Meaning and Concept of Wages
Topic Overview
Concept & Classification
Understanding the fundamental meaning of wages, components included, and the classification into Minimum, Fair, and Living Wages.
Statutory Scope & Case Laws
Examining Section 2(y), specific exclusions from wages, the 50% rule, and landmark judicial interpretations.
Detailed Concepts
· Meaning and Concept of Wages
- - Wages are the remuneration paid by an employer to an employee for work performed, whether physical or mental.
- - Wages may be paid in money or kind.
- - They are usually calculated on an hourly, daily, weekly, monthly, or piece-rate basis.
- - Wages arise from a contract of employment.
- - Wages generally include:
- Basic Pay
Dearness Allowance (DA)
Bonus or Incentive Payments
1. Minimum Wages
2. Fair Wages
3) Living Wages
1. Minimum Wages [Section 2(h) of the Minimum Wages Act, 1948]
Minimum Wage is the lowest wage legally payable by an employer to a worker.
Features:
- Fixed by the Government under labour laws.
- Must be paid irrespective of the employer's financial condition.
- Aims to prevent exploitation of labour.
- Ensures a basic standard of living for workers.
Objectives:
- a. Protection of workers from underpayment.
- b. Maintenance of minimum living standards.
- c. Social justice and welfare of labour.
2. Fair Wages
Fair Wage lies between the Minimum Wage and the Living Wage.
Factors Determining Fair Wages:
- Capacity of the industry to pay.
- Prevailing wage rates in similar industries.
- Cost of living.
- Productivity of labour.
- General economic conditions.
3) Living Wages
- - Living Wages represent the highest standard of wages that enables a worker to maintain a decent standard of living, including:
- Adequate food, clothing and shelter
- Education of children
- Healthcare
- Insurance and social security
- Reasonable comfort and cultural needs
- Definition – Section 2(y): “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, express or implied, were fulfilled, be payable to a person employed in respect of his employment or work done in such employment.
Components of Wages Include:
- 1. Basic Pay
- 2. Dearness Allowance
- 3. Retaining Allowance
Items Excluded from Wages
The following are generally excluded from the definition of wages:
- a. Bonus which does not form part of the terms of employment
- b. Value of house accommodation, or supply of light, water, medical facilities or other amenities
- c. Employer’s contribution to any pension or provident fund
- d. Travelling allowance or travelling concession
- e. Any amount paid to the employee to meet special expenses incurred due to the nature of employment
- f. House Rent Allowance (HRA)
- g. Any amount payable under an award, settlement or order of a court or tribunal
- h. Overtime allowance
- i. Gratuity payable on discharge
- j. j)Retrenchment compensation or other retirement benefit
If the total of the excluded components under clauses (a) to (h) exceeds 50% of the total remuneration, the excess amount shall be treated as wages. For the purposes of equal wages for all genders and payment of wages, the relevant provisions shall also be taken into consideration.
- Case Law:
People’s Union for Democratic Rights v. Union of India (PUDR Case)
PUDR filed a writ petition before the Supreme Court regarding the conditions of labourers employed in construction work. The workers were being paid less than the prescribed minimum wages. The case also involved unsafe working conditions and employment of child labour.
Issues:Whether payment of less than minimum wages violates Article 23 of the Constitution?
Whether employment of children below 14 years violates Article 24?
Held:The Supreme Court held that payment of less than minimum wages amounts to forced labour and violates Article 23. Employment of children below the age of 14 years in prohibited employment violates Article 24.
Principle-The Court gave a broad interpretation to Article 23 and held that compelling a person to work for less than the minimum wage can amount to forced labour.
Municipal academy of higher education v. PF comminsioner
Only those payments which are usually, necessarily and ordinarily paid to all employees as part of wages are treated as wages.
Special or variable allowances are generally not treated as wages, unless they form part of the statutory definition of wages.
Balwant Rai Saluja v. Air India Ltd. (2014)
The term “wages” must be understood in the light of the terms of the contract of employment as well as the statutory definition.
Payments which depend upon contingencies are generally not treated as wages, unless specifically covered by the statute.
Regional Provident Fund Commissioner v. Vivekananda Vidyamandir & Others
A special allowance paid to employees is treated as wages if it is not linked to extra output or additional performance and is paid uniformly to all employees.
If an allowance is universally paid to all employees and is not linked to any extra work or additional output, it forms part of wages for statutory purposes.
An employer cannot split the salary into different allowances merely to avoid statutory liabilities relating to wages