flowchart LR
A["Payment of Wages <br> Act, 1936"] --> B["Section 3 <br> Responsibility"]
A --> C["Section 4 <br> Fixation of Wage Periods"]
A --> D["Section 5 <br> Time of Payment"]
A --> E["Section 6 <br> Mode of Payment"]
A --> F["Section 7 <br> Permissible Deductions"]
A --> G["Sections 15-18 <br> Claims and Remedies"]
F --> F1[Fines]
F --> F2[Absence from Duty]
F --> F3[Damage or Loss]
F --> F4[Services Rendered]
F --> F5[Recovery of Advances]
F --> F6[Income Tax, PF, ESI]
F --> F7[Other Statutory]
%% Style
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class A,B,C,D,E,F,G,F1,F2,F3,F4,F5,F6,F7 dark;
26 Payment of Wages
ImportantLearning Objectives
By the end of this chapter, the reader will be able to:
- Identify the applicability of the Payment of Wages Act, 1936, including the establishments to which it applies and the wage ceiling that defines the covered workers.
- Apply the rules on responsibility for payment, fixation of wage periods, time of payment, and mode of payment under Sections 3 to 6 of the Act.
- Identify the permissible categories of deduction under Section 7 of the Act, the limits on each, and the aggregate cap of 50 per cent of wages (75 per cent in cases involving cooperative society dues).
- Apply the claims and remedies framework under Sections 15 to 18 of the Act, including the role of the Authority appointed under Section 15, the time limits, and the appeal procedure.
- Locate the Payment of Wages Act within the Code on Wages, 2019 and identify the principal continuities and changes.
26.1 Introduction
This chapter takes up the Payment of Wages Act, 1936, the oldest of the four principal Indian wage statutes. The Act addresses the timing, mode, and integrity of wage payment, with the principal object being the protection of the worker’s right to wages against arbitrary deduction, delayed payment, and payment in kind.
26.2 Applicability and Definitions
26.2.1 Applicability
The Payment of Wages Act, 1936 applies to:
every person employed in any factory (as defined in the Factories Act, 1948);
every person employed in any industrial or other establishment specified under Section 2(ii) of the Act, including railways, tramway services, motor transport services, air transport services, dock and wharf services, mines and quarries, plantations, workshops engaged in production or manufacture, and certain other establishments;
every person employed in such other establishments as the central or state governments may notify.
The Act applies only to employees earning wages below a prescribed wage ceiling, currently ₹24,000 per month (raised from ₹18,000 in 2017). The Code on Wages, 2019 removes this ceiling, extending the Act’s protections to all employees regardless of wage level.
26.2.2 Definition of Wages (Section 2(vi))
NoteSection 2(vi): Definition of Wages
“Wages” means all remuneration (whether by way of salary, allowances, or otherwise) expressed in terms of money or capable of being so expressed which would, if the terms of employment were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes:
- any remuneration payable under any award or settlement;
- any remuneration to which the person employed is entitled in respect of overtime;
- any additional remuneration payable under the terms of employment (whether called bonus or by any other name);
- any sum which by reason of the termination of employment is payable;
- any sum to which the person employed is entitled under any scheme framed under any law for the time being in force.
But does not include:
- any bonus that does not form part of the remuneration payable under the terms of employment;
- the value of any house accommodation, supply of light, water, medical attendance, or other amenity excluded by the State Government;
- any contribution paid by the employer to any pension or provident fund;
- any travelling allowance or value of any travelling concession;
- any sum paid to the employed person to defray special expenses;
- any gratuity payable on the termination of employment.
The definition of wages is significant because it determines what amount must be paid timely under the Act, what amount is subject to deduction limits, and what amount is the basis for compensation in claims proceedings.
26.3 Responsibility for Payment (Section 3)
NoteSection 3: Responsibility for Payment of Wages
“Every employer shall be responsible for the payment to persons employed by him of all wages required to be paid under this Act:
Provided that, in the case of persons employed (otherwise than by a contractor):
- in factories, if a person has been named as the manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948;
- in industrial or other establishments, if there is a person responsible to the employer for the supervision and control of the industrial or other establishment;
- upon railways (otherwise than in factories), if the employer is the railway administration and the railway administration has nominated a person in this behalf for the local area concerned,
the person so named, the person so responsible to the employer, or the person so nominated, as the case may be, shall also be responsible for such payment.”
Section 3 establishes a dual responsibility: the employer bears overall responsibility for payment of wages, and a designated manager or responsible person (typically the named manager under the Factories Act) bears parallel responsibility. The dual structure ensures accountability at both the corporate and operational levels.
26.4 Fixation of Wage Periods (Section 4)
NoteSection 4: Fixation of Wage-Periods
“Every person responsible for the payment of wages under section 3 shall fix periods (in this Act referred to as wage-periods) in respect of which such wages shall be payable.
No wage-period shall exceed one month.”
Section 4 prescribes the maximum wage period of one month. The Act does not permit longer wage periods (such as quarterly or annual), which would exacerbate the worker’s dependence on credit between wage payments. Wages may be paid weekly, fortnightly, or monthly, depending on the employer’s chosen wage period.
26.5 Time of Payment (Section 5)
NoteSection 5: Time of Payment of Wages
“The wages of every person employed upon or in:
any railway, factory or industrial or other establishment upon or in which less than one thousand persons are employed, shall be paid before the expiry of the seventh day,
any other railway, factory or industrial or other establishment, shall be paid before the expiry of the tenth day,
after the last day of the wage-period in respect of which the wages are payable.
Where the employment of any person is terminated by or on behalf of the employer, the wages earned by him shall be paid before the expiry of the second working day from the day on which his employment is terminated.
All payments of wages shall be made on a working day.”
The 7-day rule (for establishments with fewer than 1,000 workers) and the 10-day rule (for larger establishments) prescribe the maximum delay between the end of the wage period and the actual payment. The 2-working-day rule on termination ensures that workers leaving employment receive their accrued wages promptly.
26.6 Mode of Payment (Section 6)
NoteSection 6: Wages to Be Paid in Current Coin or Currency Notes
“All wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee:
Provided that the appropriate Government may, by notification in the Official Gazette, specify the industrial or other establishment, the employer of which shall pay to every person employed in such industrial or other establishment, the wages only by cheque or by crediting the wages in his bank account.”
The 2017 amendment to Section 6 added the option of payment by cheque or by direct bank credit, supplementing the historical insistence on cash payment. The amendment reflects the broader Indian movement towards digital and bank-based wage payment, supported by the Pradhan Mantri Jan Dhan Yojana and the universal availability of basic bank accounts.
The proviso to Section 6 enables the appropriate government to mandate payment by cheque or bank credit only, eliminating cash payment in specified industries or establishments.
26.7 Permissible Deductions (Section 7)
Section 7 enumerates the categories of deduction that an employer may make from the wages of an employed person. Any deduction not falling within the enumerated categories is impermissible.
NoteSection 7: Permissible Deductions
The categories of permissible deduction include:
- fines imposed for acts and omissions specified under Section 8;
- deductions for absence from duty under Section 9;
- deductions for damage to or loss of goods expressly entrusted to the employee, or for loss of money for which he is required to account, where the damage or loss is directly attributable to his neglect or default, under Section 10;
- deductions for house accommodation supplied by the employer or by government, under Section 11;
- deductions for amenities and services supplied by the employer that the appropriate government has authorised, under Section 12;
- deductions for recovery of advances or for adjustment of overpayments of wages, under Section 13;
- deductions of income tax payable by the employed person;
- deductions required to be made by order of a court or other authority competent to make such order;
- deductions for subscriptions to, and for repayment of advances from, any provident fund to which the Provident Funds Act, 1925 applies, or any recognised provident fund;
- deductions for payments to cooperative societies approved by the appropriate government or to a scheme of insurance maintained by the Indian Post Office;
- deductions made with the written authorisation of the employed person for payment of the fees payable by him for the membership of any registered trade union;
- deductions for payment of insurance premia on Fidelity Guarantee Bonds, with the written authorisation of the employed person;
- deductions made with the written authorisation of the employed person for contribution to the Prime Minister’s National Relief Fund or to such other fund as the central government may specify;
- deductions for contribution to any insurance scheme framed by the central government for the benefit of its employees;
- deductions for recovery of any other amounts payable under any law in force.
26.7.1 Aggregate Cap on Deductions
NoteAggregate Cap under Section 7(3)
The total amount of deductions which may be made under sub-section (2) in any wage-period from the wages of any employed person shall not exceed:
in cases where such deductions are wholly or partly made for payments to cooperative societies under clause (j) of sub-section (2), seventy-five per cent of such wages, and
in any other case, fifty per cent of such wages.
The aggregate cap of 50 per cent (or 75 per cent in cooperative society cases) is the principal substantive protection against excessive deduction. It ensures that the worker takes home a substantial proportion of the wages even after legitimate deductions.
26.7.2 Specific Deduction Categories
NoteSection 8: Fines
Fines may be imposed for acts and omissions specified by the employer with the previous approval of the appropriate government and notified in a list displayed conspicuously in the premises. The amount of any fine in any wage-period must not exceed an amount equal to three per cent of the wages payable in that period. Fines must be recorded in a register and may be applied only for the benefit of the employed persons in the form of welfare measures.
NoteSection 9: Absence from Duty
Deductions for absence from duty may be made only on account of absence from the place where the employee is required to work. The deduction must not exceed an amount in the same proportion to the wages payable as the period of absence bears to the period of the wage period.
NoteSection 10: Damage or Loss
Deductions for damage or loss may not exceed the amount of the damage or loss caused, must be made only after giving the employed person an opportunity of showing cause, and must be recorded in a register.
WarningUnauthorised Deductions Are a Frequent Source of Disputes
A practitioner observation worth emphasising is that unauthorised deductions are a frequent source of wage disputes. The enumeration in Section 7 is exhaustive: any deduction not falling within an enumerated category is unlawful, regardless of the employee’s apparent consent. Employers should be cautious about novel deduction arrangements (such as recovery of training costs, recovery of equipment costs, or recovery of penalties for breach of employment terms) that may not fit within the enumerated categories.
26.8 Claims and Remedies (Sections 15 to 18)
26.8.2 Application
An application to the Authority may be made by the employed person, by any legal practitioner, by an Inspector under the Act, or by any official of a registered trade union authorised in writing. The application must be made within twelve months of the date on which the deduction was made or the date on which the wages were due.
26.8.4 Appeal
An appeal lies to the District Court within thirty days of the order of the Authority. The appeal may be on questions of law or fact and is the principal route by which the Authority’s decisions are reviewed.
TipThe Authority Mechanism Provides Accessible Remedy
A practitioner observation worth emphasising is that the Authority mechanism under Section 15 provides an accessible remedy that does not require formal litigation in the civil courts. The procedure is summary, the time limits are short, and the remedies are substantive. The mechanism has supported the practical enforcement of the Act over its nine decades.
26.9 Case Studies
26.9.1 Case Study 1: A Delayed Wage Payment Claim
A factory employing 800 workers experiences a cash-flow crisis and delays the payment of monthly wages by 20 days beyond the Section 5 deadline. Several workers file claims with the Authority under Section 15.
The Authority finds the delay established. The Authority orders the immediate payment of the delayed wages, plus compensation under Section 15 (subject to the prescribed cap). The Authority also notes the systemic nature of the delay, indicating that the employer faces potential prosecution under Section 20 (penalty for offences) for the contravention.
Discussion Questions
- To what extent should the cash-flow difficulties of the employer be relevant to the determination of compensation?
- How should the Authority balance the protection of workers against the practical difficulty of enforcement against an insolvent employer?
- What lessons does the case offer for the integration of wage compliance with corporate financial planning?
26.9.2 Case Study 2: A Disputed Deduction for Equipment Loss
An employer deducts ₹15,000 from a worker’s monthly wages, on the ground that the worker damaged a piece of equipment worth ₹15,000 entrusted to him. The deduction is made without prior notice to the worker and without recording in a register. The worker contests the deduction.
Under Section 10, deductions for damage or loss may be made only where the damage is directly attributable to the worker’s neglect or default, only after giving the worker an opportunity to show cause, and only with recording in the prescribed register. The employer’s failure to comply with the procedural requirements renders the deduction unauthorised.
The Authority orders the refund of the ₹15,000 plus compensation, regardless of whether the underlying claim of damage was valid. The employer is reminded of the procedural requirements for future Section 10 deductions.
Discussion Questions
- To what extent should the procedural requirements of Section 10 be applied strictly, even where the substantive case for the deduction is strong?
- How should the employer design its internal procedures to ensure compliance with the procedural requirements?
- What lessons does the case offer for the integration of wage deduction practice with broader employee discipline systems?
26.9.3 Case Study 3: The Transition to Bank-Account Wage Payment
A manufacturing firm, in compliance with the State Government’s notification mandating wage payment only by cheque or bank credit, transitions from cash payment to bank-account credit. The transition involves opening bank accounts for workers who do not have them, communicating the change, training the HR team on the new process, and adjusting the timing of payment to ensure that workers receive wages on the same date as before despite the bank-clearance lead time.
The transition is largely successful but identifies several issues, including a small number of workers without bank accounts (resolved by Pradhan Mantri Jan Dhan Yojana account opening), language barriers in account-opening forms (resolved by Hindi/regional language assistance), and worker uncertainty about checking account balances (resolved by SMS notification on credit).
Discussion Questions
- To what extent does the transition from cash to bank credit improve worker welfare beyond the bare statutory compliance?
- How should the firm address the residual workers who prefer cash payment for cultural or family reasons?
- What lessons does the case offer for the broader transition to digital wage payment in the Indian organised sector?
Summary
| Concept | Description |
|---|---|
| Applicability and Definitions | |
| Applicability of POW Act | Applies to factories, specified industrial and commercial establishments, and to workers earning below the prescribed wage ceiling |
| Wage Ceiling | ₹24,000 per month threshold for the application of the Act, raised from time to time; removed by the Code on Wages, 2019 |
| Section 2(vi) Wages Definition | All remuneration expressed in money payable to a person employed, plus award sums, overtime, and bonuses; excluding gratuity, employer PF contributions, and travel allowances |
| Responsibility, Period, Time, Mode | |
| Section 3 Responsibility for Payment | Every employer bears responsibility for payment of wages; in factories, the named manager bears parallel responsibility |
| Dual Responsibility Structure | Combination of corporate-level (employer) and operational-level (manager) responsibility ensuring accountability at both levels |
| Section 4 Wage Period | Person responsible must fix wage periods in respect of which wages are payable; no wage period may exceed one month |
| One-Month Maximum | Maximum wage period prescribed by Section 4; longer periods would exacerbate worker dependence on credit between payments |
| Section 5 Time of Payment | Wages must be paid before specified time after end of wage period; 7 days for establishments under 1,000 workers, 10 days for larger |
| 7-Day Rule (under 1,000 workers) | Wages must be paid before the expiry of the seventh day after the last day of the wage period in establishments with fewer than 1,000 workers |
| 10-Day Rule (1,000+ workers) | Wages must be paid before the expiry of the tenth day after the last day of the wage period in larger establishments |
| 2-Working-Day Rule on Termination | Wages earned by an employee whose employment is terminated must be paid before the expiry of the second working day from termination |
| Section 6 Mode of Payment | All wages to be paid in current coin or currency notes, or by cheque, or by crediting the wages in the bank account of the employee |
| Cash, Cheque, or Bank Credit | The 2017 amendment to Section 6 added the options of cheque and bank credit, supplementing the historical insistence on cash payment |
| Permissible Deductions | |
| Section 7 Permissible Deductions | Enumerates the categories of deduction permitted; any deduction not within an enumerated category is unlawful regardless of employee consent |
| Section 8 Fines (3% Cap) | Fines may be imposed only for acts approved by appropriate government, displayed conspicuously, and capped at 3% of wage period; recorded in register |
| Section 9 Absence from Duty | Deductions for absence from duty must be proportionate to the period of absence, and may be made only for absence from the place of work |
| Section 10 Damage or Loss | Deductions for damage or loss may not exceed the actual damage, must be after opportunity to show cause, and must be recorded in register |
| Sections 11-12 Accommodation and Amenities | Deductions for house accommodation supplied by employer or government, and for amenities and services authorised by appropriate government |
| Section 13 Advances and Overpayments | Deductions for recovery of advances or for adjustment of overpayments of wages, subject to specified rules |
| Statutory Deductions | Income tax, court-ordered amounts, provident fund, ESI, cooperative society dues (with employee authorisation), and other statutory deductions |
| Aggregate Caps | |
| 50% Aggregate Cap | Total deductions in any wage period must not exceed 50% of wages; this is the principal substantive protection against excessive deduction |
| 75% Cap with Cooperative Society Dues | Where deductions include cooperative society dues, the cap rises to 75%, reflecting the welfare value of cooperative society membership |
| Claims and Remedies | |
| Section 15 Authority | Authority appointed by State Government to hear and decide all claims arising out of deductions or delay in payment, typically Commissioner for Workmen's Compensation |
| Application Time Limit (12 months) | Application to the Authority must be made within twelve months of the date of the deduction or the date on which wages were due |
| Section 17 Appeal to District Court | Appeal lies to the District Court within thirty days of the Authority's order, on questions of law or fact, the principal review mechanism |