Concept of Wages- Minimum Wages Act 1948 | Labour and Industrial Law - CLAT PG PDF Download

Concept of Wages

1. Wages represent compensation for services rendered or work performed. The concept of wages is ancient, originating in primitive societies where compensation was often in kind, such as grains or food. However, with the rise of industrialization, the issue of wages became more complex and contentious, leading to frequent disputes between employers and workers.
2. Determining fair wages involves various factors, including the location of the industry, product prices, living standards, and government policies. The tension between employers' desire to minimize wage costs and workers' need for adequate compensation led to strikes and other forms of conflict, necessitating state intervention to protect workers, who often had less bargaining power.
3. The question of how much and on what basis wages should be paid has been a topic of debate among economists, leading to the development of various wage theories. These theories attempt to explain the determinants of wage levels and their relationship with other economic factors.

Throughout history, wage theory has evolved, reflecting changes in economic understanding and social values. The medieval concept of a "Just Wage," for instance, was rooted in the idea of a fair price that would allow individuals to maintain their social standing. This notion, influenced by church doctrine, persists in some modern practices where certain families enjoy privileges reminiscent of the past.

Concept and Theories of Wages

Wages refer to the compensation paid to workers for their services, typically expressed in monetary terms. Various theories have emerged to explain how wages are determined and their relationship with other economic factors.

1. Wages Fund Theory: Developed by Adam Smith, this theory posits that wages are paid from a pre-determined fund of wealth, created through savings. The size of this fund influences the demand for labor and wage rates.
2. Subsistence Theory: Propounded by David Ricardo, this theory suggests that wages are set at a level that allows workers to subsist and reproduce without increasing or decreasing the population. Wages above this level would lead to population growth, causing wages to fall, while wages below this level would result in population decline, causing wages to rise. This is also known as the "Iron Law of Wages."
3. Surplus Value Theory of Wages: Developed by Karl Marx, this theory argues that labor, like any other commodity, is bought at its price (wages). However, the wages paid are less than the value produced by labor, with the surplus going to the owner. Marx advocated for labor rights and better compensation for workers.
4. Residual Claimant Theory: Proposed by Francis A. Walker, this theory suggests that workers are paid wages from the residual income left after rewarding the other factors of production (land, labor, and capital). Workers are considered residual claimants, receiving what is left after covering the costs of the other factors.
5. Marginal Productivity Theory: Developed by Phillips Henry Wicksteed and John Bates Clark, this theory states that wages are determined by the productivity of the last worker hired (marginal worker). The wage paid reflects the marginal product contributed by this worker.
6. Bargaining Theory of Wages: Proposed by John Davidson, this theory emphasizes that wage determination depends on the bargaining power of workers (through trade unions) and employers. Stronger bargaining power for workers leads to higher wages, while stronger employer power results in lower wages.
7. Behavioral Theories of Wages: Based on research by behavioral scientists, these theories focus on factors such as employees' acceptance of a wage level, internal wage structure, and the role of money or wages as motivators.

Kinds of Wages

Meaning and Definition

• Wages are the compensation paid to workers for the services they render, which can include both physical and mental efforts. Wages may be paid daily, weekly, fortnightly, monthly, per hour, or per unit of work.
• Benham defined wages as "a sum of money paid under contract by an employer to a worker for services rendered." The International Labour Organization (ILO) describes wages as payments made by employers to laborers for services rendered on a specified basis, such as per hour, day, week, or fortnight. Essentially, wages are the rewards received from an employer for the services provided by a laborer over a specified period, and they may also include allowances.

Classification of Wages

• Subsistence Wage: This wage covers only the bare physical needs of a worker and their family.
• Minimum Wage: Justice Higgins introduced the concept of minimum wages as the irreducible level of wage paid to an unskilled worker, considering him a human being living in a civilized society. Minimum wage is the lowest level of wage that cannot be further reduced. It is paid to unskilled workers who have not undergone any expensive training to acquire skills. The minimum wage is based on the understanding that the worker is entitled to the same basic needs of food, clothing, and shelter that any other human being requires.
• Fair Wage: Fair wages are adjustable and move up according to the capacity of the industry to pay and the prevailing rates of wages in the area of industry.
• Living Wage: Justice Higgins developed the concept of living wage to provide for not only food, clothing, and shelter but also for some frugal comfort of life, good education for children, some amusement, protection against ill-health, and provisions for sickness, old age, and social security. The living wage should enable the wage-earner to provide for themselves and their family not only the basic necessities of life but also some frugal comforts, good education for children, and protection against ill-health.

The Minimum Wages Act, 1948

• The Minimum Wages Act, 1948, is a significant piece of legislation in Indian labor law that establishes the minimum wages that must be paid to both skilled and unskilled laborers. The Act was introduced to ensure that workers receive a wage that meets the basic standards of living as defined by the Indian Constitution.
• One of the key concepts outlined in the Act is the idea of a 'living wage', which refers to the level of income necessary for a worker to maintain a basic standard of living, including aspects such as good health, dignity, comfort, education, and provisions for contingencies. In addition to the living wage, the Act also recognizes the concept of a 'fair wage', which takes into account the industry's capacity to pay while ensuring not just the maintenance of employment levels but also the potential for employment increases.
• During its inaugural session in November 1948, the Central Advisory Council set up a Tripartite Committee on Fair Wage, which played a crucial role in shaping the concept of minimum wage. This committee aimed to establish a minimum wage that would not only guarantee bare subsistence but also account for efficiency, education, medical needs, and a certain level of comfort.
• The Minimum Wages Act was a pioneering effort in India, giving both the Central and State governments the authority to fix wages. While the Act is legally non-binding, it is statutory in nature. Paying wages below the minimum wage rate is considered forced labor under this law. Wage boards are tasked with reviewing the capacity of various industries to pay and setting minimum wages that at least cover the essential requirements for a family of four, including calories, shelter, clothing, education, medical assistance, and entertainment.
• Wage rates under the Act vary across states, sectors, skills, regions, and occupations due to differences in the cost of living, the capacity of regional industries to pay, and consumption patterns. As a result, there is no uniform minimum wage rate across the country, leading to a complex structure. For instance, the highest minimum wage rate as of 2012 was Rs. 322 per day in Andaman and Nicobar, while the lowest was Rs. 38 per day in Tripura. In Mumbai, as of 2017, the minimum wage for a safai karmachari (sewage cleaner and sweeper) was Rs. 348 per day, although this rate was not always adhered to.

Salient features of the Act

• The Act provides for fixation of minimum time rate of wages,minimum piece rate,guaranteed time rate, and overtime rate for different occupations, localities, or classes of work, and for adults, adolescents, children, and apprentices.
• The minimum rate of wages must consist of a basic rate of wages and a cost of living allowance, and it should be an all-inclusive rate.
• Wages shall generally be paid in cash, but with the prior approval of the Appropriate Government, partial wages may be paid in kind.
• The Act empowers the appropriate Government to fix the number of hours of work per day, to provide for weekly holidays, and to regulate the payment of overtime wages in respect of any Scheduled employment where minimum rates of wages have been fixed under the Act.
• The establishments covered by this Act are required to maintain registers and records in the prescribed manner.
• The Act also provides for appointment of Inspectors and authorities to hear and decide claims arising out of payment of wages.
• It includes provisions for dealing with complaints for violation of the provisions and for imposing penalties for such violations.

Definitions

• “Appropriate Government” means:
• In relation to any Scheduled employment carried on by or under the authority of the Central Government or a railway administration or in relation to a mine, oil-field or major port, or any corporation established by a Central Act, the Central Government, and
• In relation to any other Scheduled employment, the State Government.

In the case of Regional Labour Commissioner, Bangalore and others v. T.K. Varkey and Company and another, it was held that the determining factors for identifying the Appropriate Government are where the employment is carried out, for whose benefit the employment is done, and under whose control the work related to the employment is carried out.

• "competent authority" means the authority appointed by the Appropriate Government by notification in the Official Gazette from time to time the cost of living index number applicable to the Employees employed in the scheduled employments specified in such notification.
• "cost of living index number" in relation to employees in any scheduled employment in respect of which minimum rates of wages have been fixed means the index number ascertained and declared by the competent authority by notification in the Official Gazette to be the cost of living index number applicable to employees in such employment.
• "Employer" means any person who employs whether directly or through another person or whether on behalf of himself or any other person one or more employees in any scheduled employment in respect of which types of wages have been fixed under this Act. Employer includes except in sub-section (3) of Section 26-
• in a factory there is carried on any scheduled employment in respect of which minimum rates of wages have been fixed under this Act any person named under clause (f) of sub-section (l) of section 7 of the Factories Act, 1948, as a manager of the factory;
• any scheduled employment under the control of any government in India In respect of which minimum rates of wages have been fixed under this Act, the person or authority appointed by such government for supervision and control of employees or where no person or authority is appointed, the Head of the Department;
• in any scheduled employment under any local authority in respect of which minimum rates of wages have been fixed under this Act, the person is appointed by such authority for the supervision and control of employees or where no person is so appointed, the Chief Executive Officer of the local authority;
• in any other case where there is carried on any scheduled employment in respect of which minimum rates of wages have been fixed under this Act, any person responsible to the owner for the supervision and control of the employees for the payment of wages.
• A managing agent is an employer. Private Engineering contractor engaged on Government contract or work is an employer of the drivers of the lorries which are hired out to him with the drivers at agreed rates.
• "Scheduled employment" means an employment specified in the schedule, or any process or branch of work forming part of such employment. The schedule is listed in 2 parts as appended to enactment.
• "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

Fixation and Revision of Minimum Rates of Wages under the Act

• The Government is responsible for setting minimum rates of wages for employees in specified employments listed in Parts I and II of the Schedule, as well as for any new employments added by notification under Section 27.
• For employments in Part II, minimum wages may not apply to the entire State, and certain parts may be excluded. However, for Part I employments, minimum wages must be set for the whole State without exclusions.
• Different areas within the State may have different wage rates, allowing for non-uniformity in wage fixing.
• The constitutional validity of Section 3 was upheld in the Bejoy Cotton Mills case, where the court ruled that the fixation of minimum wages, despite interfering with the freedom of contract, serves the public interest and aligns with Directive Principles of State Policy.
• The "Appropriate Government" is not obligated to fix minimum wages for scheduled employment with less than 1000 employees statewide. However, if the number increases to 1000, the government must establish a minimum wage rate.

Revision of Minimum Wages

• The Government has the authority to review and revise minimum wage rates at intervals it deems appropriate, not exceeding five years, as per Section 3(1)(b).
• Minimum rates of wages can be set for various categories, including:
• Time work(Minimum Time Rate)
• Piece work(Minimum Piece Rate)
• Guaranteed Time Rate for piece workers to ensure a minimum wage on a time work basis
• Overtime Rate for overtime work, regardless of time or piece rate

Different Minimum Rates

• Different minimum rates of wages may be established for:
• Different scheduled employments
• Different classes of work within the same scheduled employment
• Adults, adolescents, children, and apprentices
• Different localities

Wage Periods

• Minimum rates of wages may be fixed by various wage periods, including:
• By the hour
• By the day
• By the month
• By other prescribed wage periods
• When rates are fixed by day or month, the method of calculating wages for those periods may be specified. However, if the wage period is determined under the Payment Wages Act, 1986, minimum wages shall be fixed accordingly.

Procedure for Fixing and Revising Minimum Wages (Section 5)

• When fixing or revising minimum rates of wages for scheduled employment, the appropriate Government can adopt one of two methods:
• Committee Method (Section 5(1)(a))
  • The Government may set up committees and subcommittees to conduct inquiries and provide recommendations for fixation or revision.
  • Based on the committees' advice, the Government will issue a notification in the Official Gazette to fix or revise minimum wages.
  • The effective date of the wage rates will be specified in the notification; if not, they will take effect three months after the notification date.
  • The committee will include representatives from employers and employees in equal numbers, with independent members not exceeding one-third of the total.
  • One independent member will be appointed as Chairman by the Government.
• Notification Method (Section 5(1)(b))
  • The Government publishes proposals for fixing minimum wages in the Official Gazette, allowing at least two months for public feedback.
  • Representations received will be considered, and the Government will consult the Advisory Board before finalizing the minimum wages.
  • Minimum wage rates will be effective from the date specified in the notification; if no date is given, they will take effect three months after issuance.
  • Minimum wage rates can be revised with retrospective effect.

Payment of Minimum Wages

• According to Section 12, when a notification under Section 5 is in effect for any scheduled employment, employers are obligated to pay every employee engaged in that employment wages at a rate not less than the minimum rate of wages specified in the notification for that category of employees.
• Employers can make deductions only as authorized and within the time and conditions prescribed.
• Section 12 of this Act does not override the provisions of the Payment of Wages Act, 1936.
• In the case of Ansu Pokkuvararthu Madurai Thozhilalar v. T.N.S.T.C. Ltd, the court ruled that the term 'employee' includes temporary employees as well. Section 12 mandates that employers must pay all employees engaged in scheduled employment at least the minimum rate of wages fixed in the notification issued under Section 5 of the Act. Therefore, members of the petitioner are entitled to the basic rate of wages and dearness allowance as specified in the Government Order (G.O.)

Section 13: Fixing Hours of Normal Working Day, etc.

• Section 13(1) empowers the appropriate Government to fix the minimum rates of wages for scheduled employment under this Act by determining:
• The number of hours constituting a normal working day, including specified intervals.
• Provision for a day of rest within every seven-day period for all employees or specific classes, along with remuneration for such day of rest.
• Payment for work on a day of rest at not less than the overtime rate.

Section 13(2)

• Section 13(2) states that the provisions of sub-section (1) shall apply to the following classes of employees only to the extent and under the conditions prescribed:
• Employees engaged in urgent or unforeseen work, preparatory or complementary work outside the general limits, intermittent work, work needing technical completion before duty ends, and work dependent on natural forces.

Section 14: Overtime

• Overtime is applicable when an employee works beyond the hours constituting a normal working day. The employer is required to pay the employee for overtime hours worked.
• Employees entitled to overtime are those whose minimum rate of wage is fixed under this Act by the hour, day, or any prescribed longer wage period.
• Overtime pay is calculated based on the rate fixed under this Act or any applicable law of the Appropriate Government, whichever is higher.

Recent Case: Labor Law Violation in the United States

• In March 2020, a case in the United States highlighted a violation of labor laws where an Indian family, the Sharmistes, was found guilty of exploiting labor by demanding excessive work while paying less.
• The federal court held the Sharmiste family accountable for this incident, resulting in a 15-year prison sentence for the family members involved.