

The Wage Board's award:
 Must have majority opinion and be in writing, signed by all members, including the
chairman.
 Final and cannot be questioned by any court, but an appeal can be filed with the
National Labour Relations Commission.
 Comes into force on a specified date or, if not specified, from the date it is signed.
 Binding on all employees and employers in the activity, including future employees
and successors, for a period of three years, extendable by mutual agreement.

Enforcement of Wage Board Award

 After the award comes into force, every employee is entitled to be paid wages
according to the award.
 Employers must pay wages at rates equal to or higher than the award; employees
receiving higher wages can continue to do so.

Types of Wage Boards

 Most Wage Boards in India are non-statutory, except for the one governing working
journalists.
 Some states have statutory wage boards for specific industries.
 Wage boards generally operate with flexibility, collecting information through
questionnaires and holding discussions to gather input from concerned parties.
  The government examines the recommendations, generally accepting unanimous
ones, but there have been cases of modifications leading to concerns about partisan
behavior.

Criticisms of Wage Boards

 Single machinery for wage fixation may not be suitable for all industries; different
industries may require Wage Boards, collective bargaining, or adjudication.
 Some recommendations are not implemented or followed, even when unanimous.
 Insufficient consideration given to linking wages with productivity.
 Procedural delays have been a significant issue.
 Suggestions have been made to address delays, such as not referring matters before a
Wage Board to adjudication and establishing a permanent division to support all
Wage Boards.

Pay Commissions
Introduction to Pay Commissions:
 Pay Commissions are established by the Central Government to recommend salary
structures for Central Government employees.
 State governments may also set up their own pay commissions.
 Five Pay Commissions have been established by the Government of India over the
past 50 years.
 Pay Commissions cover a wide range of employees in the public sector.

Differences for Government Employees:

 Government employees have different methods for settling wage disputes compared
to private sector workers.
 Collective bargaining, conciliation, adjudication, or arbitration are not available to
government employees for wage settlement.
 A Joint Consultative Machinery is established by the Central Government to discuss
employee welfare, but arbitration is limited.

Role of Pay Commissions:

 Pay Commissions serve as an effective method for determining wages for government
employees.
 They study problems, collect data, and make recommendations to the government.
 The government has the final authority to accept, modify, or reject the
recommendations.

Principles Considered by Pay Commissions:

 Pay Commissions consider factors such as a living wage, social tests, inclusiveness,
comprehensibility, adequacy, and capacity to pay.
 The minimum wage should be realistic and match prevailing economic conditions.
 Fair comparison and comparable emoluments for comparable work are taken into
account.
 The government should pay fair wages, balancing the interests of employees and the
public.

Cost of Living and Dearness Allowance:

  Pay Commissions consider the cost of living and recommend dearness allowance
(DA) to compensate for price rises.
 DA is adjusted based on the consumer price index (CPI).
 Different Pay Commissions had varying criteria and limits for providing DA to
employees.

Challenges and Criticisms:

 Pay Commissions sometimes struggle to align recommendations with their principles.
 Political considerations may influence economic decisions.
 There are debates about the suitability of the current Consumer Price Index for
Industrial workers used for determining DA.

Overall, Pay Commissions play a crucial role in determining the salary structures of
government employees, considering various factors such as living wages, capacity to pay,
and the cost of living. However, challenges arise in implementing recommendations and
maintaining consistency with the principles established by the Pay Commissions.

Bonus
Meaning:
 Bonus is a payment made by an employer to maintain the industrial harmony and to
give Philip to the employees to exert their utmost to keep up the industry active and
aloft.
 The concept of bonus is not the product of any generosity of the employer but it is one
paid in the interest of industrial peace and to make available every employee a living
wage which is generally more than the actual wages.
 It is based on the ground that the workman should have a share in the prosperity of the
concern for which they have their contribution.
 The term ‘Bonus’ is not defined anywhere under the Payment of Bonus Act, 1965.
 As per Webster’s dictionary, bonus is something which is given in addition to the
wages.
 It is paid in the terms of money to the employees as a gift or reward in addition to
their wages.

Applicability of the Act

The act is extent to the whole of India, and the act is applicable to:
 Every factory
 Other establishments where 20 or more persons are employed on any day during the
year
 Any establishment or class of establishment notified in the Gazette by the Appropriate
Govt.
 Part-time employees also include
The establishments covered under the Act shall continue to pay the bonus even if the number
of employees falls below subsequently.

Exempted Establishments
 Employees of General Insurance Business or LIC
 Seamen defined under the Merchant Shipping Act
 Employees of RBI
 Employees of Unit Trust of India, IDBI, Deposit Insurance Corporation etc.
  Employees employed by Red Cross Society, university, hospitals etc.
 Employees under the Dock Workers (Regulations of Employment) Act, 1948
 Employees employed by Central/State Govt. establishments and local authorities

Eligibility Criteria
Any person is eligible to receive a bonus under the act on fulfilment of the following criteria:
 The employee must receive salary/wage up to Rs. 21000/- per month (by the
amendment of 2015)
 The employee must have worked in the factory or establishment for not less than 30
days in a year as per Section 8 of the Act
 If an employee has not worked for all the working days in any accounting year, the
bonus payable to him under Section 13 will be proportionately reduced.
However, on the commission of certain acts, the employee gets disqualified from getting a
bonus, such as any frauds, violent behavior, riots, theft, misappropriation or sabotage of any
property as per Section 9 of the Act.

Maximum Time for Payment of Bonus

The bonus shall be paid within 8 months from the end of the accounting year or within a
month from the date of enforcement of the Act.

Calculation of Bonus

Minimum Bonus
 The Payment of Bonus Act, 1965 includes a provision called Section 10 that
establishes the concept of minimum bonus.
 The act is a law in India that ensures the payment of bonuses to eligible employees in
certain establishments.
 Section 10 mandates that every employer must pay a minimum bonus to eligible
employees.
 The minimum bonus is a fixed amount calculated based on the employee's
salary/wage and the profits of the establishment.
 The purpose of the minimum bonus is to guarantee employees a share of the profits,
regardless of the actual profits earned.
 The minimum bonus payable should be 8.33% of the employee's salary/wage, with a
maximum limit of 20%.
 Even if the actual bonus based on profits is lower or higher, the employer must pay
the minimum bonus as specified in the act.
 The calculation of the minimum bonus considers the allocable surplus (profits
available for distribution) and the available surplus (after deducting certain
permissible expenses).
 The act allows specific deductions from the allocable surplus, such as depreciation,
direct taxes, and development rebate.
 The minimum bonus provision prevents employers from evading or reducing bonus
payments to employees.
 It ensures that employees receive a fair share of the profits, even if the establishment's
financial performance is not exceptional.
 The act applies to establishments meeting certain criteria and excludes certain
categories of employees, such as government employees and charitable institutions.
Maximum Bonus
 Section 11 of the Payment of Bonus Act, 1965, specifies the concept of maximum
bonus that can be paid to employees by an employer.
 According to the act, the maximum bonus payable to an employee in any accounting
year is capped at 20% of the employee's salary or wage earned during that year.
 The 20% limit on maximum bonus applies regardless of the profits earned by the
employer.
 If an employer has allocated a higher percentage of bonus in any previous year, it
cannot be reduced in subsequent years unless there are certain specified conditions
mentioned in the act.
 The bonus calculation is based on a maximum salary or wage limit of Rs. 3,500 per
month, even if an employee's actual salary or wage exceeds this amount.
 It's important to note that the act provides for a minimum bonus of 8.33% of the
employee's salary or wage, regardless of whether the employer has any allocable
surplus or not. This minimum bonus provision is covered under Section 10 of the act.
 The concept of maximum bonus ensures that there is a limit on the percentage of
bonus that can be paid to employees, protecting the interests of both employers and
employees.
 The act aims to strike a balance between fair compensation for employees and the
financial viability of the employer.
 Employers are required to calculate and pay bonuses to eligible employees based on
the provisions outlined in Section 11 and other relevant sections of the Payment of
Bonus Act, 1965.