Wages under the Minimum Wages Act, 1948

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The Minimum Wages Act, 1948 is one of the comprehensive Central legislation which provides for the fixation and periodical revision of the minimum wages to the skilled and unskilled laborers to protect them from unscrupulous exploitation of their labor and to maintain equality in the wages paid. The term minimum wages have not been defined anywhere in the Act owing to the difficulty of fixing one fixed wage for workers of different industries, at the same time it was pertinent to apply the provisions of the Act to all industries across India. The term ‘wages’ in simple terms means the remuneration given to the workers for their labor and service provided to the employer. In Chandra Bhavan Boarding and Loadging Bangalore v. State of Mysore[1] and another, it was held that the main objective of Minimum Wages Act is to protect the workers from exploitation and to provide for speedy mechanism to award compensation. In order to understand how the Act fixes the wages and other complex procedures, it is necessary to understand the definition of wages given under the Act and this article analysis the term wages, why payment in kind is not included and the recent developments in this regard and much more.

Definition of wages-

Section 2(h) of the Minimum Wages Act, 1948 defines the term ‘wages’ and it means remuneration capable of being expressed in terms of money which is payable to the person in respect of his work done or employment as per the terms of the contract expressed or implied. It also includes house rent allowance but does not include the following-

The value of

  1. Any contribution made by the employer towards any pension fund, provident fund or any social insurance scheme;
  2. Travelling allowance or the value of travelling concession;
  3. Sum of money given to the person to defray additional expenses incurred during the employment;
  4. Gratuity payable on discharge-
  5. For any house accommodation, supply of water, electricity or medical attendance or any other amenities or services as excluded by the general or special order of the appropriate government.

Any payment made to the employee which partakes the nature of lay-off compensation does not fall under the term ‘wages’ as defined under section 2(h) of the Act. This was held in the case of Madhya Pradesh Bidi Udyog Sangh, Sagar v. State of Madhya Pradesh.[2]

In the case of Uchinoy v. State of Kerala[3], it was observed that while fixing the minimum wages, the appropriate government have been vested with vast powers but it has to consider the advice of the committee or representation of people who is likely to be affected.

Payment in kind- The ILO Protection of wages Convention, 1948 (No. 95), allows for partial payment in kind in those industries or work places where it is customary or desirable. However certain measures have been laid down as follows-

  • That such payment in kind is appropriate for the personal use of the employee and will benefit him and his family.
  • The value attributed to such allowances must be fair and reasonable.[4]

However, it has certain demerits. The System of National Accounts (SNA 1993) has observed that income in kind restricts the employees option to chose what he wants to do with his remuneration. Some of these may be not be desirable or of any use. If the same was given to him in monetary terms, one could direct it according to his wants and needs.

Code on wages, 2019-

The government of India notified on August 8, 2019, the Code of Wages which subsumes the 4 existing legislations on labor such as The Payment of Wages Act, 1936, The Minimum Wages Act, 1948, The Payment of Bonus Act, 1965 and The Equal Remuneration Act, 1976. The main aim of this code is to consolidate and amend the laws pertaining to wages, bonus and other aspects of labor. Now, this Code has introduced certain changes in the existing definition of ‘wages’ which was different in all four legislations. The new definition covers basic pay, dearness allowance and retaining allowances. The exceptions provided under the minimum wages Act is extended to include;

  1. Bonus payable under any law which does not form a part of remuneration,
  2. Value of house accommodation, supply of water, electricity and medical allowances,
  3. Contribution towards provident fund
  4. Conveyance allowance or travelling concessions,
  5. Sum of money paid for special expenses incurred due to the nature of employment,
  6. House rent allowances,
  7. Remuneration payable under any award or settlement between the parties,
  8. Overtime allowance,
  9. Commission payable to the employee,
  10. Gratuity payable on discharge or termination,
  11. Retrenchment compensation or retirement benefit or any ex gratia payment made on the termination of employment.

It is worthwhile note that payments mentioned under clauses (a) to (i) as mentioned under the Code exceeds one- half of such other percentage as fixed by the Central Government, then such payment will be remunerated as wages.[5] Additionally, the emoluments specified under clauses (d), (f), (g) and (h) shall be included in for the computation of wages. Provided further that if any remuneration is paid in kind and it does not exceed 15% of the total wages payable to the employee then it shall be treated as wages under the Code.

Analysis and Conclusion-

There are several issues in the Present Code, one being the inclusion of provident fund and gratuity payments by clause one. This has been pointed out by many as contrary to the real object behind enactment of the labor laws. It would increase the employer’s cost and is likely to complicate payroll processes as they are fixed in such a way that does not have at all or with little fluctuation and also they are not components of wages. Even though these changes have been introduced with good intentions to avoid other inclusions to the components at a later stage, it does create certain issues and makes it difficult for the employers to formulate their own structure for payment. Furthermore, the current definition exclude both house rent allowance and conveyance allowance, this causes confusion in the light of the Supreme Court Judgment in Repotakos Brett Case[6].

Even though the Code was introduced with a good intention it is flawed in certain aspects and ignores the intention behind enacting different provisions under each of the 4 laws as they all had a vital role in their respective spheres and also the confusions regarding few judgments and the Code must be reconciled with immediately to make it accessible and safe for both workers and the employers.

Summary- Definition of ‘wages’ is given under section 2(h) of the Minimum Wages Act, 1948 and it has been modified by the Code of Labor 2019 and also changes were brought in regard to payment in kind.

  1. 1970 AIR 2042.

  2. 1981 Lab 1C 363.

  3. 1962 AIR 12.

  4. Payment in Kind, INTERNATIONAL LABOR ORGANIZATION, https://www.ilo.org/global/topics/wages/minimum-wages/definition-.

  5. Animay Singh, *Wages under Payment of Wages Act and Code on Wages: A Comparative Analysis, *SIMPLIANCE.IN, (Jul 5, 2021, 2:09 PM), https://www.simpliance.in/blog/wages-under-payment-of-wages-act-and-code-on-wages/.

  6. Appeal (Civil) 4657 of 1998.

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