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Wages - Concept and Kinds of Wages

The Concepts of Wages | Labor Law

1) Introduction -
Wage is a remuneration to labor for the work done for the service rendered by it to the
employer. There are different theories on the concept of wages as enunciated by economists and
sociologists, which explain various aspects of wage problems. However, these theories are not
applicable in all circumstances.

2) 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 –

(i) the value of –


(a) any house accommodation supply of light water medical attendance or
(b) any other amenity or any service excluded by general or special order of the appropriate
government;
(ii) any contribution paid by the employer to any person fund or provident fund or under any
scheme of social insurance;
(iii) any traveling allowance or the value of any traveling concession;
(iv) any sum paid to the person employed to defray special expenses entailed on him by the nature
of his employment; or
(v) any gratuity payable on discharge;

3) Concepts of Wages
Broadly Speaking, the wages can be classified into the following categories:
(a) Living Wage
(b) Fair Wage
(c) minimum Wage

(a) 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. South Australian Act of 1912 defines it as 'Living Wage 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.
Justice Higgins of the Australian Commonwealth Court of Conciliation defined the living
wage as one appropriate for the normal needs of the average employee, regarded as a human being
living in a civilized society. 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 ilcluding old age.
In India, there is no statutory definition for the term 'living wage'. According to Article 43 of
the Indian 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.

(b) 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 can say that it is more than minimum wage but less than
the living wage. It may roughly be said to approximate to the need based minimum, in the sense of
the wage which 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 these two limits (Living Wage and the Minimum Wage) actual wage would depend
upon a consideration of certain factors namely -

i) the productivity of Labor.


ii) the prevailing rates of wages in the same industry for similar occupations in the same or
similar occupations in the same or neighboring localities;
iii) the level of national income and its distribution; and
iv) the place of the industry in the economy of the country.

The Concept of fair wages, therefore, 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.

(c) Minimum Wage -


The term 'Minimum Wage' has not been defined in the said Act ( Minimum Wages Act,
1948) The minimum wage is the lowest wage in the scale below which the efficiency of a worker is
likely to be inspired. The minimum wage 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
efficiency of the worker. For this purpose, the minimum wage must also provide for the same
measure of education, medical requirements, and amenities. Therefore any employer who is unable
to pay this minimum wage to workers has no right to exist. 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 of 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 al 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.

Constituents or Components of Minimum Wage -

According to Section 4 of the said Act, (Minimum Wages Act, 1948) consists of the following :

(1) Any minimum rate of wages fixed or revised by the appropriate government in respect of
scheduled employments under section 3 may consist of –
(i) a basic rate of wages and a special allowance at a rate to be adjusted at such intervals and in
such manner as the appropriate government may direct to accord as nearly as practicable with the
variation in the cost of living index number applicable to such workers;
(ii) a basic rate of wages with or without the cost of living allowance and the cash value of the
concessions in respect of suppliers of essential commodities at concession rates where so
authorized; or
(iii) an all-inclusive rate allowing for the basic rate the cost of living allowance and the cash
value of the concessions if any.

(2) The cost of living allowance and the cash value of the concessions in respect of supplies of
essential commodities at concession rate shall be computed by the competent authority at such
intervals and in accordance with such directions as may be specified or given by the appropriate
government.

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Origin of wage
Wage is a reward for the services rendered or remuneration for the work done and it is as old as the
society itself. In the primitive days, wages were paid in kind, most common of them was grains and
the food. But with the advent of industrialisation wages form a complex problem and in almost all
industrialised countries it became a sensitive area of public policy. Very soon the quantum of wages
assumed a common cause of friction between the employers and the wage-earners. Frequent
disputes between employer and wage-earners resulted in strikes over the demand for wage-increase.
The determination of adequate wages that should be justifiably payable to die workmen by the
employer, was not merely an economic problem but a multidimensional phenomena, necessarily
involving relevant factors like place ot industry, prices of the product, living standards, basic needs
of die wage-earner and the governmental policy in a given society. The natural instinct of the
employer to keep the wage-bill to a minimum and workers struggle to secure a wage-increase to
meet both ends, created a chaotic situation which demanded an immediate State’s intervention to
protect the weaker section of the society, namely, workers, in view of its low bargaining capacity.

Whitley Commission’s Recommendations


Whitley Commission, commonly called as Royal Commission on Labour was appointed during
1931-33 which examined various issues relating to wage-levels and reported on minimum wages,
standardisation of wages, wage-incentives and suggested for collection of relevant wage-data to
resolve the wage-determination. It also recommended a Minimum Wage fixation machinery for
industries where workers are not well organised. The Whitley Commission also invited the attention
of the Govt, towards certain unfair deductions made by the employers from the wages and
emphasised the need to prevent them by recourse to necessary legislation. Thus the Payment of
Wages Act, 1936 was enacted to incorporate the recommendations of the Whitley Commission.

The Payment of Wages Act, 1936 Section 2


(vi) "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 by payable to a person employed in respect of his employment or
of work done in such employment and includes -

(a) any remuneration payable under any award or settlement between the parties or order of a court;
(b) any remuneration to which the person employed is entitled in respect of overtime work or
holidays or any leave period;
(c) any additional remuneration payable under the terms of employment (whether called a bonus or
by any other name); (d) any sum which by reason of the termination of employment of the person
employed is payable under any law contract or instrument which provides for the payment of such
sum whether with or without deductions but does not provide for the time within which the
payment is to be made;
(e) 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 -

(1) any bonus (whether under a scheme of profit sharing or otherwise) which does not form part of
the remuneration payable under the terms of employment or which is not payable under any award
or settlement between the parties or order of a court;
(2) the value of any house-accommodation or of the supply of light water medical attendance or
other amenity or of any service excluded from the computation of wages by a general or special
order of the State Government;
(3) any contribution paid by the employer to any pension or provident fund and the interest which
may have accrued thereon;
(4) any travelling allowance or the value of any travelling concession;
(5) any sum paid to the employed person to defray special expenses entailed on him by the nature of
his employment; or
(6) any gratuity payable on the termination of employment in cases other than those specified in
sub-clause (d).

Meaning and Definition of Wage


In the ordinary language the term wages implies 'reward' to the labourers for the services rendered
by them. It may be paid daily, weekly, fortnightly, monthly, per hour or per unit. Services rendered
by the labourer include both physical and mental services.

In the words of Benham. "Wages are a sum of money paid under contract by an employer to a
worker for services rendered."

According to ILO " Wages refer to that payment which is made by the employers to the labourer
for his services hired on the conditions of payment per hour, per day, per week or per fortnight."

Appropriate Definition: Wages refer to that reward which is received from the employer for the
services rendered by the labourer per week, per month, per fortnight or per unit It includes
allowances also.

Classification of wages
Subsistence Wage: - The wage that can meet only bare physical needs of a worker and his
family is called subsistence wage.

Minimum Wage: - Justice Higgin propounded the concept of minimum wage as the
irreducible level of wage paid to an unskilled worker, considering him a human being living in a
civilised society. In this single sentence, he indicated three important considerations, namely, (i)
that minimum wage is an irreducible level which cannot be further reduced; (2) secondly, it is paid
to an unskilled worker who has not undergone any expensive training to acquire skill, (3) thirdly,
the worker is to be considered a “human being living in a civilised society and therefore he is
entitled to same basic needs of food, clothing and shelter which any other human being requires.
Thus according to Justice Higgins a minimum wage is that irreducible wage, which should enable
the worker to get three basic necessities of life, namely, food, clothing an shelter.

Further expanding his concept, Justice Higgins described the essential components of the three
basic needs of food, clothing and shelter and said that the food does not merely mean any stuff to
satisfy the hunger, should have the essential nutritious value to retain the health of wolker preserve
his efficiency as worker. Medically speaking, a normal human body daily needs 3,500 calories in
his food to retain his health. Therefore a wage which does not provide for a quality of food
containing 3,500 calories cannot be strictly described as minimum wage.

Similarly clothing does not refer to any body-covering but it should be sufficient to protect the
workers from the severity of seasons, say soft clothing in summer and warm clothing in winter. It
should also satisfy the natural instinct of the wearer to be respected in the society as he is
considered a human being living in a civilised society. Thus the moral responsibility is also
imposed on the civil society.

Thirdly the shelter is also further required to be sufficient to accommodate the family of the worker
comfortably and it should not be a den to dump the workers’ family therein.

Fair Wage: - Fair wages is an adjustable step that moves up according to the capacity of the
industry to pay, and the prevailing rates of wages in the area of industry.

Living Wage:- Having described the minimum wage to provide for food, clothing and
shelter as a basic and irreducible level of wage, Justice Higgins developed his concept of living
wage as one which should not only provide for food, clothing and shelter but for some frugal
comfort of life, good education to children, some amusement and provision for sickness and old-age
including some measure of social security. Again die frugal comfort should be such as measured at
the changing values at a given time.

Thus according to Justice Higgins “Living Wage is one appropriate for the normal needs of the
average employee, regarded as a human being living in a civilised society. It must provide not
merely for the absolute essentials such as food, clothing and shelter, but for a condition of frugal
comfort estimated by current human standards”. It must be sufficient to ensure the workmen food,
clothing, shelter, frugal comforts, provision for evil days etc. as well as regard for the special skill
of an artisan if he is one. Marriage is an usual fate of adult man, a wage which does not allow of the
matrimonial condition and the maintenance of about five persons in a home would not be treated as
a living wage. It is pertinent to note that the above concept of living wage, as described by Justice
Higgins is also endorsed by Supreme Court in the Express Newspaper (P) Ltd. v. Union of India -
Therefore die living wage should enable the wage-earner to provide for himself and his family not
only for the three basic necessities of life, namely, food, clothing and shelter, but also for frugal
comforts, good education to children, protection against ill-health and a measure of insurance
against the more important misfortune including old-age.

In any even the minimum wage must be paid irrespective of the extent of profits, the financial
condition of the establishment or the availability of workmen at lower wages. The wages must be
fair, i.e. sufficiently high to provide standard family with ,food, shelter, clothing, medical care and
education of children appropriate to the workmen. A fair wage lies between the minimum wage and
the living wage which is the goal. Wages must be paid on an industry wise and region basis having
due regard to the financial capacity of the unit.
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Bonus: Meaning, Definition and Kinds of Bonus

1) 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
payment 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 to every employee a living wage which is
generally more than the actual wages. Bonus is based on the ground that the workman should have a
share in the prosperity of the concern for which they have their contribution

2) Definition of Bonus :
The term 'Bonus' is not defined anywhere under the Payment of Bonus Act, 1965. According
to Webster's dictionary, "bonus is something which is given in addition to the wages".Bonus is paid
in the terms of money to the employees as a gift or reward in addition to their wages.

3) Kinds of Bonus -
There are four kinds of bonus which are as follows -

(1) Production bonus - Production bonus depends upon the production in a particular year
(2) Profit bonus - Profit bonus depends upon the extent of Profit obtained in the relevant year.
(3) Customary bonus - Customary bonus is a voluntary payment made by the employer to his
employees to meet special expenses of a festival. (For Example - Bonus of Diwali Festival )
(4) Bonus as an implied term of the contract - This type of Bonus may be claimed as a matter of
right. This right based on an implied agreement between the employer and the employees.

4) Payment of Bonus Act, 1965 -


The Parliament of India had to bring and pass the Payment of Bonus Act,1965 for the
following objectives

1. To impose statutory liability upon the employer of every establishment covered by the Act to pay
bonus to the employees in the establishment;
2. To define the principle of payment of bonus according to the prescribed formula; and
3. To provide for the payment of minimum and maximum bonus and linking it with the scheme of
set off and set on.

Eligibility and Disqualifications for Bonus


What is Bonus?
According to Webster's dictionary, "Bonus is something given in addition to the wages. It is a
boon or gift over and above, what is nominally due to remuneration to the receiver and which is,
therefore, something wholly to the good. Bonus is paid in the terms of money to the Employees as
gift or reward in addition to their wages

The concept of payment 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 to every employee a living wage
which is generally more than the actual wages.

Bonus is based on the ground that the workman should have a share in the prosperity of the
concern for which they have their contribution
Eligibility for Bonus
According to Payment of Bonus Act, 1965 Section 8 of the said Act says that every
employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance
with the provisions of this Act, provided he has worked in the establishment for not less than thirty
working days in that year.

Disqualifications
Section 9 of the Payment of Bonus Act, 1965 provides disqualification for bonus :

An employee shall be disqualified from receiving bonus under the said Act, if he is dismissed from
service for -
(a) fraud; or
(b) riotous or violent behavior while on the premises of the establishment; or
(c) theft, misappropriation or sabotage of any property of the establishment.

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Disablement : Classification of Disablement | Labor Law
Meaning Disablement -
The expression "disablement" means loss of capacity to work or to move. Disablement which
reduces the earning capacity of an employee. Injury caused to an employee by an accident resulting
in the loss of earning capacity is technically called disablement. In other words, a person is
incapacitated to work or to move as a consequence of an accident.

Classification of Disablement
Disablement classified into - i) Total and ii) Partial can further be classified as - (a)Temporary
and (b) Permanent.
Disablement, whether permanent or temporary is said to be total when it capacitates an employee
for all work he was capable of doing at the time of the accident resulting in such disablement.

(A) Temporary disablement


Temporary disablement means disablement in doing normal work lasts (continuous) for a
temporary period. Temporary disablement is subdivided into following two heads
(i) Temporary total disablement
Temporary total disablement incapacitates a workman to do every work, which he could
do. It lasts for the temporary period.
(ii) Temporary partial disablement
Temporary partial disablement reduces the earning capacity of the workmen in doing
every work which he could do well before the accident. It lasts for a temporary period.

(B) Permanent disablement:


Permanent disablement means disablement arising out of the accident. It lasts forever, for
example, permanent in nature. It is sub-divided under the following two heads -
(i) Permanent total disablement -
If employee as a result of an accident suffers from injury specified in part I of Schedule I
(The Workmen's Compensation Act,1923) or suffer from such a combination of injuries specified
in part 2 Schedule I as would bring the loss of earning capacity when totalled to 100% or more such
an injury is said to be permanent total disablement. To determine whether the injury is permanent or
temporary the total effect of injury on the employment opportunities of the employee concerned is
the deciding Criterion.
In simple words, The accident in capacities loss of 100% earning capacity forever for
example permanent in nature. Injuries are listed in Part II of the schedule I reduce 100% earning
incapacity forever. for example loss of both hands; 100%; Loss of one hand and one foot,
Disfigurement absolute deepness etc

(ii) Permanent partial disablement -


Permanent partial disablement reduces earning capacity in every work, which he could
do well. It is permanent in nature every injury specified in part II Schedule I is Deemed to be
permanent partial disablement. (Part-I, Schedule-I contains 48 Injuries, for example, loss of thumb
30% loss of 4 fingers of one hand 50% etc.

Relevant case law:

1) Ball Vs. William Hunt 1912 A.C. 496 -

In this case, an employee was blind in one eye but they did it was not visible. After sometime
he suffered an Employment injury necessitating the removal of the eyeball of the injured eye,
consequently, as a result of this visible defect he could not get employment although he was
physically capable of doing any job which he could do before the accident. It was held that
incapacity for work includes 'liability to work'.