TABLE OF CONTENTS

Lesson No. Page No.

Lesson 1 Compensation Management……………………………………………………………1

Lesson 2 Compensation System, Design and Employee Welfare……………………………..17

Lesson 3 The Payment of Bonus Act, 1965……………………………………………………..36

Lesson 4 The Payment of Wages Act 1936……………………………………………………..58

Lesson 5 The Payment of Wages Act 1936- Powers And Penalty…………………………….69

Lesson 6 The Minimum Wages Act, 1948………………………………………………………80

Lesson 7 The Minimum Wages Act, 1948- Powers And Penalty……………………………...93

Lesson 8 The Workmen’s Compensation Act, 1923…………………………………………...103

Lesson 9 The Workmen’s Compensation Act, 1923-Procedures And Rules………………...125

Lesson 10 The Maternity Benefit Act, 1961……………………………………………………135

 LESSON 1
COMPENSATION MANAGEMENT

1 STRUCTURE

1.1. Introduction
1.2. Concept of Compensation
1.3. Types of Compensation
1.4. Factors Considered in Deciding the Compensation
1.5. Objectives of Compensation
1.6. Significance of Compensation Management
1.7. Principles of Compensation Management
1.8. Self-Assessment Questions

1.1 INTRODUCTION (Bhattacharyya, 2009)

The term compensation as a substitute for wages or salaries is of recent origin. The literature on
wages and salaries is enormous, but most of it approaches the subject from a legal perspective.
The emphasis is on ensuring that the legal requirements for wages set by government are met.
However, increased competition and specialized nature of jobs have transformed the job market
from a seller‘s market to a buyer‘s market. Wages have now become very significant as a cost
factor. Therefore, strategic management of wages has now become very important for
organizations. With this shift in approach and focus, compensation has come to be viewed as
the strategic management of wages and salaries. In India, literature on compensation is scarce.
However, it has now become imperative for organizations to balance the cost of compensation
and employee motivation to survive in a competitive world.

Pay or compensation represents an exchange between the employee and the organization. Each
gives something in return for something else. What the employee provides the employer is a
labour service, usually known as work. This labour service consists of many different kinds of
employee behaviour such as showing up regularly and on time, carrying out tasks dependably,
cooperating with others, and making useful suggestions. In the past, the compensation issue was
often confidential and governed by the individual employer‘s preference and choices. However,
in today‘s competitive world, compensation issues are more transparent and every employee
can make an informed choice based on information available about compensation packages.
Therefore, balancing the cost of compensation and retaining employees has now become the
most important priority for today‘s organizations.

Different scholars in different countries have defined the word compensation from different
perspectives. Before, we develop our own definition of the term compensation; let us briefly

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look at some of these perspectives. Globally, almost every country views compensation as a
measure of justice. In addition, some countries (particularly the developed ones) consider
compensation as a means of protection against potential job loss. Therefore, compensation
should be fair, irrespective of economic considerations. Many scholars believe that
compensation is the outcome of productivity. The literal meaning of the term compensation is
something that counterbalances the efforts of workers. In China, it was represented by the
symbols for logs and water, that is, something which ensures the basic necessities of life. In
Japan, it is viewed as providing something. In India, right from the Vedic age, the volume of
work and the time required to perform the work were considered to decide compensation. In
Europe, the church advocated the principles of just wage or compensation. Without further
exploring the historical connotations of the term compensation and instead considering the
modern organization, the word compensation may be defined as, ‗all forms of financial returns,
tangible services, and benefits that an employee receives in his/her tenure of employment‘. It is
viewed as a system of rewards to motivate employees, so that organizations can achieve their
intended goals and objectives. The modern definition of compensation, however, considers both
intrinsic (psychological) and extrinsic (tangible) components of compensation. While extrinsic
compensation covers both monetary and non-monetary rewards, intrinsic compensation reflects
the employees‘ mental satisfaction with their job accomplishments.

Definition

Gary Dessler in his book Human Resource Management defines compensation in these words
―Employee compensation refers to all forms of pay going to employees and arising from their
employment.‖ The phrase ‗all forms of pay‘ in the definition does not include non-financial
benefits, but all the direct and indirect financial compensations.

According to Thomas J. Bergmann (1988) compensation consists of four distinct components:

Compensation = Wage or Salary + Employee benefits +Non-recurring financial rewards+ Non-
pecuniary rewards.

1.2 CONCEPT OF COMPENSATION (Arul, 2018)

Compensation refers to a wide range of financial and non financial rewards to employees for
their services rendered to the organization. It is paid in the form of wages, salaries and
employee benefits such as paid vacations, insurance maternity leave, free travel facility,
retirement benefits etc., Monetary payments are a direct form of compensating the employees
and have a great impact in motivating employees.

The system of compensation should be so designed that it achieves the following objectives.

• The capable employees are attracted towards the organization

• The employees are motivated for better performance
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 • The employees do not leave the employer frequently

Components of Compensation

Basic Wages/Salaries: Basic wages / salaries refer to the cash component of the wage structure
based on which other elements of compensation may be structured. It is normally a fixed
amount which is subject to changes based on annual increments or subject to periodical pay
hikes.

Wages represent hourly rates of pay, and salary refers to the monthly rate of pay, irrespective of
the number of hours put in by the employee. Wages and salaries are subject to the annual
increments. They differ from employee to employee, and depend upon the nature of job,
seniority, and merit.

Dearness Allowance: The payment of dearness allowance facilitates employees and workers to
face the price increase or inflation of prices of goods and services consumed by him. The
onslaught of price increase has a major bearing on the living conditions of the labour. The
increasing prices reduce the compensation to nothing and the money‘s worth is coming down
based on the level of inflation. The payment of dearness allowance, which may be a fixed
percentage on the basic wage, enables the employees to face the increasing prices.

Incentives: Incentives are paid in addition to wages and salaries and are also called ‗payments
by results‘. Incentives depend upon productivity, sales, profit, or cost reduction efforts. There
are:
• Individual incentive schemes, and
• Group incentive programmes.

Individual incentives are applicable to specific employee performance. Where a given task
demands group efforts for completion, incentives are paid to the group as a whole. The amount
is later divided among group members on an equitable basis.

Bonus: The bonus can be paid in different ways. It can be fixed percentage on the basic wage
paid annually or in proportion to the profitability. The Government also prescribes a minimum
statutory bonus for all employees and workers. There is also a bonus plan which compensates
the managers and employees based on the sales revenue or profit margin achieved. Bonus plans
can also be based on piece wages but depends upon the productivity of labour.

Non-Monetary Benefits: These benefits give psychological satisfaction to employees even

when financial benefit is not available. Such benefits are:
• Recognition of merit through certificate, etc.
• Offering challenging job responsibilities,
• Promoting growth prospects,
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 • Comfortable working conditions,
• Competent supervision, and
• Job sharing and flexi-time.

Commissions: Commission to managers and employees may be based on the sales revenue or
profits of the company. It is always a fixed percentage on the target achieved. For taxation
purposes, commission is again a taxable component of compensation. The payment of
commission as a component of commission is practiced heavily on target based sales.
Depending upon the targets achieved, companies may pay a commission on a monthly or
periodical basis.

Mixed Plans: Companies may also pay employees and others a combination of pay as well as
commissions. This plan is called combination or mixed plan. Apart from the salaries paid, the
employees may be eligible for a fixed percentage of commission upon achievement of fixed
target of sales or profits or Performance objectives. Nowadays, most of the corporate sector is
following this practice. This is also termed as variable component of compensation.

Piece Rate Wages: Piece rate wages are prevalent in the manufacturing wages. The laborers are
paid wages for each of the Quantity produced by them. The gross earnings of the labour would
be equivalent to number of goods produced by them. Piece rate wages improves productivity
and is an absolute measurement of productivity to wage structure. The fairness of compensation
is totally based on the productivity and not by other qualitative factors.

Fringe Benefits: Fringe benefits may be defined as wide range of benefits and services that
employees receive as an integral part of their total compensation package. They are based on
critical job factors and performance. Fringe benefits constitute indirect compensation as they are
usually extended as a condition of employment and not directly related to performance of
concerned employee. Fringe benefits are supplements to regular wages received by the workers
at a cost of employers. They include benefits such as paid vacation, pension, health and
insurance plans, etc. Such benefits are computable in terms of money and the amount of benefit
is generally not predetermined. The purpose of fringe benefits is to retain efficient and capable
people in the organization over a long period. They foster loyalty and acts as a security base for
the employees.

Profit Sharing: Profit-sharing is regarded as a stepping stone to industrial democracy. Profit-

sharing is an agreement by which employees receive a share, fixed in advance of the profits.
Profit sharing usually involves the determination of an organization‘s profit at the end of the
fiscal year and the distribution of a percentage of the profits to the workers qualified to share in
the earnings. The percentage to be shared by the workers is often predetermined at the
beginning of the work period and is often communicated to the workers so that they have some
knowledge of their potential gains. To enable the workers to participate in profit sharing, they
are required to work for certain number of years and develop some seniority. The theory behind
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profit-sharing is that management feels its workers will fulfill their responsibilities more
diligently if they realize that their efforts may result in higher profits, which will be returned to
the workers through profit-sharing.

1.3 TYPES OF COMPENSATION (Arul, 2018)

Total compensation returns are more transactional. They include pay received directly as cash
(like base, merit, incentives, cost of living adjustments) and indirectly as benefits (like pensions,
medical insurance, programs to help balance work and life demands, brightly colored uniforms).
Programme to pay to people can be designed in a wide variety of ways, and a single employer
typically uses more than one.

Direct /Base Compensation

Direct compensation refers to monetary benefits offered and provided to employees in return of
the services they provide to the organization. The monetary benefits include basic salary, house
rent allowance, conveyance, leave travel allowance, medical reimbursements, special
allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

1. Basic Salary: Salary is the amount received by the employee in lieu of the work done by
him/her for a certain period say a day, a week, a month, etc. It is the money an employee
receives from his/her employer by rendering his/her services

2. House Rent Allowance: Organizations either provide accommodations to its employees

who are from different state or country or they provide house rent allowances to its
employees. This is done to provide them social security and motivate them to work.

3. Conveyance: Organizations provide for cab facilities to their employees. Few organizations
also provide vehicles and petrol allowances to their employees to motivate them

4. Leave Travel Allowance: These allowances are provided to retain the best talent in the
organization. The employees are given allowances to visit any place they wish with their
families. The allowances are scaled as per the position of employee in the organization.

5. Medical Reimbursement: Organizations also look after the health conditions of their
employees. The employees are provided with medi-claims for them and their family
members. These medi-claims include health-insurances and treatment bills reimbursements.

6. Bonus: Bonus is paid to the employees during festive seasons to motivate them and provide
them the social security. The bonus amount usually amounts to one month‘s salary of the
employee.

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7. Special Allowance: Special allowance such as overtime, mobile allowances, meals,
commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are
provided to employees to provide them social security and motivate them which improve
the organizational productivity.

Medical
Reimbursement

Leave Travel Special

Allowance Allowances

Direct
Compensation
Conveyance Bonus

House Rent
Basic Salary
Allowance

Figure 1: Direct Compensation

Indirect /Supplementary Compensation

Indirect compensation refers to non-monetary benefits offered and provided to employees in

lieu of the services provided by them to the organization. They include Leave Policy, Overtime
Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement
Benefits, Holiday Homes.

1. Leave Policy: It is the right of employee to get adequate number of leave while working
with the organization. The organizations provide for paid leaves such as, casual leaves,
medical leaves (sick leave), and maternity leaves, statutory pay, etc.

2. Overtime Policy: Employees should be provided with the adequate allowances and
facilities during their overtime, if they happened to do so, such as transport facilities,
overtime pay, etc.

3. Hospitalization: The employees should be provided allowances to get their regular check-
ups, say at an interval of one year. Even their dependents should be eligible for the medi-
claims that provide them emotional and social security.

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4. Insurance: Organizations also provide for accidental insurance and life insurance for
employees. This gives them the emotional security and they feel themselves valued in the
organization.

5. Leave Travel: The employees are provided with leaves and travel allowances to go for
holiday with their families. Some organizations arrange for a tour for the employees of the
organization. This is usually done to make the employees stress free.

6. Retirement Benefits: Organizations provide for pension plans and other benefits for their
employees which benefits them after they retire from the organization at the prescribed age.

7. Holiday Homes: Organizations provide for holiday homes and guest house for their
employees at different locations. These holiday homes are usually located in hill station and
other most wanted holiday spots. The organizations make sure that the employees do not
face any kind of difficulties during their stay in the guest house.

8. Flexible Timings: Organizations provide for flexible timings to the employees who cannot
come to work during normal shifts due to their personal problems and valid reasons.

Flexible Timings

Hospitalization Holiday Homes

Indirect Retirement
Overtime Policy
Compensation Benefits

Leave Policy Leave Travel

Insurance

Figure 2: Indirect Compensation

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1.4 FACTORS CONSIDERED IN DECIDING THE COMPENSATION (Arul, 2018)

Factors Considered in Deciding the Compensation

Employers decide on what is the right compensation after taking into account the following
points. The Job Description of the employee that specifies how much should be paid and the
parts of the compensation package.

The Job Description is further made up of responsibilities, functions, duties, location of the job
and the other factors like environment etc. These elements of the job description are taken
individually to arrive at the basic compensation along with the other components like benefits,
variable pay and bonus.

It needs to be remembered that the HRA or the House Rental Allowance is determined by a mix
of factors that includes the location of the employee and governmental policies along with the
grade of the employee.

Hence, it is common to find a minimum level of HRA that is common to all the employees and
which increases in proportion to the factors mentioned above.

The Job Evaluation that is a system for arriving at the net worth of employees based on
comparison with appropriate compensation levels for comparable jobs across the industry as
well as within the company.

Factors like Experience, Qualifications, Expertise and Need of the company determine how
much the employer is willing to pay for the employee.

It is often the case that employers compare the jobs across the industry and arrive at a particular
compensation after taking into account the specific needs of their firm and in this respect salary
surveys and research results done by market research firms as to how much different companies
in the same industry are paying for similar roles.

The components of compensation that have been discussed above are the base requirements for
any HR Manager who is in charge of fixing the compensation for potential employees.

Hence, all HR professionals and managers must take this following aspect into account when
they determine the compensation to be paid to employees.

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 External Internal
Factors Factors
Demand and
Supply of Ability to Pay
Labour

Top
Cost of Living Management
Philosophy

Productivity of
Labour Union:
Workers

Job
Government:
Requirements

Employees
Prevailing
Related
Wage Rates
Factors

Organizational
Politics

Evaluation of
Compensation

Figure 3: Factors considered in Deciding the Compensation

External Factors

1. Demand and Supply of Labour: Wage is a price or compensation for the services
rendered by a worker. The firm requires these services, and it must pay a price that will
bring forth the supply which is controlled by the individual worker or by a group of workers
acting together through their unions. The primary result of the operation of the law of supply
and demand is the creation of the going wage rate. It is not practicable to draw demand and
supply curves for each job in an organization even though, theoretically, a separate curve
exists for each job.

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2. Cost of Living: Another important factor affecting the wage is the cost of living
adjustments of wages. This tends to vary money wage depending upon the variations in the
cost of living index following rise or fall in the general price level and consumer price
index. It is an essential ingredient of long-term labour contract unless provision is made to
reopen the wage clause periodically.

3. Labour Union: Organized labor is able to ensure better wages than the unorganized one.
Higher wages may have to be paid by the firm to its workers under the pressure or trade
union. If the trade union fails in their attempt to raise the wage and other allowances through
collective bargaining, they resort to strike and other methods hereby the supply of labour is
restricted. This exerts a kind of influence on the employer to concede at least partially the
demands of the labour unions.

4. Government: To protect the working class from the exploitations of powerful employers,
the government has enacted several laws. Laws on minimum wages, hours of work, equal
pay for equal work, payment of dearness and other allowances, payment of bonus, etc., have
been enacted and enforced to bring about a measure of fairness in compensating the working
class. Thus, the laws enacted and the labour policies framed by the government have an
important influence on wages and salaries paid by the employers. Wages and salaries can‘t
be fixed below the level prescribed by the government.

5. Prevailing Wage Rates: Wages in a firm are influenced by the general wage level or the
wages paid for similar occupations in the industry, region and the economy as a whole.
External alignment of wages is essential because if wages paid by a firm are lower than
those paid by other firms, the firm will not be able to attract and retain efficient employees.
For instance, there is a wide difference between the pay packages offered by multinational
and Indian companies. It is because of this difference that the multinational corporations are
able to attract the most talented workforce.

Internal Factors

1. Ability to Pay: Employer‘s ability to pay is an important factor affecting wages not only
for the individual firm, but also for the entire industry. This depends upon the financial
position and profitability of the firm. However, the fundamental determinants of the wage
rate for the individual firm emanate from supply and demand of labour. If the firm is
marginal and cannot afford to pay competitive rates, its employees will generally leave it for
better paying jobs in other organizations. But, this adjustment is neither immediate nor
perfect because of problems of labour immobility and lack of perfect knowledge of
alternatives. If the firm is highly successful, there is little need to pay more than the
competitive rates to obtain personnel. Ability to pay is an important factor affecting wages,
not only for the individual firm but also for the entire industry.
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2. Top Management Philosophy: Wage rates to be paid to the employees are also affected by
the top management‘s philosophy, values and attitudes. As wage and salary payments
constitute a major portion of costs and /or apportionment of profits to the employees, top
management may like to keep it to the minimum. On the other hand, top management may
like to pay higher pay to attract top talent.

3. Productivity of Workers: To achieve the best results from the workers and to motivate
him to increase his efficiency, wages have to be productivity based. There has been a trend
towards gearing wage increase to productivity increases. Productivity is the key factor in the
operation of a company. High wages and low costs are possible only when productivity
increases appreciably.

4. Job Requirements: Job requirements indicating measures of job difficulty provide a basis
for determining the relative value of one job against another in an enterprise. Explicitly, job
may be graded in terms of a relative degree of skill, effort and responsibility needed and the
adversity of working conditions. The occupational wage differentials in terms of

• Hardship,
• Difficulty of learning the job
• Stability of employment
• Responsibility of learning the job and
• Change for success or failure in the work.

This reforms a basis for job evaluation plans and thus, determines wage levels in an
industry.

5. Employees Related Factors: Several employees‘ related factors interact to determine his
remuneration. These include

a) Performance: productivity is always rewarded with a pay increase. Rewarding

performance motivates the employees to do better in future.
b) Seniority: Unions view seniority as the most objective criteria for pay increases
whereas management prefers performance to affect pay increases.
c) Experience: Makes an employee gain valuable insights and is generally rewarded
d) Potential: organizations do pay some employees based on their potential. Young
managers are paid more because of their potential to perform even if they are short
of experience.

6. Organizational Politics: Compensation surveys, job analysis, job evaluation and employee
performance are all involved in wage and salary decisions. Political considerations may
enter into the equation in the following ways:
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 a) Determination of firms included in the compensation survey: managers could make
their firm appear to be a wage leader by including in the survey those organizations
that are pay followers.
b) Choice of compensable factors for the job evaluation plan: Again, the job value
determined by this process could be manipulated
c) Emphasis placed on either internal or external equity and
d) Results of employee performance appraisal may be intentionally disported by the
supervisor
Thus, a sound and objective compensation system may be destroyed by organizational
politics.

7. Evaluation of Compensation: Today‘s compensation systems have come from a long

way. With the changing organizational structures workers‘ need and compensation systems
have also been changing. From the bureaucratic organizations to the participative
organizations, employees have started asking for their rights and appropriate compensations.
The higher education standards and higher skills required for the jobs have made the
organizations provide competitive compensations to their employees. Compensation
strategy is derived from the business strategy. The business goals and objectives are aligned
with the HR strategies. Then the compensation committee or the concerned authority
formulates the compensation strategy. It depends on both internal and external factors as
well as the life cycle of an organization.

1.5 OBJECTIVES OF COMPENSATION (Bhattacharyya, 2009)

The objectives of compensation or wages can be classified under four broad categories—equity,
efficiency, macro-economic stability, and optimum allocation of labour.

1. Equity: The first category is equity, which may take several forms. It includes income
distribution through narrowing of inequalities, increasing the wages of the lowest paid
employees, protecting real wages (purchasing power), and the concept of equal pay for work
of equal value. Compensation management strives for internal and external equity. Internal
equity requires that pay be related to the relative worth of a job so that similar jobs get
similar pay. External equity means paying workers what other firms in the labour market
pay comparable workers. Compensation differentials, based on differences in skills or
contribution, are all related to the concept of equity.

2. Efficiency: It is often closely related to equity, because the two concepts are not antithetical.
The objectives of efficiency are reflected in attempts to link a part of wages to productivity
or profit, group or individual performance, acquisition and application of skills, and so on.
Arrangements to achieve efficiency may also be seen as being equitable (if they fairly
reward performance) or inequitable (if the reward is viewed as unfair).
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3. Macroeconomic Stability: It can be achieved through high employment levels, and low
inflation. For instance, an inordinately high minimum wage would have an adverse impact
on levels of employment. Though the level at which it would occur is a matter of debate.
Although compensation and compensation policies are two of the many factors that
influence macroeconomic stability, they do contribute to (or impede) balanced and
sustainable economic development.

4. Efficient Allocation of Labour: The efficient allocation of labour in the labour market
implies that employees will move to wherever they receive a net gain. Such movement may
be from one geographical location to another or from one job to another (within or outside
an enterprise). The provision or availability of financial incentives causes such movement.
For example, workers may move from a labour surplus or low-wage area to a high-wage
area. They may acquire new skills to benefit from the higher wages paid for skills. When an
employer‘s wages are below market rates, employee turnover increases. When it is above
market rates, the employer attracts job applicants. When employees move from declining to
growth industries, an efficient allocation of labour due to structural changes takes place..

Other Objectives of Compensation

Apart from those listed common objectives, from human resource management perspective, a
well-designed compensation package helps an organization to achieve additional objectives.

1. Acquire Qualified Personnel: Compensation needs to be high enough to attract qualified

applicants. Pay levels must respond to the supply and demand of workers in the labour
market since employers compete for workers. Premium wages are sometimes needed to
attract qualified applicants already working for others.

2. Retain Current Employees: Employees may quit when compensation levels are not
competitive, resulting in higher turnover.

3. Reward Desired Behaviour: Pay should reinforce desired behaviors and act as an incentive
for such behaviour to occur in the future. Effective compensation plans reward performance,
loyalty, experience, responsibility, and other behaviors.
4. Control Costs: A rational compensation system helps the organization obtain and retain
workers at a reasonable cost. Without effective compensation management, workers might
be over-paid or under-paid.

5. Comply with Legal Regulations A sound wage and salary system considers the legal
challenges imposed by the government and ensures the employer‘s compliance.

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6. Facilitate Understanding The compensation management system should be easily
understood by human resource specialists, operating managers, and employees.

7. Promoting Administrative Efficiency Wage and salary programmes should be so designed

that they can be managed efficiently, making optimal use of the human resource information
systems (HRIS). However, this objective should be a secondary consideration compared
with other objectives.

1.6 SIGNIFICANCE OF COMPENSATION MANAGEMENT (Arul, 2018)

Compensation and Reward system plays vital role in a business organization. Since, among four
Ms, i.e. Men, Material, Machine and Money, Men has been most important factor, it is
impossible to imagine a business process without Men. Every factor contributes to the process
of production/business. It expects return from the business process such as rent is the return
expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects
profits. Similarly the labour expects wages from the process.

Labour plays vital role in bringing about the process of production/business in motion. The
other factors being human, has expectations, emotions, ambitions and egos. Labour therefore
expects to have fair share in the business/production process. Therefore a fair compensation
system is a must for every business organization. The fair compensation system will help in the
following:

1. An ideal compensation system will have positive impact on the efficiency and results
produced by employees. It will encourage the employees to perform better and achieve the
standards fixed.
2. It will enhance the process of job evaluation. It will also help in setting up an ideal job
evaluation and the set standards would be more realistic and achievable.
3. Such a system should be well defined and uniform. It will be apply to all the levels of the
organization as a general system.
4. The system should be simple and flexible so that every employee would be able to compute
his own compensation receivable.
5. It should be easy to implement, should not result in exploitation of workers.
6. It will raise the morale, efficiency and cooperation among the workers. It, being just and fair
would provide satisfaction to the workers.
7. An ideal compensation system will have positive impact on the efficiency and results
produced by employees. It will encourage the employees to perform better and achieve the
standards fixed.
8. It will enhance the process of job evaluation. It will also help in setting up an ideal job
evaluation and the set standards would be more realistic and achievable.

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9. Such a system should be well defined and uniform. It will be apply to all the levels of the
organization as a general system. The system should be simple and flexible so that every
employee would be able to compute his own compensation receivable.
10. It should be easy to implement, should not result in exploitation of workers.
11. It will raise the morale, efficiency and cooperation among the workers. It, being just and fair
would provide satisfaction to the workers.
12. Such system would help management in complying with the various labor acts.
13. Such system should also solve disputes between the employee union and management.
14. The system should follow the management principle of equal pay.
15. It should motivate and encouragement those who perform better and should provide
opportunities for those who wish to excel.
16. Sound Compensation/Reward System brings peace in the relationship of employer and
employees.
17. It aims at creating a healthy competition among them and encourages employees to work
hard and efficiently.
18. The system provides growth and advancement opportunities to the deserving employees.
19. The perfect compensation system provides platform for happy and satisfied workforce. This
minimizes the labour turnover. The organization enjoys the stability.
20. The organization is able to retain the best talent by providing them adequate compensation
thereby stopping them from switching over to another job.
21. The business organization can think of expansion and growth if it has the support of skillful,
talented and happy workforce.
22. The sound compensation system is hallmark of organization‘s success and prosperity. The
success and stability of organization is measured with pay-package it provides to its
employees.

1.7 PRINCIPLES OF COMPENSATION ADMINISTRATION (Arul, 2018)

Following are the principles of Compensation Administration:

• Compensation policy should be developed by taking into consideration of the views of

employers, the employees, the consumers and the community.
• The compensation policy or wage policy should be clearly defined to ensure uniform and
consistent application.
• The compensation plan should be matching with overall plans of the company.
Compensation planning should be part and parcel of financial planning
• Management should inform the wage/salary related policies to their employees. Workers
should be associated in formulation and implementation of wage policy.
• All wage and salary related decisions should be checked against the standards set in advance
in the wage/salary policy
• To manage compensation related matters adequate information/data should be developed
and stored for future planning and execution.
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• The compensation policy and programme should be reviewed and revised periodically in
conformity with changing needs.

1.8 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Following factors are considered in deciding the Compensation of an Employee:

a) Cost of Living
b) Prevailing Wage Rates
c) Job Requirements
d) Management Philosophy
i) a & b
ii) a, b & c
iii) b & c
iv) All the above
2) State true or false:
Employee related factors include: Performance, Seniority, Experience and Potential.
a) True
b) False
3) State true or false:
The Compensation system should be Complex and flexible so that employee‘s should not be
able to compute their own compensation receivable.
a) True
b) False
4) Which of the following are the objectives of Compensation
a) Equity
b) Efficiency
c) Retain Current Employees
d) Reward Desired Behaviour
i) a & b
ii) a, b & c
iii) b & c
iv) All the above
5) State true or false:
Compensation policy should be developed by taking into consideration of the views of
employers, the employees, the consumers and the community.
a) True
b) False

Answers: 1 (iv), 2 (a), 3 (b), 4 (iv), 5 (a)

16
Long Answer Questions

Q1. Define the concept of Compensation and its various types. Also mention the factors
considered in deciding the compensation of employees?

Q2. Define the significance of compensation management and various principles of

compensation administration?

17
 LESSON 2

COMPENSATION SYSTEM, DESIGN AND

EMPLOYEE WELFARE

2 STRUCTURE

2.1. Introduction
2.2. Components of Compensation System
2.3. Process of Compensation Design
2.4. Challenges faced by Compensation Design
2.5. Factors Considered in Designing Compensation Package/Compensation System Design
Components
2.6. Process of Determination of Compensation
2.7. Concept of Executive Compensation
2.8. Components of Executive Compensation
2.9. Steps in Designing an Effective Executive Compensation Program
2.10. Employee Welfare: Benefits and Principles
2.11. Self-Assessment Questions

2.1 INTRODUCTION

Compensation design determines the value of specific, properly executed accomplishments

toward the achievement of desired outcomes. The value of the accomplishment, not the level of
activity, is used to establish the nature and amount of compensation. Ultimately, compensation
design should foster a productive and equitable, long-term relationship among members, and
between each member and the organization. The process begins by identifying desired
outcomes for the organization or operating unit. Importance and value are attached to the results
people achieve with reference to the need of the organization. Compensation is based on the
achievement of results that are critical to organizational success. Attracting, retaining and
motivating employees in today‘s business environment requires utilizing a host of tools
including base pay, incentives, equity, performance management, and benefits. Balancing these
tools in an equitable, affordable and real manner can present difficulties for even the most
dedicated employers. No universal, standard programme exists that can meet every
organization‘s needs. In order for the total rewards programme to work, it must fit the
organization‘s culture and strategic initiatives and compensation objectives.

These objectives are as follows:

• External competitiveness to recruit and retail
• To reward performance through salary without grade promotions

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• Rewards for skill acquisition
• Internal equity among employees
• Pay for the person rather than just the job
• Built-in controls and cost constraints
• An understandable and equitable system
• Parallel career paths for managers and technical employees
• Flexibility to adapt quickly to market changes and
• Management flexibility to assign a range of duties

2.2 COMPONENTS OF COMPENSATION SYSTEM

Employees as fair if based on systematic components will perceive compensation. Various

compensation systems have developed to determine the value of positions. These systems
utilize many similar components including job descriptions, salary ranges/structures, and
written procedures. The components of a compensation system include:

1. Job Descriptions: A critical component of both compensation and selection systems, job
descriptions define in writing the responsibilities, requirements, functions, duties, location,
environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs
individually or for entire job families.

2. Job Analysis: The process of analyzing jobs from which job descriptions are developed. Job
analysis techniques include the use of interviews, questionnaires, and observation.

3. Job Evaluation: A system for comparing jobs for the purpose of determining appropriate
compensation levels for individual jobs or job elements. There are four main techniques:
Ranking, Classification, Factor Comparison, and Point Method.

4. Pay Structures: Useful for standardizing compensation practices. Most pay structures
include several grades with each grade containing a minimum salary/wage and either step
increments or grade range. Step increments are common with union positions where the pay
for each job is pre-determined through collective bargaining.

5. Salary Surveys: Collections of salary and market data may include average salaries,
inflation indicators, cost of living indicators, salary budget averages. Companies may
purchase results of surveys conducted by survey vendors or may conduct their own salary
surveys. When purchasing the results of salary surveys conducted by other vendors, note
that surveys may be conducted within a specific industry or across industries as well as
within one geographical region or across different geographical regions. Know which
industry or geographic location the salary results pertain to before comparing the results to
your company.

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2.3 PROCESS OF COMPENSATION DESIGN (Arul, 2018)

Essentials of a Sound Compensation Design

• Internal Equity: It implies a proper relationship between wages paid for different jobs
within the company. For example salary of a Sr. Manager is lower than a manager; there is
lack of internal equity. Pay differentials should be related directly to differential in job
requirements. Fair pay differentials between jobs can be established with the help of job
evaluation.

• External Competitiveness: Wages and salaries in the organization should be in line with
wages and salaries for comparable jobs in other organization. Otherwise the organization
may not be able to attract and retain competent personnel. Data relating to pay levels in
other organizations can be collected through wage and salary survey.

• Built-in Incentive: Wage or salary plan should contain a built-in incentive so as to motivate
employees to perform better. Such an incentive can be developed through performance
based payment. A part of the total payment should be linked to individual or group
performance. A sound performance appraisal system should be used to measure accurately
and objectively the performance of individual employees.

• Link with Productivity: Some part of the total pay should be linked to productivity. Such
linkage is necessary because workers expect a share in productivity gains. This will help to
control labour costs.

• Maintain Real Wages: At least part of the increase in the cost of living should be
neutralized so as to protect the real wages of labour. Dearness allowances are used in India
for this purpose.

• Increments: Compensation policy can be good motivator if pay increases are linked with
merit. But annual increments should partly be linked to seniority or years of service. The
logic for seniority based increments is that as a person accumulates experience his skill get
sharpened and his efficiency tends to increase.

2.4 CHALLENGES FACED BY COMPENSATION DESIGN

Designing a truly effective compensation plan is like climbing a mountain. It is a complex, and
often difficult, journey with numerous possibilities for pitfalls along the way, the most common
of which are:

20
• Using compensation in lieu of sound management: this equates to trying to solve a problem
by throwing money at it. No amount of compensation makes up for poor management.
• Confusing compensation and benefits with rewards and recognition: the fact is that
employees rarely leave organization for relatively small increases in pay. More often, they
leave for intrinsic reason such as feeling valued by an organization or seeing opportunity for
growth. Compensation, no matter how much, does not fill intrinsic needs.
• Utilizing compensation strategies that are not linked to achieving an organization‘s goals
and objectives: the only reason to hire or retail an employee is because he/she directly or
indirectly adds value to the company. Therefore, how much an employee should be paid,
depends solely on how much value he/she adds in reaching the company‘s goals and
objectives.
• Designing compensation strategies that are not aligned with business philosophy: An
effective compensation strategies cannot be designed without answering some key
questions, such as:
o Does the company want to hire younger, less experienced staff so that they can be paid
less, knowing they will have to be replaced in two or three years? Or
o Should an older, more experienced staff be hired and paid more to keep them
o Does the company want to pay the going rate based on competition?
o Does the company want to pay staff in accordance with their level of contribution to the
company?
• Using compensation strategies that are designed to support change: The companies that
stand the test on time are those who are willing and able to embrace change. An intensively
competitive marketplace combined with constant innovations in technology makes change
an ongoing process. As a result, the division that is the star performer today may be second
best tomorrow, or even outdated the day after that. Conversely, today‘s one-person
department may become tomorrow‘s powerhouse. Therefore, compensation strategies must
be designed to (a) accommodate for increases and decreases in profit and (b) share wealth
with those employees who are providing the most value at the time.

2.5 FACTORS CONSIDERED IN DESIGNING COMPENSATION

PACKAGE/COMPENSATION SYSTEM DESIGN COMPONENTS (Arul, 2018)

Determine the best total rewards philosophy for the organization. Reviewing the current
compensation and benefits system to see how it compares to labour market competition and
Formulating effective communication strategies focused on the value of the compensation,
performance management and benefits programme.

Base Pay to determine the base pay the following is to be taken into consideration
• Conducting job analysis and documenting job content
• Developing systematic base pay structures
• Using market benchmarking or job evaluation methods
• Development of employer specific base pay strategic
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 • Analysis of employee base pay to new base pay structures and
• Job description development

Incentive Programme: To develop the incentive programme the following is taken into
consideration
• Developing motivating variable pay programmes for production, office, management
and sales employees that tie organizational strategies and goals to individual or team
performance and
• Creating pay-for-performance system including performance appraisal tools and merit
increase guidelines

Benefits Programme: To develop benefit programme the following is to be considered

• Assessing employees‘ satisfaction with your current benefit package through a Benefit
Assessment Survey
• Analysis of current benefit offerings and recommendation of effective benefit changes

Guiding Principles of Compensation Design

1. Making salary decisions that are based upon appropriate equity and budget
considerations
2. Encouraging and rewarding excellent performance with merit increases whenever
possible
3. Providing salary increases within available funding and
4. Motivating employees by demonstrating the link between performance and pay

2.6 PROCESS OF DETERMINATION OF COMPENSATION (Arul, 2018)

Today the compensation systems are designed aligned to the business goals and strategies. The
employees are expected to work and take their own decisions. Authority is being delegated.
Employees feel secured and valued in the organization. Organizations offer monetary and non-
monetary benefits to attract and retain the best talents in the competitive environment. Some of
the benefits are special allowances like mobile, company‘s vehicle; House rent allowances;
statutory leaves, etc. The wage determination process consists of the following steps:

Traditional Change in Modern

Compensation Compensation Compensation
systems Systems Systems

Figure 1: Traditional Compensation Systems

22
In the traditional organizational structures, employees were expected to work hard and obey the
bosses‘ orders. In return they were provided with job security, salary increments and
promotions annually. The salary was determined on the basis of the job work and the years of
experience the employee is holding. Some of the organizations provided for retirement benefits
such as, pension plans, for the employees. It was assumed that humans work for money, there
was no space for other psychological and social needs of workers

Change in Compensation Systems

With the behavioral science theories and evolution of labour and trade unions, employees
started asking for their rights. Maslow brought in the need hierarchy for the rights of the
employees. He stated that employees do not work only for money but there are other needs too
which they want to satisfy from there job, i.e. social needs, psychological needs, safety needs,
self-actualization, etc.

Now the employees were being treated as human resource. Their performance was being
measured and appraised based on the organizational and individual performance. Competition
among employees existed. Employees were expected to work hard to have the job security. The
compensation system was designed on the basis of job work and related proficiency of the
employee.

Conducting Wage/Salary Survey

Determine the worth of each job through job evaluation

Group similar jobs into pay grades

Price each pay grade by using wave curves

Developing wage Structure

Framing Wage Administration Rules

Employee Appraisal

Figure 2: Steps in Determination of Compensation

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Modern Compensation Systems

1. The Salary/Wage Survey: It is difficult to set pay rates if one don‘t know what others
paying, so salary survey of what others are paying will play a big role in pricing jobs.
Virtually every employer conducts at least an informal telephone, newspaper, or internet
salary survey.
2. Job Analysis: Job analysis is a systematic approach to defining the job role, description,
requirements, responsibilities, evaluation, etc. It helps in finding out required level of
education, skills, knowledge, training, etc for the job position. It also depicts the job worth
i.e. measurable effectiveness of the job and contribution of job to the organization. Thus, it
effectively contributes to setting up the compensation package for the job position.

Skills,
Knowledge,
Job Position
Attitude

Role &
Job Description Responsibilities

Education,
Job Worth Experience

Figure 3: Job Analysis

• Job Description: Job description refers the requirements an organization looks for a
particular job position. It states the key skill requirements, the level of experience
needed, level of education required, etc. It also describes the roles and responsibilities
attached with the job position. The roles and responsibilities are key determinant factor
in estimating the level of experience, education, skill, etc required for the job. It also
helps in benchmarking the performance standards.

• Job Position: Job position refers to the designation of the job and employee in the
organization. Job position forms an important part of the compensation strategy as it
determines the level of the job in the organization. For example management level
employees receive greater pay scale than non-managerial employees. The non-monetary
benefits offered to two different levels in the organization also vary
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 • Job Worth: Job Worth refers to estimating the job worthiness i.e. how much the job
contributes to the organization. It is also known as job evaluation. Job description is
used to analyze the job worthiness. It is also known as job evaluation. Roles and
responsibilities helps in determining the outcome from the job profile. Once it is
determined that how much the job is worth, it becomes easy to define the compensation
strategy for the position

• Job Evaluation: The relative value of every job is determined through job evaluation.
The relative job value is then converted into money value so s to fix. Wage Survey:
Wage or salary surveys are conducted to find out wage or salary levels prevailing in the
region or industry for similar jobs. Other organizational problems such as recruitment
policy, fringe benefits, etc., are also considered.

3. Groups Similar Jobs into Pay Grades: Once the committee has used job evaluation to
determine the relative worth of each job, it can turn to the task of assigning pay rates to each
job; however, it will usually want to first group jobs into pay grades. It could, of course, just
assign pay rates to each individual job. But for a larger employer, such a plan would be
difficult to administer, since there might be different pay rates for hundreds or even
thousands of jobs. And even in smaller organization, there‘s a tendency to try to simplify
wage and salary structures as much as possible. Therefore, the committees will probably
group similar jobs into grades of pay purposes.

4. Developing Wage Structure: On the basis of foregoing steps an equitable wage structure
is prepared. While determining such a structure several points need to be considered;
• Legislation elating to wages
• Payments equal to, more or less than prevailing wage rates
• Number and width of pay grades
• Jobs to be placed in each pay grade
• Provision for merit increases
• Differentials between pay and plans and
• Dealing with wages or salaries that are not line with the structure

5. Wage Administration Rules: Rules are required to determine the degree to which advance
will be based on length of service rather than merit, the frequency with which pay based on
length of service rather than merit, the frequency with which pay increments will be
awarded, the rules that will govern promotions from one pay grade to another, and the way
control over wage/salary costs can be maintained. Once the rules are framed these should be
communicated to the employees.

6. Employee Appraisal: In order to reward merit and performance, it is necessary to evaluate

the performance of individual employees. Some differentials in pay are maintained on the
25
 basis of employee‘s performance. This is necessary to provide incentive for hard work and
superior performance is evaluated against predetermined standards of performance.
Therefore, job analysis forms an integral part in the formulation of compensation strategy of
an organization. Organizations should conduct the job analysis in a systematic at regular
intervals. Job analysis can be used for setting up the compensation packages, for reviewing
employees‘ performance with the standard level of performance, determining the training
needs for employees who are lacking certain skills.

2.7 CONCEPT OF EXECUTIVE COMPENSATION (Arul, 2018)

It is defines as the financial payments and non-monetary benefits provided to high level
management in exchange for their work on behalf of an organization. The types of employees
that are typically paid with executive compensation packages include corporate presidents, chief
executive officers, chief financial officers, vice presidents, managing directors and other senior
executives.

A well-designed executive compensation plan focuses on a number of important objectives. It

attracts and retains the talent necessary to lead complex organizations to success. It aligns the
interests of executives with those of shareholders. It focuses the efforts of executives on
achieving the organization‘s business goals, both short- and long-term. Finally, it provides
programs that are regarded as credible and responsible by investors and other stakeholders, and
that meet legal and regulatory requirements. While these objectives have not changed, the
manner in which companies are achieving these objectives is evolving rapidly. This is unfolding
in a context of growing demands for transparency and accountability. An organization
developing an executive compensation program will improve its chances of success by
following five approaches:

• First, define the organization‘s short- and long-term strategies, objectives and key
measurements.
• Second, vest responsibility for executive compensation in a compensation committee
consisting of independent board members.
• Third, take a total rewards perspective by looking at each component of the
compensation program as part of a portfolio of provisions rather than stand-alone items.
• Fourth, establish the executive compensation portfolio to provide an appropriate
allocation of base and variable (at risk) compensation, short- and long-term programs
and performance incentives versus retention and attraction incentives. The optimal mix
will vary by company.
• Fifth, make the program as simple as possible.

Performance Objectives and Measurements

All executive compensation programs and decisions should derive from the performance
objectives and measurements of the participating executives. Traditionally, executives‘
26
performance measurements have been focused on hard financial metrics such as earnings-per-
share, total shareholder returns, revenue and profit before tax. In recent years, there has been an
increasing concern that an excessive focus on financial results will actually cause a decline, over
time, in financial performance. The argument is that financial results are the result of doing
everything else well. Executives should also be measured on that. Executive performance has
normally been measured against the organization‘s pre-established targets. An emerging
practice is to measure company performance, and reward executives based on the organization‘s
performance relative to that of a designated group of similar companies (usually in the same
industry). Since publicly available performance data from other companies is almost all
financial in nature, so are comparative performance metrics.

Executive Benefits and Perquisites

Company practices on benefits and perquisites differ widely. The general trend is towards a
reduction in special provisions for executives. For benefits, the most common practice is for
companies to provide the standard insurance programs to their executives. Where the amount of
a benefit provision is contingent on income (life or disability coverage, for example), some
companies will adjust the standard maximums for coverage to reflect the higher levels of
income that will need to be replaced in the event of the death or disability of an executive.
Similarly, for companies with defined benefit pension programs. Applying the standard income
tax maximums for registered pension plans will result in executives exceeding the maximum
benefit levels. Some companies will bridge this gap through supplemental executive retirement
plans. These plans cannot be financed from a pension fund. Payouts are treated as regular
business expenses. A large portion of executive compensation is based on incentive wards
rather than salary. As a result, companies have to decide whether income-contingent benefits
such as pensions should be calculated on the executive‘s salary only, or on salary and bonuses.
Perks should be congruent with the company‘s desired culture. A hierarchical organization will
tend to have more. A flatter, more egalitarian organization, or one with an active board or
shareholders, will tend to minimize perks. Justifiable perks are usually related to the nature of
the demands of the executive‘s job. For example, memberships in golf clubs, social clubs or
business associations are sometimes provided for the purpose of customer meetings and
networking.

Psychological Compensation

While compensation discussions tend to focus on financial provisions, a total rewards approach
also looks at non-financial or psychological compensation. This is directed at more intrinsic
motivators. An executive‘s psychological compensation is most likely to come from the
characteristics of his or her work environment or individual nature. Examples include
congruence between work and values, degree of autonomy, relationships with peers and more
senior executives or board members, relationships with the people they lead, the opportunity for
visible achievement and public recognition, intellectual and professional challenge and the
27
ability to have an impact outside the company by being involved in charitable, educational,
public policy or other community endeavors. In summary, executive compensation has become
a subject of considerable public scrutiny.

The result has been a marked improvement in transparency and accountability, compensation
program design and governance. Boards and compensation consultants are becoming more
creative in developing incentive programs tailored tore ward specific individual performance
and behaviors. The prerequisite for an effective executive compensation program is a clear
understanding and definition of the organization‘s business objectives, performance drivers and
performance measurements. Once these have been established, the design of a total rewards
package becomes an exercise in crafting an appropriate mix of the various executive
compensation components to drive the behaviors required to achieve the organization‘s short-
and long-term objectives.

2.8 COMPONENTS OF EXECUTIVE COMPENSATION (Arul, 2018)

In crafting the executive compensation program, companies need to determine where they want
to position their compensation relative to the market. Most want to be at the market median,
while a substantial minority seeks to be above market. One major challenge in establishing
market-competitive compensation provisions for executives is identifying an appropriate group
for benchmarking. That benchmark can consist of direct competitors, companies with
comparable revenue or employee populations, companies in the same region and companies that
the organization would like to emulate. The executive compensation portfolio can be made up
of six elements.

1. Base Pay: This comprises a decreasing portion of executives‘ total compensation. That is a
natural corollary of the increasing importance of incentive-based rewards. In recent years,
base pay annual increases for executives have averaged only a few tenths of a percentage
point more than increases for the broader employee population. For chief executive officers
(CEOs) of companies in the S&P/TSX Composite Index, base pay averaged about one-third
of total compensation. It averaged about one-fifth for the 60 largest companies on the index.
The mechanics of executive base pay programs are much the same as for other employees.
Executives earn increases based on individual performance, internal equity and competitive
market rates for comparable positions. The percentage of total compensation made up by
base pay is inversely proportional to the executive‘s ranking in the organization.

2. Non-Discretionary Cash Bonuses: These are a significant element of executive

compensation. They are the largest incentive compensation component in organizations that
are privately held, and where stock-based incentive programs are not applicable. Non-
discretionary bonuses are tied to the achievement of measurable targets. There is usually a
threshold level of performance required before any payout is made, a target level of
performance at which the target payout is made and a higher level of performance at which
28
 the maximum allowable payout is made. These bonuses are usually based on performance
within a fiscal year. The shorter time frame for measuring and rewarding performance is
consistent with short-term (quarterly and annual) shareholder expectations.

3. Discretionary Cash Bonuses: These bonuses are not linked to specific performance
measurements or targets. Discretionary bonuses may be appropriate where company
performance is weak, thresholds for non-discretionary cash bonuses have not been met and
where there is a need to provide additional compensation to key executives for retention
purposes. In some cases they are used for valued achievements that are not rewarded
through other components of the compensation package. Despite these opportunities, they
are decreasing in use.

4. Stock Options: Stock options, or other share-based instruments, are intended to align the
interests of executives with those of shareholders by encouraging executives to increase
share prices. A stock option program provides an executive with the option to buy shares —
typically at the Fair Market Value (FMV) of the stock as of the day the option grant is
issued. Some companies have begun to price options above the FMV so that the options will
not have any value unless the stock price attains a stipulated increase in value. The options
usually vest over a period of three to five years. The option recipient usually has five to 10
years from the option grant date to exercise the options. One emerging trend has companies
making the vesting of options dependent on the achievement of specified performance
objectives, rather than simply on the passage of time. Stock options do not completely align
the interests of executives and shareholders. Unlike direct share ownership, stock options do
not entail the possibility of financial loss, and do not reflect returns to shareholders via
dividends. Accordingly, an increasing number of companies are requiring executives and
board members to have a defined amount of personal share holdings. One of the criticisms
of stock options is that, in a bull market, even poorly managed companies experience an
increase in share price. That rewards executives even when their organization‘s performance
is below average. Companies can mitigate this risk by pricing options above the FMV as of
the date of the grant, or by providing shorter time frames (perhaps five years rather than 10)
for the exercise of options. Conversely, well-run companies may experience a decrease in
share price during a bear market. That can have a significantly negative impact on executive
morale and retention. In such cases, some companies have chosen to revalue their options
(reduce the price at which they can be converted into shares). This can be perceived as
sheltering executives from the pain felt by shareowners, which violates the principle of
aligning the interests of executives and shareholders. Option revaluation is becoming rare. A
less controversial approach to this problem is to reduce the stock option component of the
executive compensation package, and to increase the bonus component (especially
nondiscretionary bonuses based on the individual‘s performance rather than the share price).

5. Stock Appreciation Rights: These are like stock options, except that the recipient does not
actually have to buy and then sell the shares vested. Stock appreciation rights involve
29
 notional stock. They have the advantage of providing cash compensation if the share price
increases, but not diluting shareholder equity. They are often used by multinational
corporations for executives in countries where stock option programs are not allowed by
law.

6. Share Unit Plans: Under stock option and stock appreciation rights plans, executives are
compensated only on the increase in the value of the shares over the option price. Under
share unit plans, executives receive the full cash value of each share unit granted rather than
just the appreciation of the share price. Depending on the plan, the share unit holder may
receive cash or actual stock at the point of exercise. Share unit holders will also normally
receive the same dividends as regular shareholders because each share unit has more value
than a stock option; fewer units need to be granted to provide the same compensation value
to the executive.

Share unit plans can be criticized for rewarding executives even though the stock price may
have declined. Also, because of the smaller number of units typically granted, there is less
upside (compared to stock options) for increases in share price. However, they encourage
executives to protect or increase the existing value of shares, and to preserve or enhance
dividend yields. Income gained under share unit plans is currently taxed, upon receipt, as
ordinary income. There are three types of share unit plans:

• Restricted Share Units: These units vest under a predetermined schedule, typically at
the end of a specified period such as three years.

• Performance Share Units: These are increasing rapidly in popularity as an alternative

or complement to traditional stock options. Performance share units vest depending
upon the achievement of certain predefined and time-bound performance objectives.

• Deferred Share Units: With these units payment is deferred until the executive‘s
employment with the company ends. They direct executives‘ attention to the long-term
performance of the organization. An unintended consequence of deferred share units
may be to encourage executives to leave if they anticipate a significant reduction in
share price.

2.9 STEPS IN DESIGNING AN EFFECTIVE EXECUTIVE COMPENSATION

PROGRAM (Arul, 2018)

In order to design an effective executive compensation program following six steps should be
taken:

30
 Analyze Existing Benefit Plans and Executive Compensation Arrangements

Establish Primary Plan Objectives for Executive Compensation Program

Identify Optimal Plan Design Features

Determine Tax and Distribution Strategy

Select Appropriate Financing Methodology

Establish Guidelines for Periodic Review and Evaluation

Figure 4: Steps to design Effective Compensation Program

1. Analyze Existing Benefit Plans and Executive Compensation Arrangements: One of the
first things you will want to do is review the benefits provided under the standard package
of employee benefit plans that will be offered to the key employee. Analysis of the base
retirement and tax-deferred savings plans is necessary in order to identify gaps in coverage
and opportunities that maximize benefits provided under the available limits. In other words,
do the math. Addressing what is needed or desired can only be accomplished after
determining what is already being provided.

For existing executive compensation arrangements, you will want to determine if the
programs still meet their primary objectives and remain in compliance with current
regulatory and legislative requirements. You will also want to analyze the administrative
requirements and costs of the benefit program to ensure that it remains affordable and
efficient. Finally, as with any employee benefit plan, you will want to ensure that the
executive compensation package that is being offered or considered is not only adequate,
but also understood and appreciated by the key employee.

2. Establish Primary Plan Objectives for Executive Compensation Program: This step
basically asks the question, why are we considering development of a supplemental
executive compensation package?

• Is it simply to provide the key employee with additional retirement contributions above
and beyond those provided by the standard employee benefit plans?
• Is it to restore benefits lost under these standard plans due to the IRS limits placed on
compensation or nondiscrimination testing?
31
 • Is it to provide the key employee with additional salary deferral opportunities?
• Is it to attract or retain the services of a key employee or to reward performance?

The answer to these questions will help identify the most appropriate executive
compensation arrangement for the circumstance. ―Yes‖ answers to the first three questions
can, in many cases, be accomplished without complex plan designs and—depending on the
amounts under consideration—within the established limits of eligible nonqualified deferred
compensation plans. Plans with an objective of recruiting and retaining the services of key
employees generally tend to be more complex in design and involve higher compensation
limits.

3. Identify Optimal Plan Design Features: Once you have determined the plan‘s primary
objective, you will want to gauge the relative importance of certain design features from an
institutional perspective. A common consideration is the issue of public disclosure and/or
Form 990 reporting. In the case of a highly recruited athletic coach, these issues generally
tend to get played out in the local media and are difficult to manage. However, the type of
plan selected will determine when or how the compensation is disclosed. (Note: all public
institution information is subject to state open records laws, and independent institutions
must disclose all compensation in the Form 990.) Other considerations include determining
the importance of protecting the benefit from the institutions‘ creditors, whether future
service requirements are required, and when benefits are to be made available. (Some plans,
such as 457(f) arrangements and 457(b) plans of tax-exempt organizations, must be
―unfunded,‖ whereby the assets remain the property of the institution and must be made
available to creditors until they are distributed.) Design features such as rolling risks of
forfeiture, the use of non-compete agreements, or requirements for performance of
consulting services following separation from service are generally no longer available.

4. Determine Tax and Distribution Strategy: Of great importance to both the institution and
the key employee is the tax liability and distribution strategy associated with the executive
compensation plan selected. Although tax-exempt and governmental employers do not have
the same tax incentives as for-profit organizations when establishing executive
compensation arrangements, some plan designs have bookkeeping requirements that must
be considered. The institution also must determine the importance of employer control of
the assets and benefit distributions prior to and after vesting or before retirement. Of
particular concern to the key employee are the individual tax consequences of the benefits
during the accumulation phase, upon vesting, prior to distribution, and following separation
from service. Rules vary by plan type and must be analyzed carefully.

5. Select Appropriate Financing Methodology: Depending on the type of executive

compensation plan under consideration, an institution will need to base its financing strategy
on projections of future assets, benefit liabilities, and cash flows. Simply put, how is the

32
 institution going to pay for or account for the benefits promised? Common financing
arrangements include:

• Cash/lump-sum settlement (pay as you go).

• Shadow account (defined interest and earnings assumptions).
• Institutionally owned annuity/mutual fund accounts.
• Institutionally owned life insurance policy.
• Use of Rabbi Trust, Employee Trust.

From the key employee‘s perspective, various funding arrangements tend to involve a trade-
off between the level of security provided on the underlying benefits and the amount of tax
deferral that can be achieved. Certain executive compensation arrangements have maximum
contribution limits placed on them with the benefit of spreading out the tax liability over
time upon distribution while others provide for unlimited contribution amounts but are
heavily taxed upon vesting or distribution.

6. Establish Guidelines for Periodic Review and Evaluation: As previously mentioned, a

successful executive compensation program begins and ends with good governance and
compliance with all legislative and regulatory requirements. It is critical to review these
arrangements on an annual basis to ensure they remain consistent with the institution‘s
overall compensation philosophy, policies, and practices and are in compliance with
applicable laws and regulations. While the focus of this article centered on the types of
executive compensation packages most commonly used in higher education, the annual
review should take into consideration the total compensation package: base salary, benefits,
short- and long term incentive programs, and perquisites. It is also important to ensure that
all executive compensation plans are well documented, including the decision-making
process and procedures that went into their development. And finally, good governance
requires involving all of the key stakeholders (human resources, finance/business office, and
legal counsel) and clear communication between senior leadership and the institution‘s
governing body.

2.10 EMPLOYEE WELFARE: BENEFITS AND PRINCIPLES (Projects4MBA, 2018)

Employee welfare defines as ―efforts to make life worth living for workmen‖. ―Employee
welfare is a comprehensive term including various services, benefits and facilities offered to
employees & by the employers. Through such generous fringe benefits the employer makes life
worth living for employees.‖ Welfare includes anything that is done for the comfort and
improvement of employees and is provided over and above the wages. Welfare helps in keeping
the morale and motivation of the employees high so as to retain the employees for longer
duration. The welfare measures need not be in monetary terms only but in any kind/forms.
Employee welfare includes monitoring of working conditions, creation of industrial harmony

33
through infrastructure for health, industrial relations and insurance against disease, accident and
unemployment for the workers and their families.

Employee welfare entails all those activities of employer which are directed towards providing
the employees with certain facilities and services in addition to wages or salaries. The very logic
behind providing welfare schemes is to create efficient, healthy, loyal and satisfied labor force
for the organization. The purpose of providing such facilities is to make their work life better
and also to raise their standard of living. These efforts have their origin either in some statute
formed by the state or in some local custom or in collective agreement or in the employer‘s own
initiative:

 To give expression to philanthropic and paternalistic feelings.

 To win over employee‘s loyalty and increase their morale.
 To combat trade unionism and socialist ideas.
 To build up stable labour force, to reduce labour turnover and absenteeism.
 To develop efficiency and productivity among workers.
 To save oneself from heavy taxes on surplus profits.
 To earn goodwill and enhance public image.
 To reduce the threat of further government intervention.
 To make recruitment more effective (because these benefits add to job appeal).

The important benefits of welfare measures can be summarized as follows:

 They provide better physical and mental health to workers and thus promote a healthy
work environment
 Facilities like housing schemes, medical benefits, and education and recreation facilities
for workers‘ families help in raising their standards of living. This makes workers to pay
more attention towards work and thus increases their productivity.
 Employers get stable labor force by providing welfare facilities. Workers take active
interest in their jobs and work with a feeling of involvement and participation.
 Employee welfare measures increase the productivity of organization and promote
healthy industrial relations thereby maintaining industrial peace.
 The social evils prevalent among the labors such as substance abuse, etc are reduced to a
greater extent by the welfare policies.

Principles of Employee Welfare Service

Following are generally given as the principles to be followed in setting up a employee welfare
service:

34
  The service should satisfy real needs of the workers. This means that the manager must
first determine what the employee‘s real needs are with the active participation of
workers.
 The service should be handled by cafeteria approach. Due to the difference in Sex, age,
marital status, number of children, type of job and the income level of employees there
are large differences in their choice of a particular benefit. This is known as the
cafeteria approach. Such an approach individualizes the benefit system though it may be
difficult to operate and administer.
 The employer should not assume a benevolent posture.
 The cost of the service should be calculated and its financing established on a sound
basis.
 There should be periodical assessment or evaluation of the service and necessary timely
on the basis of feedback.

2.11 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Following factors are the components of a Compensation system:

a) Job Description
b) Job Analysis
c) Job Evaluation
d) Salary Surveys
i) a & b
ii) a, b & c
iii) b & c
iv) All the above T
2) State true or false:
Using compensation in lieu of sound management is a major challenge faced by
Compensation Design. T
a) True
b) False
3) State true or false:
Discretionary and Non-Discretionary Cash Bonuses are not the components of Executive
Compensation.
a) True
b) False
4) Which of the following are the Guiding Principles of Compensation Design
a) Making salary decisions that are based upon appropriate equity and budget
considerations
b) Encouraging and rewarding excellent performance with merit increases whenever
possible
35
 c) Providing salary increases within available funding and Motivating employees by
demonstrating the link between performance and pay
(a) a & b
(b) a, b & c
(c) b & c
(d) All the above
5) State true or false:
Wage Survey and Job Analysis is part of the Modern Compensation System.
a) True
b) False

Answers: 1 (iv), 2 (a), 3 (b), 4 (d), 5 (a)

Long Answer Questions

Q1. Define the Concept and Components of Compensation System. Also lay down the steps
taken to follow the process of compensation Design?

Q2. Mention the factors considered in designing a Compensation Package. Also define the
concept and components of Executive Compensation.

36
 LESSON 3
THE PAYMENT OF BONUS ACT, 1965

3 STRUCTURE

3.1. Scope and Objective of the Act

3.2. Key Pointers related to the Act
3.3. Definitions
3.4. Major Components of the Act
3.5. Eligibility for Bonus
3.6. Set On and Set Off of Allocable Surplus
3.7. Application of Act in Establishment in Public Sector
3.8. Special Provision with Respect to the Payment of Bonus Linked with Production or
Productivity
3.9. Self-Assessment Questions

3.1 SCOPE AND OBJECTIVE OF THE ACT

The Payment of Bonus Act, 1965 is the principal act for the payment of bonus to the employees
which was formed with an objective for rewarding employees for their good work for the
organization. It is a step forward to share the prosperity of the establishment reflected by the
profits earned by the contributions made by capital, management and labour with the
employees.

Objective
• To improve statutory liability to pay bonus [reward for good work] in case of profits or
losses.
• To prescribe formula for calculating bonus
• To prescribe Minimum & Maximum percentage bonus
• To provide of set off/set on mechanism
• To provide redressal mechanism

3.2 KEY POINTERS RELATED TO THE ACT (saralpaypack, 2018)

What is a bonus?

The bonus is a reward that is paid to an employee for his work dedication towards the
organization. The basic objective to give the bonus is to share the profit earned by the
organization amongst the employees and staff members.

37
When is the employee eligible for the bonus?

Every employee drawing not less than Rs. 21,000/- per month and who has worked for not less
than 30 days in an accounting year shall be eligible for the Bonus. Every employee will 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 30 working
days in that year.

Minimum Bonus

Previously, the maximum bonus payable was 20% of Rs 3500 per month. The minimum bonus
payment was capped at 8.33% of Rs 3500 per month or Rs 100, whichever is higher. The
calculation ceiling of Rs 3500 is currently doubled to Rs 7000 per month ―or the minimum
wage for the scheduled employment, as fixed by the appropriate Government‖ (whichever is
higher). Therefore, the cost associated with bonus payments could be double, based on the
organization‘s performance.

Calculation of Bonus as per Bonus Act (Amendment of 2015)

If the gross earning of your employees is below Rs.21000 you are eligible to pay bonus.
Calculation of bonus will be as follows:

If Basic+DA is below Rs.7000 then bonus will be calculated on the actual amount.
If Basic+DA is above Rs.7000 then the bonus will be calculated on Rs.7000.

Examples of calculation of bonus

If the Basic salary of the employee is less than or equal to Rs 7,000

Rahul is working as an engineer in a Company in Bangalore. His basic salary is Rs. 6,500 per
month.
Formula: Basic Salary*8.33% = Bonus per month

6500*8.33% = 541.45 (6497.4 per annum)

If the Basic salary of the employee is higher than Rs 7,000

Siddharth is working as a Sales officer in one of the shops in Delhi. His basic salary is Rs.
18,000 per month.
Formula: Basic Salary*20% = Bonus per month
7,000*20% = 1400 per month

38
If the Basic salary of the employee is higher than Rs 21,000

There is no bonus applicable to employees having a basic salary of more than Rs 21,000.

Figure 6: Bonus Calculation

Exempted Establishments

The payment of bonus act will not apply to the following section of employees:

• The employees of Life Insurance company

• Seamen defined under clause 42 of the merchant shipping act 1958.
• Employees who registered or listed under the dock workers Act 1948 and employed by the
registered or listed employers.
• The employees of any industry controlled by central or state government.
• Employees from Indian red cross society or education institutions, institutions not for profit.
• Employees employed by the contractor on building operations
• Reserve Bank Of India(RBI) employees
• Employees of any financial corporation under the Section 3 or Section 3a of the State
Financial Corporation act (SFC) 1951
• Employees of IFCI, Deposit Insurance Corporation, agriculture Refinance Corporation.

39
• Any financial institution is an establishment in public sector which central government
notifies.
• The employees of inland water transport establishment

3.3 DEFINITIONS (The Payment of Bonus Act,1965)

In this Act, unless the context otherwise requires,

1. "accounting year" means,-

i. in relation to a corporation, the year ending on the day on which the books and
accounts of the corporation are to be closed and balanced;
ii. in relation to a company, the period in respect of which any profit and loss account
of the company laid before it in annual general meeting is made up, whether that
period is a year or not,
iii. in any other case,-
a. the year commencing on the 1st day of April; or
b. if the accounts of an establishment maintained by the employer thereof are
closed and balanced on any day other than the 31st day of March, then, at the
option of the employer, the year ending on the day on which its accounts are so
closed and balanced:

PROVIDED that an option once exercised by the employer under paragraph (b) of this sub-
clause shall not again be exercised except with the previous permission in writing of the
prescribed authority and upon such conditions as that authority may think fit;
2. "agricultural income" shall have the same meaning as in the Income-tax Act;
3. "agricultural income tax law" means any law for the time being in force relating to the levy
of tax on agricultural income;
4. "allocable surplus" means,-
a. in relation to an employer, being a company 6[(other than a banking company)
which has not made the arrangements prescribed under the Income Tax Act for
the declaration and payment within India of the dividends payable out of its
profits in accordance with the provisions of section 194 of that Act, sixty-seven
per cent of the available surplus in an accounting year;
b. in any other case, sixty per cent of such available surplus;
5. "appropriate government" means,-
i. in relation to an establishment in respect of which the appropriate government under
the Industrial Disputes Act, 1947 (14 of 1947), is the Central Government, the
Central Government;
ii. in relation to any other establishment, the Government of the State in which that
other establishment is situate;
6. "available surplus" means the available surplus computed under section 5;

40
7. "award" means an interim or a final determination of any industrial dispute or of any
question relating thereto by any Labor Court, Industrial Tribunal or National Tribunal
constituted under the Industrial Disputes Act, 1947 (14 of 1947), or by any other authority
constituted under any corresponding law relating to investigation and settlement of
industrial disputes in force in a State and includes an arbitration award made under section
10A of that Act or under that law;
8. "banking company" means a banking company as defined in section 5 of the Banking
Companies Act, 1949 (10 of 1949), and includes the State Bank of India, any subsidiary
bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), 3[any
corresponding new bank specified in the First Schedule to the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970)], 6[any corresponding
new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1980 (40 of 1980)], any co-operative bank as defined in clause (bii)
of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934) and any other banking
institution which may be notified in this behalf by the Central Government;
9. "company" means any company as defined in section 3 of the Companies Act, 1956 (1 of
1956) and includes a foreign company within the meaning of section 591 of that Act;
10. "co-operative society " means a society registered or deemed to be registered under the Co-
operative Societies Act, 1912 (2 of 1912), or any other law for time being in force in any
State relating to co-operative societies;
11. "corporation" means anybody corporate established by or under any Central, Provincial or
State Act but does not include a company or a co-operative society;
12. "direct tax" means,-
i. any tax chargeable under,-
a. the Income-tax Act;
b. the Super Profits Tax Act, 1963 (14 of 1963);
c. the Companies (Profits) Surtax Act, 1964 (7 of 1964);
d. the agricultural income tax law; and
ii. any other tax which, having regard to its nature or incidence, may be declared by the
Central Government, by notification in the Official Gazette, to be a direct tax for the
purposes of this Act;
13. "employee" means any person (other than an apprentice) employed on a salary or wage not
exceeding [three thousand and five hundred rupees] per mensem in any industry to do any
skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical
work for hire or reward, whether the terms of employment be express or implied;
14. "employer" includes,-
i. in relation to an establishment which is a factory, the owner or occupier of the
factory, including the agent of such owner or occupier, the legal representative of a
deceased owner or occupier and where a person has been named as a manager of the
factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63
of 1948), the person so named; and

41
 ii. in relation to any other establishment, the person who, or the authority which, has
the ultimate control over the affairs of the establishment and where the said affairs
are entrusted to a manager, managing director or managing agent, such manager,
managing director or managing agent;
15. "establishment in private sector" means any establishment other than an establishment in
public sector;
16. "establishment in public sector" means an establishment owned, controlled or managed by,-
a. a government company as defined in section 617 of the Companies Act, 1956 (1 of
1956);
b. a corporation in which not less than forty per cent of its capital is held (whether
singly or taken together) by,-
i. the government; or
ii. the Reserve Bank of India; or
iii. a corporation owned by the government or the Reserve Bank of India;
17. "factory" shall have the same meaning as in clause (m) of section 2 of the Factories Act,
1948 (63 of 1948);
18. "gross profits" means the gross profits calculated under section 4;
19. "Income Tax Act" means the Income Tax Act, 1961, (43 of 1961);
20. "prescribed" means prescribed by rules made under this Act;
21. "salary or wages " means all remuneration (other than remuneration in respect of over-time
work) capable of being expressed in terms of money, which would, if the terms of
employment, express or implied, were fulfilled, be payable to an employee in respect of his
employment or of work done in such employment and includes dearness allowance (that is
to say, all cash payments, by whatever name called, paid to an employee on account of a rise
in the cost of living), but does not include,-
i. any other allowance which the employee is for the time being entitled to;
ii. the value of any house accommodation or of supply of light, water, medical attendance
or other amenity or of any service or of any concessional supply of food grains or
other articles;
iii. any traveling concession;
iv. any bonus (including incentive, production and attendance bonus);
v. any contribution paid or payable by the employer to any pension fund or provident
fund or for the benefit of the employee under any law for the time being in force;
vi. any retrenchment compensation or any gratuity or other retirement benefit payable to
the employee or any ex gratia payment made to him;
vii. any commission payable to the employee.

3.4 MAJOR COMPONENTS OF THE ACT

Computation of Gross Profits

42
The gross profits derived by an employer from an establishment in respect of the accounting
year shall,-
a. in the case of a banking company, be calculated in the manner specified in the First
Schedule;
b. in any other case, be calculated in the manner specified in the Second Schedule.

Computation of Available Surplus

The available surplus in respect of any accounting year shall be the gross profits for that year
after deducting there from the sums referred to in section 6:

PROVIDED that the available surplus in respect of the accounting year commencing on any day
in the year 1968 and in respect of every subsequent accounting year shall be the aggregate of,-

a. the gross profits for that accounting year after deducting there from the sums referred to in
section 6; and
b. an amount equal to the difference between,-
i. the direct tax, calculated in accordance with the provisions of section 7, in respect of
an amount equal to the gross profits of the employer for the immediately preceding
accounting year; and
ii. the direct tax, calculated in accordance with provisions of section 7, in respect of an
amount equal to the gross profits of the employer for such preceding accounting year
after deducting there from the amount of bonus which the employer has paid or is
liable to pay to his employees in accordance with the provisions of this Act for that
year.

Sums Deductible from Gross Profits

The following sums shall be deducted from the gross profits as prior charges, namely:-

a. any amount by way of depreciation admissible in accordance with the provisions of the sub-
section (1) of section 32 of the Income Tax Act or in accordance with the provisions of the
agricultural income tax law, as the case may be:

PROVIDED that where an employer has been paying bonus to his employees under a settlement
or an award or agreement made before the 29th May, 1965, and subsisting on that date after
deducting from the gross profits notional normal depreciation, then, the amount of depreciation
to be deducted under this clause shall, at the option of such employer (such option to be
exercised once and within one year from date) continue to be such notional normal depreciation;

43
b. any amount by way of 10[development rebate or investment allowance or development
allowance] which the employer is entitled to deduct from his income under the Income Tax
Act;
c. subject to the provisions of section 7, any direct tax which the employer is liable to pay for
the accounting year in respect of his income, profits and gains during that year;
d. such further sums as are specified in respect of the employer in the third Schedule.

Calculation of Direct Tax payable by the Employer

Any direct tax payable by the employer for any accounting year shall, subject to the following
provisions, be calculated at the rates applicable to the income of the employer for that year,
namely,-

a. in calculating such tax no account shall be taken of,-

i. any loss incurred by the employer in respect of any previous accounting year and
carried forward under any law for the time being in force relating to direct taxes;
ii. any arrears of depreciation which the employer is entitled to add to the amount of the
allowance for depreciation for any following accounting year or years under sub-
section (2) of section 32 of the Income Tax Act;
iii. any exemption conferred on the employer under section 84 of the Income Tax Act or
of any deduction to which he is entitled under sub-section (1) of section 101 of that
Act, as in force immediately before the commencement of the Finance Act, 1965 (10
of 1965);
b. Where the employer is a religious or a charitable institution to which the provisions of
section 32 do not apply and the whole or any part of its income is exempt from tax under the
Income Tax Act, then, with respect to the income so exempted, such institution shall be
treated as if it were a company in which the public are substantially interested within the
meaning of that Act;
c. where the employer is an individual or a Hindu Undivided Family, the tax payable by such
employer under the Income Tax Act shall be calculated on the basis that the income derived
by him from the establishment is his only income;
d. where the income of any employer includes any profits and gains derived from the export of
any goods or merchandise out of India and any rebate on such income is allowed under any
law for the time being in force relating to direct taxes, then, no account shall be taken of
such rebate;
e. no account shall be taken of any rebate 10[other than development rebate or investment
allowance or development allowance] or credit or relief or deduction (not hereinbefore
mentioned in this section) in the payment of any direct tax allowed under any law for the
time being in force relating to direct taxes or under the relevant annual Finance Act, for the
development of any industry.

44
3.5 ELIGIBILITY FOR BONUS

Eligibility for Bonus

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.

Disqualification for Bonus

Notwithstanding anything contained in this Act, an employee shall be disqualified from

receiving bonus under this 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.

Payment of Minimum Bonus

Subject to the other provisions of this Act, every employer shall be bound to pay to every
employee in respect of the accounting year commencing on any day in the year 1979 and in
respect of every subsequent accounting year, a minimum bonus which shall be 8.33 per cent of
the salary or wages earned by the employee during the accounting year or one hundred rupees,
whichever is higher, whether or not the employer has any allocable surplus in the accounting
year:

PROVIDED that where an employee has not completed fifteen years of age at the beginning of
the accounting year, the provisions of this section shall have effect in relation to such employee
as if for the words "one hundred rupees" the words "sixty rupees" were substituted.

Payment of Maximum Bonus

a. Where in respect of any accounting year referred to in section 10, the allocable surplus
exceeds the amount of minimum bonus payable to the employees under that section, the
employer shall, in lieu of such minimum bonus, be bound to pay to every employee in
respect of that accounting year bonus which shall be an amount in proportion to the salary or
wages earned by the employee during the accounting year subject to a maximum of twenty
per cent of such salary or wage.
b. In computing the allocable surplus under this section, the amount set on or the amount set
off under the provisions of section 15 shall be taken into account in accordance with the
provisions of that section.

45
Calculation of Bonus with Respect to certain Employees

Where the salary or wages of an employee exceeds two thousand and five hundred rupees per
mensem, the bonus payable to such employee under section 10 or, as the case may be, under
section 11, shall be calculated as if his salary or wages were 14[two thousand and five hundred
rupees] per mensem.

Proportionate Deduction in Bonus in certain Cases

Where an employee has not worked for all the working days in an accounting year, the
minimum bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is
higher than 8.33 per cent of his salary or wage of the days he has worked in that accounting
year, shall be proportionately reduced.

Computation of Number of Working Days

For the purposes of section 13, an employee shall be deemed to have worked in an
establishment in any accounting year also on the days on which,-

a. he has been laid off under an agreement or as permitted by standing orders under the
Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial
Disputes Act, 1947, (14 of 1947), or under any other law applicable to the establishment;
b. he has been on leave with salary or wages;
c. he has been absent due to temporary disablement caused by accident arising out of and in
the course of his employment, and
d. the employee has been on maternity leave with salary or wages, during the accounting year.

3.6 SET ON AND SET OFF OF ALLOCABLE SURPLUS

1. Where for any accounting year, the allocable surplus exceeds the amount of maximum
bonus payable to the employees in the establishment under section 11, then, the excess shall,
subject to a limit of twenty per cent of the total salary or wages of the employees employed
in the establishment in that accounting year, be carried forward for being set on in the
succeeding accounting year and so on up to and inclusive of the fourth accounting year to be
utilized for the purpose of payment of bonus in the manner illustrated in the Fourth
Schedule.
2. Where for any accounting year, there is no available surplus or the allocable surplus in
respect of that year falls short of the amount of minimum bonus payable to the employees in
the establishment under section 10, and there is no amount or sufficient amount carried
forward and set on under sub-section (1) which could be utilized for the purpose of payment
of the minimum bonus, then such minimum amount or the deficiency, as the case may be,

46
 shall be carried forward for being set off in the succeeding accounting year and so on up to
and inclusive of the fourth accounting year in the manner illustrated in the Fourth Schedule.
3. The principle of set on and set off as illustrated in the Fourth Schedule shall apply to all
other cases not covered by sub-section (1) or sub-section (2) for the purpose of payment of
bonus under this Act.
4. Where in any accounting year any amount has been carried forward and set on or set off
under this section, then, in calculating bonus for the succeeding accounting year, the amount
of set on or set off carried forward from the earliest accounting year shall first be taken into
account.

Special Provisions with Respect to Certain Establishments

1. Where an establishment is newly set up, whether before or after the commencement of this
Act, the employees of such establishment shall be entitled to be paid bonus under this Act in
accordance with the provisions of sub-sections (1A) (1B) and (1C).

(1A) In the first five accounting years following the accounting year in which the employer
sells the goods produced or manufactured by him or renders services, as the case may be,
from such establishment, bonus shall be payable only in respect of the accounting year in
which the employer derives profit from such establishment and such bonus shall be
calculated in accordance with the provisions of this Act in relation to that year but without
applying the provisions of section 15.

(1B) For the sixth and seventh accounting years following the accounting year in which the
employer sells the goods produced or manufactured by him or renders services, as the case
may be, from such establishment, the provisions of section 15 shall apply subject to the
following modifications, namely,-

i. for the sixth accounting year,-

set on or set off, as the case may be, shall be made in the manner illustrated in the 18[Fourth
Schedule] taking into account the excess or deficiency, if any as the case may be, of the
allocable surplus set on or set off in respect of the fifth and sixth accounting years;

ii. for the seventh accounting year,-

set on or set off, as the case may be, shall be made in the manner illustrated in the 18[Fourth
Schedule] taking into account the excess or deficiency, if any as the case may be, of the
allocable surplus set on or set off in respect of the fifth, sixth and seventh accounting years.

(1C) From the eighth accounting year following the accounting year in which the employer
sells the goods produced or manufactured by him or renders services, as the case may be,
from such establishment, the provisions of section 15 shall apply in relation to such
establishment as they apply in relation to any other establishment.
47
Explanation I: For the purpose of sub-section (1), an establishment shall not be deemed to be
newly set up merely by reason of a change in its location, management name or ownership.

Explanation II: For the purpose of sub-section (1A), an employer shall not be deemed to have
derived profit in any accounting year unless,-

a. he has made provision for that year's depreciation to which he is entitled under the Income
Tax Act or, as the case may be., under the agricultural income tax law, and
b. the arrears of such depreciation and losses incurred by him in respect of the establishment
for the previous accounting years have been fully set off against his profits.

Explanation III: For the purposes of sub-section (1A), (1B) and (1C), sale of the goods
produced or manufactured during the course of the trial running of any factory or of the
prospecting stage of any mine or an oil-field shall not be taken into consideration and where any
question arises with regard to such production or manufacture, the decision of the appropriate
government made after giving the parties a reasonable opportunity of representing the case,
shall be final and shall not be called in question by any court or other authority.]

2. The provisions of 19[sub-sections (1), (1A), (1B) and (1C)] shall, so far as may be, apply to
new departments or undertakings or branches set up by existing establishments:

PROVIDED that if an employer in relation to an existing establishment consisting of different

departments or undertakings or branches (whether or not in the same industry) set up at
different periods has, before the 29th May, 1965, been paying bonus to the employees of all
such departments or undertakings or branches irrespective of the date on which such
departments or undertakings or branches were set up, on the basis of the consolidated profits
computed in respect of all such departments or undertakings or branches, then, such employer
shall be liable to pay bonus in accordance with the provisions of this Act to the employees of all
such departments or undertakings or branches (whether set up before or after that date) on the
basis of the consolidated profits computed as aforesaid.

Adjustment of Customary or Interim Bonus against Bonus Payable under the Act

Where in any accounting year,-

a. an employer has paid any puja bonus or other customary bonus to an employee; or
b. an employer has paid a part of the bonus payable under this Act to an employee before the
date on which such bonus becomes payable, then, the employer shall be entitled to deduct
the amount of bonus so paid from the amount of bonus payable by him to the employee
under this Act in respect of that accounting year and the employee shall be entitled to
receive only the balance.
48
Deduction of certain Amounts from Bonus Payable under the Act

Where in any accounting year, an employee is found guilty of misconduct causing financial loss
to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the
amount of bonus payable by him to the employee under this Act in respect of that accounting
year only and the employee shall be entitled to receive the balance, if any.

Time-limit for Payment of Bonus

All amounts payable to an employee by way of bonus under this Act shall be paid in cash by his
employer,-

a. where there is a dispute regarding payment of bonus pending before any authority under
section 22, within a month from the date on which the award becomes enforceable or the
settlement comes into operation, in respect of such dispute;
b. in any other case, within a period of eight months from the close of the accounting year.

PROVIDED that the appropriate government or such authority as the appropriate government
may specify in this behalf may, upon an application made to it by the employer and for
sufficient reasons, by order, extend the said period of eight months to such further period or
periods as it thinks fit; so, however, that the total period so extended shall not in any case
exceed two years.

3.7 APPLICATION OF ACT IN ESTABLISHMENT IN PUBLIC SECTOR

Application of Act to establishments in Public Sector in certain Cases

a. If in any accounting year an establishment in public sector sells any goods produced or
manufactured by it or renders any services, in competition with an establishment in private
sector, and the income from such sale or services or both is not less than twenty per cent of
the gross income of the establishment in public sector for that year, then, the provisions of
this Act shall apply in relation to such establishment in public sector as they apply in
relation to a like establishment in private sector.
b. Save as otherwise provided in sub-section (1), nothing in this Act shall apply to the
employees employed by any establishment in public sector.

Recovery of Bonus due from an Employer

Where any money is due to an employee by way of bonus from his employer under a settlement
or an award or agreement, the employee himself or any other person authorized by him in
writing in this behalf, or in the case of the death of the employee, his assignee or heirs may,
without prejudice to any other mode of recovery, make an application to the appropriate
49
government for the recovery of the money due to him, and if the appropriate government or
such authority as the appropriate government may specify in this behalf is satisfied that any
money is so due, it shall issue a certificate for that amount to the Collector who shall proceed to
recover the same in the same manner as an arrear of land revenue:

PROVIDED that every such application shall be made within one year from the date on which
the money became due to the employee from the employer:

PROVIDED FURTHER that any such application may be entertained after the expiry of the
said period of one year, if the appropriate government is satisfied that the applicant had
sufficient cause for not making the application within the said period.

Explanation: In this section and in 23[sections 22, 23, 24 and 25] "employee" includes a person
who is entitled to the payment of bonus under this Act but who is no longer in employment.

Reference of Disputes under the Act

Where any dispute arises between an employer and his employees with respect to the bonus
payable under this Act or with respect to the application of this Act to an establishment in
public sector, then, such dispute shall be deemed to be an industrial dispute within the meaning
of the Industrial Disputes Act, 1947 (14 of 1947), or of any corresponding law relating to
investigation and settlement of industrial disputes, in force in a State and the provisions of that
Act or, as the case may be, such law, shall, save as otherwise expressly provided, apply
accordingly.

Presumption about Accuracy of Balance Sheet and Profit and Loss Account of
Corporations and Companies

1. Where, during the course of proceedings before any arbitrator or Tribunal under the
Industrial Disputes Act, 1947 (14 of 1947), or under any corresponding law relating to
investigation and settlement of industrial disputes in force in a state (hereinafter in this
section and in 24[sections 24 and 25] referred to as the "said authority") to which any
dispute of the nature specified in section 22 has been referred, the balance sheet and the
profit and loss account of an employer, being a corporation or a company (other than a
banking company), duly audited by the Comptroller and Auditor General of India or by
auditors duly qualified to act as auditors of companies under sub-section (1) of section 226
of the Companies Act, 1956 (1 of 1956), are produced before it, then, the said authority may
presume the statements and particulars contained in such balance sheet and profit and loss
account to be accurate and it shall not be necessary for the corporation or the company to
prove the accuracy of such statements and particulars by the filing of an affidavit or by any
other mode:

50
PROVIDED that where the said authority is satisfied that the statements and particulars
contained in the balance sheet or the profit and loss account of the corporation or the company
are not accurate, it may take such steps as it thinks necessary to find out the accuracy of such
statements and particulars.

2. When an application is made to the said authority by any trade union being a party to the
dispute or where there is no trade union, by the employees being a party to the dispute,
requiring any clarification relating to any item in the balance sheet or the profit and loss
account, it may, after satisfying itself that such clarification is necessary, by order, direct the
corporation or, as the case may be, the company, to furnish to the trade union or the
employees such clarification within such time as may be specified in the direction and the
corporation or, as the case may be, the company, shall comply with such direction.

Audited Accounts of Banking Companies not to be Questioned

1. Where any dispute of the nature specified in section 22 between an employer, being a
banking company, and its employees has been referred to the said authority under that
section and during the course of proceedings the accounts to the banking company duly
audited are produced before it, the said authority shall not permit any trade union or
employees to question the correctness of such accounts, but the trade union or the
employees may be permitted to obtain from the banking company such information as is
necessary for verifying the amount of bonus due under this Act.
2. Nothing contained in sub-section (1) shall enable the trade union or the employees to obtain
any information which the banking company is not compelled to furnish under the
provisions of section 34A of the Banking Regulation Act, 1949 (10 of 1949).

Audit of Accounts of Employers, not being Corporations or Companies

1. Where any dispute of the nature specified in section 22 between an employer, not being a
corporation or a company, and his employees has been referred to the said authority under
that section and the accounts of such employer audited by any auditor duly qualified to act
as auditor of companies under sub-section (1) of section 226 of the Companies Act, 1956 (1
of 1956), are produced before the said authority, the provisions of section 23 shall, so far as
may be, apply to the accounts so audited.
2. When the said authority finds that the accounts of such employer have not been audited by
any such auditor and it is of opinion that an audit of the accounts of such employer is
necessary for deciding the question referred to it, then, it may, by order, direct the employer
to get his accounts audited within such time as may be specified in the direction or within
such further time as it may allow by such auditor or auditors as it thinks fit and thereupon
the employer shall comply with such direction.

51
3. Where an employer fails to get the accounts audited under sub-section (2) the said authority
may, without prejudice to the provisions of section 28, get the accounts audited by such
auditor or auditors as it thinks fit.
4. When the accounts are audited under sub-section (2) or sub-section (3) the provisions of
section 23 shall, so far as may be, apply to the accounts so audited.
5. The expenses of, and incidental to, any audit under sub-section (3) (including the
remuneration of the auditor or auditors) shall be determined by the said authority (which
determination shall be final) and paid by the employer and in default of such payment shall
be recoverable from the employer in the manner provided in section 21.

Maintenance of Registers, Records, etc

Every employer shall prepare and maintain such registers, records and other documents in such
form and in such manner as may be prescribed.

Inspectors

a. The appropriate government may, by notification in the Official Gazette appoint such
persons as it thinks fit to be Inspectors for the purposes of this Act and may define the limits
within which they shall exercise jurisdiction.
b. An Inspector appointed under sub-section (1) may, for the purpose of ascertaining whether
any of the provisions of this Act has been complied with-
i. require an employer to furnish such information as he may consider necessary;
ii. at any reasonable time and with such assistance, if any, as he thinks fit, enter any
establishment or any premises connected therewith and require anyone found in
charge thereof to produce before him for examination any accounts, books, registers
and other documents relating to the employment of persons or the payment of salary
or wages or bonus in the establishment;
iii. examine with respect to any matter relevant to any of the purposes aforesaid, the
employer, his agent or servant or any other person found in charge of the
establishment or any premises connected therewith or any person whom the
Inspector has reasonable cause to believe to be or to have been an employee in the
establishment;
iv. make copies of, or take extracts from, any book, register or other document
maintained in relation to the establishment;
v. exercise such other power as may be prescribed.
c. Every Inspector shall be deemed to be a public servant within the meaning of the Indian
Penal Code (45 of 1860).
d. Any person required producing any accounts, books, register or other documents or to give
information by an Inspector under sub-section (1) shall be legally bound to do so.
e. Nothing contained in this section shall enable an Inspector to require a banking company to
furnish or disclose any statement or information or to produce, or give inspection of any of
52
 its books of account or other documents, which a banking company cannot be compelled to
furnish, disclose, produce or give inspection of, under the provisions of section 34A of the
Banking Regulation Act, 1949 (10 of 1949).

Penalty

If any person,-
a. contravenes any of the provisions of this Act or any rule made thereunder, or
b. to whom a direction is given or a requisition is made under this Act fails to comply with the
direction or requisition, he shall be punishable with imprisonment for a term which may
extend to six months, or with fine which may extend to one thousand rupees, or with both.

Offences by Companies

1. If the person committing an offence under this Act is a company, every person who, at the
time the offence was committed was in charge of, and was responsible to, the company for
the conduct of business of the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished accordingly:

PROVIDED that nothing contained in this sub-section shall render any such person liable to any
punishment if he proves that the offence was committed without his knowledge or that he
exercised all due diligence to prevent the commission of such offence.

2. Notwithstanding anything contained in sub-section (1), where an offence under this Act has
been committed by a company and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to any neglect on the part of, any director,
manager, secretary or other officer of the company, such director, manager, secretary or
other officer shall also be deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.

Explanation: For the purposes of this section,-

a. "company" means anybody corporate and includes a firm or other association of

individuals; and
b. "director" in relation to a firm means a partner in the firm.

Cognizance of Offences

1. No court shall take cognizance of any offence punishable under this Act, save on complaint
made by or under the authority of appropriate government [or an officer of the government
(not below the rank of a Regional Labor Commissioner in the case of an officer of the

53
 Central Government, and not below the rank of a Labor Commissioner in the case of an
officer of the State Government) specially authorized in this behalf by that government.]
2. No curt inferior to that of a Presidency Magistrate or a Magistrate of the First Class shall try
any offence punishable under this Act.

Protection of Action taken under the Act

No suit, prosecution or other legal proceeding shall lie against the government or any officer of
the government for anything which is in good faith done or intended to be done in pursuance of
this Act or any rule made there under.

3.8 SPECIAL PROVISION WITH RESPECT TO PAYMENT OF BONUS LINKED

WITH PRODUCTION OR PRODUCTIVITY

Notwithstanding anything contained in this Act,-

i. where an agreement or a settlement has been entered into by the employees with their
employer before the commencement of the Payment of bonus (Amendment) Act, 1976, (23
of 1976), or
ii. where the employees enter into any agreement or settlement with their employer after such
commencement, for payment of an annual bonus linked with production or productivity in
lieu of bonus based on profits payable under this Act, then, such employees shall be entitled
to receive bonus due to them under such agreement or settlement, as the case may be:

PROVIDED that any such agreement or settlement whereby the employees relinquish their right
to receive the minimum bonus under section 10 shall be null and void in so far as it purports to
deprive them of such right:

PROVIDED FURTHER that such employees shall not be entitled to be paid such bonus in
excess of twenty per cent of the salary or wages earned by them during the relevant accounting
year.

Act Not to Apply to certain Classes of Employees

Nothing in this Act shall apply to,-

i. employees employed by any insurer carrying on general insurance business and the
employees employed by the Life Insurance Corporation of India;
ii. seamen as defined in clause (42) of section 3 of the Merchant Shipping Act, 1958 (44 of
1958);

54
 iii. employees registered or listed under any scheme made under the Dock Workers
(Regulation of Employment) Act, 1948, (9 of 1948), and employed by registered or
listed employers;
iv. employees employed by an establishment engaged in any industry carried on by or under
the authority of any department of the Central Government or a State Government or a
local authority;
v. employees employed by,-
a. the Indian Red Cross Society or any other institution of a like nature (including its
branches);
b. universities and other educational institutions;
c. institutions (including hospitals, chambers of commerce and social welfare institutions)
established not for purposes of profit;
vi. employees employed through contractors on building operations;
vii. employees employed by the Reserve Bank of India;
viii. employees employed by,-
a. the Industrial Finance Corporation of India;
b. any financial corporation established under section 3, or any joint financial corporation
established under Section 3A, of the State Financial Corporations Act, 1951 (63 of
1951);
c. the Deposit Insurance Corporation;
d. The National Bank of Agriculture and Rural Development;
e. the Unit Trust of India;
f. the Industrial Development Bank of India;
(fa) the Small Industries Development Bank of India established under Section 3 of the
Small Industries Development Bank of India Act, 1989;
(fb) the National Housing Bank;
g. any other financial institution other than a banking company being an establishment in
public sector, which the Central Government may, by notification in the Official
Gazette, specify, having regard to,-
o its capital structure;
o its objectives and the nature of its activities;
o the nature and extent of financial assistance or any concession given to it by the
government; and
o any other relevant factor;
ix. employees employed by inland water transport establishments operating on routes passing
through any other country.

Act to apply to certain Pending Disputes regarding Payment of Bonus

Omitted by the Payment of Bonus (Amendment) Act, 1976, w.e.f. 25th September, 1975

55
Effect of Laws and Agreements Inconsistent with the Act
Subject to the provisions of section 31A, the provisions of this Act shall have effect
notwithstanding anything inconsistent contained in any other law for the time being in force or
in the terms of any award, agreement, settlement or contract of service.

Saving

Nothing contained in this Act shall be deemed to affect the provisions of the Coal Mines
Provident Fund and Bonus Schemes Act, 1948 (46 of 1948), or of any scheme made thereunder.
Power of Exemption

If the appropriate government, having regard to the financial position and other relevant
circumstances of any establishment or class of establishments, is of opinion that it will not be in
public interest to apply all or any of the provisions of this Act thereto, it may, by notification in
the Official Gazette, exempt for such period as may be specified therein and subject to such
conditions as it may think fit to impose, such establishment or class of establishments from all
or any of the provisions of this Act.

Comment: Bonus is treated as deferred wage. When the Parliament in its wisdom has enacted
such a beneficial piece of social legislation which already guarantees minimum statutory bonus
to employees governed by it, if the ir employers are to be allowed to earn exemption from the
sweep of such a beneficial legislation which would ipso facto adversely affect entire class of
their employees, the conditions for exercise of such power of exemption have to be strictly and
objectively fulfilled by the repository of such a drastic power. A statutory right already accrues
to employees under the Act. If the establishment employing such workmen or employees is
desirous of depriving the statutory right of minimum bonus to its employees it may move the
appropriate Government for exemption under Section 36 of the Act. State of T.N., Appellant v.
K. Sabanayagam, AIR 1998 SUPREME COURT 344

Power to Remove Difficulties

Omitted by the Payment of Bonus (Amendment) Act, 1976, w.e.f. 25th September, 1975

Power to Make Rules

1. The Central Government may make rules for the purpose of carrying into effect the
provisions of this Act.
2. In particular, and without prejudice to the generality of the foregoing power, such rules may
provide for,-
a. the authority for granting permission under the proviso to sub-clause (iii) of clause (1)
of section 2;

56
 b. the preparation of registers, records and other documents and the form and manner in
which such registers, records and documents may be maintained under section 26;
c. the powers which may be exercised by an Inspector under clause (e) of sub-section (2)
of section 27;
d. any other matter which is to be, or may be, prescribed.
3. Every rule made under this section shall be laid as soon as may be after it is made, before
each House of Parliament, while it is in session for a total period of thirty days, which may
be comprised in one session 32[or in two or more successive sessions], and if before the
expiry of the session 33[immediately following the session or the successive sessions
aforesaid] both Houses agree in making any modification in the rule or both Houses agree
that the rule should not be made, the rule shall thereafter have effect only in such modified
form or be of no effect, as the case may be; so, however, that any such modification or
annulment shall be without prejudice to the validity of anything previously done under that
rule.

Application of Certain Laws not Barred

Save as otherwise expressly provided, the provisions of this Act shall be in addition to and not
in derogation of the Industrial Disputes Act, 1947 (14 of 1947), or any corresponding law
relating to investigation and settlement of industrial disputes in force in a State.

Repeal and Saving

1. The Payment of Bonus Ordinance, 1965 (3 of 1965), is hereby repealed.

2. Notwithstanding such repeal, anything done or any action taken under the said ordinance
shall be deemed to have been done or taken under this Act as if this Act had commenced on
the 29th May, 1965.

3.9 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Which of the following statements is not correct as per the Payment of Bonus Act, 1965?
a) It is applicable to construction industry.
b) It does not apply to employees in Life Insurance Corporation of India.
c) Allocable surplus means 67% of the available surplus.
d) Employee means any person including apprentice.
2) The ceiling on wage or salary for calculation of Bonus under the Payment of Bonus Act
1965 is
a) Rs. 2,500
b) Rs. 3,500
c) Rs. 4,500
57
 d) Rs. 6,500
3) Under the payment of Bonus Act, 1965, the gross profits derived by an employer from an
establishment in respect of any accounting year shall be computed
a) In case of Banking Company according to schedule II and in any other case schedule I.
b) In case of Banking Company according to schedule I and in any other case schedule II.
c) In case of Banking Company and in any other case schedule I.
d) In case of Banking Company and in any other case schedule II.
4) The Payment of Bonus Act, 1965 is applicable to an employee who draws wage or salary of
a) Rs. 3500 in case of apprentice
b) Rs. 5000 in case of apprentice and employee
c) Rs. 7500 in case of employee only
d) Rs. 10,000 in case of employee only
5) Payment of Bonus Act 1965 is applicable to every factory and to every other establishment
where ---------- workmen are employed on any day during an accounting year
a) 20 or more
b) 10 or more
c) 50 or more
d) 30 or more

Answers: 1 (d), 2 (b), 3 (b), 4 (d), 5 (a)

Long Answer Questions

Q1. Define major Components of the Payment of Bonus Act, 1965.

Q2. When is the Employee eligible to receive Bonus and mention the factors considered to
ascertain Eligibility of ‗Bonus‘ under the Act?

58
 LESSON 4
THE PAYMENT OF WAGES ACT 1936

4 STRUCTURE

4.1. Introduction
4.2. Definitions
4.3. Responsibility for Payment of Wages
4.4. Deductions from Wages
4.5. Fines
4.6. Deductions
4.7. Self-Assessment Questions

4.1 INTRODUCTION

The main objective for the introduction of the Payment of Wages Act, 1936, is to avoid
unnecessary delay in the payment of wages and to prevent unauthorized deductions from the
wages. As per section 1(6) of the Payment of Wages Act, the wages averaging less than INR
6,500 per month are covered and protected by the Act. Further, the Act is applicable to the
payment of wages to persons employed in factories, upon railways, or in other establishment as
specified in the Payment of Wages Act.

The Act applies in the first instance to the payment of wages to persons employed in any factory
to persons employed (otherwise than in a factory) upon any railway by a railway administration
or either directly or through a sub-contractor by a person fulfilling a contract with a railway
administration and to persons employed in an industrial or other establishment specified in sub-
clauses (a) to (g) of clause (ii) of section 2.

The State Government may after giving three months' notice of its intention of so doing by
notification in the Official Gazette extend the provisions of this Act or any of them to the
payment of wages to any class of persons employed in any establishment of class of
establishments specified by the Central Government or a State Government under sub-clause (h)
of clause (ii) of section 2:

Provided that in relation to any such establishment owned by the Central Government no such
notification shall be issued except with the concurrence of that government.

Nothing in this Act shall apply to wages payable in respect of a wage-period which over such
wage-period average one thousand six hundred rupees a month or more.

59
4.2 DEFINITIONS (The Payment of Wages Act,1936)

In this Act unless there is anything repugnant in the subject or context -

1. "employed person" includes the legal representative of a deceased employed person;

a. "employer" includes the legal representative of a deceased employer;
b. "factory" means a factory as defined in clause (m) of section 2 of the Factories Act 1948
(63 of 1948) and includes any place to which the provisions of that Act have been
applied under sub-section (1) of section 85 thereof;

2. "industrial or other establishment" means any -

a. tramway service or motor transport service engaged in carrying passengers or goods or
both by road for hire or reward;
i. air transport service other than such service belonging to or exclusively employed in
the military naval or air forces of the Union or the Civil Aviation Department of the
Government of India;
b. dock wharf or jetty;
c. inland vessel mechanically propelled;
d. mine quarry or oil-field;
e. plantation;
f. workshop or other establishment in which articles are produced adapted or manufactured
with a view to their use transport or sale;
g. establishment in which any work relating to the construction development or
maintenance of buildings roads bridges or canals or relating to operations connected
with navigation irrigation or to the supply of water or relating to the generation
transmission and distribution of electricity or any other form of power is being carried
on;
h. any other establishment or class of establishments which the Central Government or a
State Government may having regard to the nature thereof the need for protection of
persons employed therein and other relevant circumstances specify by notification in the
Official Gazette.

3. "mine" has the meaning assigned to it in clause (j) of sub-section (1) of section 2 of the
Mines Act 1952 (35 of 1952);

4. "plantation" has the meaning assigned to it in clause (f) of section 2 of the Plantations
Labour Act 1951 (69 of 1951);

5. "prescribed" means prescribed by rules made under this Act;

6. "railway administration" has the meaning assigned to it in clause (6) of section 3 of the
Indian Railways Act 1890 (9 of 1890); and

60
7. "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 –
i. 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;
ii. 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;
iii. any contribution paid by the employer to any pension or provident fund and the
interest which may have accrued thereon;
iv. any travelling allowance or the value of any travelling concession;
v. any sum paid to the employed person to defray special expenses entailed on him by
the nature of his employment; or
vi. any gratuity payable on the termination of employment in cases other than those
specified in sub-clause (d).

4.3 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) -

a. 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 (63 of 1948);
b. in industrial or other establishments if there is a person responsible to the employer for the
supervision and control of the industrial or other establishments;
61
c. 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.

Fixation of Wage-Periods

1. 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.
2. No wage-period shall exceed one month.

Time of Payment of Wages

1. The wages of every person employed upon or in –

a. 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,
b. 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:
Provided that in the case of persons employed on a dock wharf or jetty or in a mine the
balance of wages found due on completion of the final tonnage account of the ship or
wagons loaded or unloaded as the case may be shall be paid before the expiry of the seventh
day from the day of such completion.
2. 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:
Provided that where the employment of any person in an establishment is terminated due to
the closure of the establishment for any reason other than a weekly or other recognised
holiday the wages earned by him shall be paid before the expiry of the second day from the
day on which his employment is so terminated.
3. The State Government may by general or special order exempt to such extent and subject to
such conditions as may be specified in the order the person responsible for the payment of
wages to persons employed upon any railway (otherwise than in a factory) or to persons
employed as daily-rated workers in the Public Works Department of the Central
Government or the State Government from the operation of this section in respect of wages
of any such persons or class of such persons:
Provided that in the case of persons employed as daily-rated workers as aforesaid no such
order shall be except in consultation with the Central Government.

62
4. Save as otherwise provided in sub-section (2) all payments of wages shall be made on a
working day.

Wages to be paid in Current Coin or Currency Notes

All wages shall be in current coin or currency notes or in both:

Provided that the employer may after obtaining the written authorization of the employed
person pay him the wages either by cheques or by crediting the wages in his bank account.

4.4 DEDUCTIONS FROM WAGES

Deductions which may be made from Wages

1. Notwithstanding the provisions of sub-section (2) of section 47 of the Indian Railways Act
1890 (9 of 1890) the wages of an employed person shall be paid to him without deductions
of any kind except those authorised by or under this Act.

Explanation I: Every payment made by the employed person to the employer or his agent shall
for the purposes of this Act be deemed to be a deduction from wages.

Explanation II: Any loss of wages resulting from the imposition, for good and sufficient cause
upon a person employed of any of the following penalties namely:-

a. the withholding of increment or promotion (including the stoppage of increment at an

efficiency bar);
b. the reduction to a lower post or time scale or to a lower stage in a time scale; or
c. suspension;

shall not be deemed to be a deduction from wages in any case where the rules framed by the
employer for the imposition of any such penalty are in conformity with the requirements if any
which may be specified in this behalf by the State Government by notification in the Official
Gazette.

2. Deductions from the wages of an employed person shall be made only in accordance with
the provisions of this Act and may be of the following kinds only namely:
a. fines;
b. deductions for absence from duty;
c. deductions for damage to or loss of goods expressly entrusted to the employed person
for custody or for loss of money for which he is required to account where such damage
or loss is directly attributable to his neglect or default;

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d. deductions for house-accommodation supplied by the employer or by government or any
housing board set up under any law for the time being in force (whether the government
or the board is the employer or not) or any other authority engaged in the business of
subsidising house-accommodation which may be specified in this behalf by the State
Government by notification in the Official Gazette;
e. deductions for such amenities services supplied by the employer as the State
Government or any officer specified by it in this behalf may by general or special order
authorise.
Explanation: The word "services" in this clause does not include the supply of tools and
raw materials required for the purposes of employment;
f. deductions for recovery of advances of whatever nature (including advances for
travelling allowance or conveyance allowance) and the interest due in respect thereof or
for adjustment of over-payments of wages;
(ff) deductions for recovery of loans made from any fund constituted for the welfare of
labour in accordance with the rules approved by the State Government and the interest
due in respect thereof;
(fff) deductions for recovery of loans granted for house-building or other purposes
approved by the State Government and the interest due in respect thereof;
g. deductions of income-tax payable by the employed person;
h. deductions required to be made by order of a court or other authority competent to make
such order;
i. deductions for subscriptions to and for repayment of advances from any provident fund
to which the Provident Funds Act 1952 (19 of 1952) applies or any recognised provident
funds as defined in section 58A of the Indian Income Tax Act 1922 (11 of 1922) or any
provident fund approved in this behalf by the State Government during the continuance
of such approval;
j. deductions for payments to co-operative societies approved by the State Government or
any officer specified by it in this behalf or to a scheme of insurance maintained by the
Indian Post Office and
k. deductions made with the written authorisation of the person employed for payment of
any premium on his life insurance policy to the Life Insurance Corporation Act of India
established under the Life Insurance Corporation 1956 (31 of 1956) or for the purchase
of securities of the Government of India or of any State Government or for being
deposited in any Post Office Saving Bank in furtherance of any savings scheme of any
such government.
(kk) deductions made with the written authorisation of the employed person for the
payment of his contribution to any fund constituted by the employer or a trade union
registered under the Trade Union act 1926 (16 of 1926) for the welfare of the employed
persons or the members of their families or both and approved by the State Government
or any officer specified by it in this behalf during the continuance of such approval;

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 (kkk) deductions made with the written authorisation of the employed person for
payment of the fees payable by him for the membership of any trade union registered
under the Trade Union Act 1926 (16 of 1926);
l. deductions for payment of insurance premia on Fidelity Guarantee Bonds;
m. deductions for recovery of losses sustained by a railway administration on account of
acceptance by the employed person of counterfeit or base coins or mutilated or forged
currency notes;
n. deductions for recovery of losses sustained by a railway administration on account of the
failure of the employed person to invoice to bill to collect or to account for the
appropriate charges due to that administration whether in respect of fares freight
demurrage wharf age and carnage or in respect of sale of food in catering establishments
or in respect of sale of commodities in grain shops or otherwise;
o. deductions for recovery of losses sustained by a railway administration on account of
any rebates or refunds incorrectly granted by the employed person where such loss is
directly attributable to his neglect or default;
p. 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 by notification in the Official Gazette specify;
q. deductions for contributions to any insurance scheme framed by the Central Government
for the benefit of its employees.
Notwithstanding anything contained in this Act 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 -
(i) in cases where such deductions are wholly or partly made for payments to co-
operative societies under clause (j) of sub-section (2) seventy-five per cent of such
wages and
(ii) in any other case fifty per cent of such wages:

Provided that where the total deductions authorised under sub-section (2) exceed
seventy five per cent or as the case may be, fifty per cent of the wages the excess may be
recovered in such manner as may be prescribed.
Nothing contained in this section shall be construed as precluding the employer from
recovering from the wages of the employed person or otherwise any amount payable by
such person under any law for the time being in force other than the Indian Railways Act
1890 (9 of 1890).
Comment: The list given in this section is exhaustive and no other deduction from the wages is
permissible. AIR 1956 Madras 79

4.5 FINES

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1. No fine shall be imposed on any employed person save in respect of such acts and omissions
on his part as the employer with the previous approval of the State Government or of the
prescribed authority may have specified by notice under sub-section (2).
2. A notice specifying such acts and omissions shall be exhibited in the prescribed manner on
the premises in which the employment carried on or in the case of persons employed upon a
railway (otherwise than in a factory) at the prescribed place or places.
3. No fine shall be imposed on any employed person until he has been given an opportunity of
showing cause against the fine or otherwise than in accordance with such procedure as may
be prescribed for the imposition of fines.
4. The total amount of fine which may be imposed in any one wage-period on any employed
person shall not exceed an amount equal to three per cent of the wages payable to him in
respect of that wage-period.
5. No fine shall be imposed on any employed person who is under the age of fifteen years.
6. No fine imposed on any employed person shall be recovered from him by instalments or
after the expiry of sixty days from the day on which it was imposed.
7. Every fine shall be deemed to have been imposed on the day of the act or omission in
respect of which it was imposed.
8. All fines and all realisations thereof shall be recorded in a register to be kept by the person
responsible for the payment of wages under section 3 in such form as may be prescribed;
and all such realisations shall be applied only to such purposes beneficial to the persons
employed in the factory or establishment as are approved by the prescribed authority.

Explanation: When the persons employed upon or in any railway, factory or industrial or other
establishment are part only of a staff employed under the same management all such realisations
may be credited to a common fund maintained for the staff as a whole provided that the fund
shall be applied only to such purposes as are approved by the prescribed authority.

4.6 DEDUCTIONS

Deductions for Absence from Duty

1. Deductions may be made under clause (b) of sub-section (2) of section 7 only on account of
the absence of an employed person from the place or places where by the terms of his
employment, he is required to work such absence being for the whole or any part of the
period during which he is so required to work.
2. The amount of such deduction shall in no case bear to the wages payable to the employed
person in respect of the wage-period for which the deduction is made in a larger proportion
than the period for which he was absent bears to the total period within such wage-period
during which by the terms of his employments he was required to work:

Provided that subject to any rules made in this behalf by the State Government if ten or more
employed persons acting in concert absent themselves without due notice (that is to say without

66
giving the notice which is required under the terms of their contracts of employment) and
without reasonable cause such deduction from any such person may include such amount not
exceeding his wages for eight days as may by any such terms be due to the employer in lieu of
due notice.

Explanation: For the purposes of this section an employed person shall be deemed to be absent
from the place where he is required to work if although present in such place he refuses in
pursuance of a stay-in strike or for any other cause which is not reasonable in the circumstances
to carry out his work.

Deductions for Damage or Loss

1. A deduction under clause (c) or clause (o) of sub-section (2) of section 7 shall not exceed
the amount of the damage or loss caused to the employer by the neglect or default of the
employed person.
2. A deduction shall not be made under clause (c) or clause (m) or clause (n) or clause (o) of
sub-section (2) of section 7 until the employed person has been given an opportunity of
showing cause against the deduction or otherwise than in accordance with such procedure as
may be prescribed for the making of such deductions.
3. All such deductions and all realisations thereof shall be recorded in a register to be kept by
the person responsible for the payment of wages under section 3 in such form as may be
prescribed.

Deductions for Services Rendered

A deduction under clause (d) or clause (e) of sub-section (2) of section 7 shall not be made from
the wages of an employed person, unless the house-accommodation amenity or service has been
accepted by him as a term of employment or otherwise and such deduction shall not exceed an
amount equivalent to the value of the house-accommodation amenity or service supplied and in
the case of deduction under the said clause (e) shall be subject to such conditions as the State
Government may impose.

Deductions for Recovery of Advances

Deductions under clause (f) of sub-section (2) of section 7 shall be subject to the following
conditions namely:

a. recovery of an advance of money given before employment began shall be made from the
first payment of wages in respect of a complete wage-period but no recovery shall be made
of such advances given for travelling-expenses;
b. recovery of an advance of money given after employment began shall be subject to such
conditions as the State Government may impose;

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c. recovery of advances of wages not already earned shall be subject to any rules made by the
State Government regulating the extent to which such advances may be given and the
instalments by which they may be recovered.

Deductions for Recovery of Loans

Deductions for recovery of loans granted under clause (fff) of sub-section (2) of section 7 shall
be subject to any rules made by the State Government regulating the extent to which such loans
may be granted and the rate of interest payable thereon.

Deductions for Payments to Co-operative Societies and Insurance Schemes

Deductions under clause (j) and clause (k) of sub-section (2) of section 7 shall be subject to
such conditions as the State Government may impose.

Maintenance of Registers and Records

1. Every employer shall maintain such registers and records giving such particulars of persons
employed by him the work performed by them the wages paid to them the deductions made
from their wages the receipts given by them and such other particulars and in such form as
may be prescribed.
2. Every register and record required to be maintained under this section shall for the purposes
of this Act be preserved for a period of three years after the date of the last entry made
therein.

4.7 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Which of the following is not included under the definition of wages given under the
Payment of Wages Act, 1936?
a) Basic Wage
b) Dearness Allowance
c) Incentive
d) Gratuity
2) Under the Payment of Wages Act, 1936 the maximum limit on deductions should not
ordinarily cross
a) 50 percent generally and 65 percent in case of payments due to the cooperatives
b) 60 percent generally and 75 percent in case of payments due to the cooperatives
c) 50 percent generally and 75 percent in case of payments due to the cooperatives
d) 40 percent generally and 75 percent in case of payments due to the cooperatives

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3) If deduction is made contrary to the provisions of the Payment of Wages Act, 1936 the
aggrieved employee can write to the inspector appointed under the Act within the time
period given below from the date on which the deduction from wages was made or the date
on which the payment of wages is due
a) two years
b) one year
c) twelve weeks
d) six weeks.
4) Under which labour legislation in India the provision of check-off has been accepted?
a) Industrial Disputes Act, 1947
b) Trade Unions Act, 1926
c) Payment of Wages Act, 1936
d) Industrial Employment (Standing Orders) Act
5) The present wage ceiling per month for the purpose of the Payment of Wages Act, 1936 is
a) Rs. 10. 000/-
b) Rs. 15, 000/-
c) Rs. 18, 000/-
d) Rs. 20,000/-

Answers: 1 (d), 2 (c), 3 (c), 4 (c), 5 (c)

Long Answer Questions

Q1. Mention the key Responsibilities for payments of Wages by an Employer under the
Payment of Wages Act, 1936.

Q2. Under what circumstances an employer can make deduction from wages of an employee.

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 LESSON 5
THE PAYMENT OF WAGES ACT 1936: POWERS
AND PENALTY

5 STRUCTURE

5.1. Powers of Authorities

5.2. Facilities to be Afforded to Inspectors
5.3. Penalty for Offences Under the Act
5.4. Procedure in Trial of Offences
5.5. Rule Making Power
5.6. Self-Assessment Questions

5.1 POWERS OF AUTHORTIES (The Payment of Wages Act,1936)

Inspectors

1. An Inspector of Factories appointed under sub-section (1) of section 8 of the Factories Act
1948 (63 of 1948) shall be an Inspector for the purposes of this Act in respect of all factories
within the local limits assigned to him.
2. The State Government may appoint Inspectors for the purposes of this Act in respect of all
persons employed upon a railway (otherwise than in a factory) to whom this Act applies.
3. The State Government may by notification in the Official Gazette appoint such other
persons as it thinks fit to be Inspectors for the purposes of this Act and may define the local
limits within which and the class of factories and industrial or other establishments in
respect of which they shall exercise their functions.
4. An Inspector may,
a. make such examination and inquiry as he thinks fit in order to ascertain whether the
provisions of this Act or rules made there under are being observed;
b. with such assistance if any as he thinks fit enter inspect and search any premises of any
railway factory or industrial or other establishment at any reasonable time for the
purpose of carrying out the objects of this Act;
c. supervise the payment of wages to persons employed upon any railway or in any factory
or industrial or other establishment;
d. require by a written order the production at such place as may be prescribed of any
register maintained in pursuance of this Act and taken on the spot or otherwise
statements of any persons which he may consider necessary for carrying out the
purposes of this Act;

70
 e. seize or take copies of such registers or documents or portions thereof as he may
consider relevant in respect of an offence under this Act which he has reason to believe
has been committed by an employer;
f. exercise such other powers as may be prescribed:

Provided that no person shall be compelled under this sub-section to answer any question or
make any statement tending to incriminate him.
5. The provisions of the Code of Criminal Procedure 1973 (2 of 1974) shall so far as may be
apply to any search or seizure under this sub-section as they apply to any search or seizure
made under the authority of a warrant issued under section 94 of the said Code.
6. Every Inspector shall be deemed to be a public servant within the meaning of the Indian
Penal Code (45 of 1860).

5.2 FACILITIES TO BE AFFORDED TO INSPECTORS

Every employer shall afford an Inspector all reasonable facilities for making any entry
inspection supervision examination or inquiry under this Act.

Claims arising out of Deductions from Wages or Delay in Payment of Wages and Penalty
for Malicious or Vexatious Claims

1. The State Government may by notification in the Official Gazette appoint a presiding
officer of any Labour Court or Industrial Tribunal constituted under the Industrial Disputes
Act 1947 (14 of 1947) or under any corresponding law relating to the investigation and
settlement of industrial disputes in force in the State or any Commissioner for Workmen's
Compensation or other officer with experience as a Judge of a Civil Court or as a
Stipendiary Magistrate to be the authority to hear and decide for any specified area all
claims arising out of deductions from the wages or delay in payment of the wages of persons
employed or paid in that area including all matters incidental to such claims :
Provided that where the State Government considers it necessary so to do it may appoint
more than one authority for any specified area and may by general or special order provide
for the distribution or allocation of work to be performed by them under this Act.
2. Where contrary to the provisions of this Act any deduction has been made from the wages
of an employed person or any payment of wages has been delayed such person himself or
any legal practitioner or any official of a registered trade union authorised in writing to act
on his behalf or any Inspector under this Act or any other person acting with the permission
of the authority appointed under sub-section (1) may apply to such authority for a direction
under sub-section (3):

Provided that every such application shall be presented within twelve months from the date
on which the deduction from the wages was made or from the date on which the payment of
the wages was due to be made as the case may be:
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 Provided Further that any application may be admitted after the said period of twelve
months when the applicant satisfies the authority that he had sufficient cause for not making
the application within such period.
3. When any application under sub-section (2) is entertained the authority shall hear the
applicant and the employer or other person responsible for the payment of wages under
section 3 or give them an opportunity of being heard and after such further inquiry (if any)
as may be necessary may without prejudice to any other penalty to which such employer or
other person is liable under this Act direct the refund to the employed person of the amount
deducted or the payment of the delayed wages together with the payment of such
compensation as the authority may think fit not exceeding ten times the amount deducted in
the former case and not exceeding twenty-five rupees in the latter and even if the amount
deducted or the delayed wages are paid before the disposal of the application direct the
payment of such compensation as the authority may think fit not exceeding twenty-five
rupees :

Provided that no direction for the payment of compensation shall be made in the case of
delayed wages if the authority is satisfied that the delay was due to -
a. a bona fide error or bona fide dispute as to the amount payable to the employed person
or
b. the occurrence of an emergency or the existence of exceptional circumstances such that
the person responsible for the payment of the wages was unable though exercising
reasonable diligence to make prompt payment or
c. the failure of the employed person to apply for or accept payment.
4. If the authority hearing an application under this section is satisfied -
a. that the application was either malicious or vexatious the authority may direct that a
penalty not exceeding fifty rupees be paid to the employer or other person responsible
for the payment of wages by the person presenting the application; or
b. that in any case in which compensation is directed to be paid under sub-section (3) the
applicant ought not to have been compelled to seek redress under this section the
authority may direct that a penalty not exceeding fifty rupees be paid to the State
Government by the employer or other person responsible for the payment of wages.
5. Where there is any dispute as to the person or persons being the legal representative or
representatives of the employer or of the employed person the decision of the authority on
such dispute shall be final.
6. Any inquiry under this section shall be deemed to be a judicial proceeding within the
meaning of sections 193 219 and 228 of the Indian Penal Code (45 of 1860).
7. Any amount directed to be paid under this section may be recovered -
a. if the authority is a Magistrate by the authority as if it were a fine imposed by him as
Magistrate and
b. if the authority is not a Magistrate by any Magistrate to whom the authority makes
application in this behalf as if it were a fine imposed by such Magistrate.

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Single Application in Respect of Claims from Unpaid Group

1. Employed persons are said to belong to the same unpaid group if they are borne on the same
establishment and if deductions have been made from their wages in contravention of this
Act for the same cause and during the same wage-period or periods or if their wages for the
same wage-period or periods have remained unpaid after the day fixed by section 5.
2. A single application may be presented under section 15 on behalf or in respect of any
number of employed persons belonging to the same unpaid group and in such case every
person on whose behalf such application is presented may be awarded maximum
compensation to the extent specified in sub-section (3) of section 15.
3. The authority may deal with any number of separate pending applications presented under
section 15 in respect of persons belonging to the same unpaid group as a single application
presented under sub-section (2) of this section and the provisions of that sub-section shall
apply accordingly.

Appeal

1. An appeal against an order dismissing either wholly or in part an application made under
sub-section (2) of section 15 or against a direction made under sub-section (3) or sub-section
(4) of that section may be preferred within thirty days of the date on which the order or
direction was made in a Presidency-town before the Court of Small Causes and elsewhere
before the District Court -
a. by the employer or other person responsible for the payment of wages under section 3 if
the total sum directed to be paid by way of wages and compensation exceeds three
hundred rupees or such direction has the effect of imposing on the employer or the other
person a financial liability exceeding one thousand rupees or
b. by an employed person or any legal practitioner or any official of a registered trade
union authorized in writing to act on his behalf or any Inspector under this Act or any
other person permitted by the authority to make an application under sub-section (2) of
section 15 if the total amount of wages claimed to have been with held from the
employed person exceeds twenty rupees or from the unpaid group to which the
employed person belongs or belonged exceeds fifty rupees or
c. by any person directed to pay a penalty under sub-section (4) of section 15.
2. No appeal under clause (a) of sub-section (1) shall lie unless the memorandum of appeal is
accompanied by a certificate by the authority to the effect that the appellant has deposited
the amount payable under the direction appealed against.
3. Save as provided in sub-section (1) any order dismissing either wholly or in part an
application made under sub-section (2) of section 15 or a direction made under sub-section
(3) or sub-section (4) of that section shall be final.
4. Where an employer prefers an appeal under this section the authority against whose decision
the appeal has been preferred may and if so directed by the court referred to in sub-section
(1) shall pending the decision of the appeal withhold payment of any sum in deposit with it.
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5. The court referred to in sub-section (1) may if it thinks fit submit any question of law for the
decision of the High Court and if it so does shall decide the question in conformity with
such decision.

Conditional Attachment of Property of Employer or other Person Responsible for

Payment of Wages

1. Where at any time after an application has been made under sub-section (2) of section 15 the
authority or where at any time after an appeal has been filed under section 17 by an
employed person or any legal practitioner or any official of a registered trade union
authorized in writing to act on his behalf or any Inspector under this Act or any other person
permitted by the authority to make an application under sub-section (2) of section 15 the
Court referred to in that section is satisfied that the employer or other person responsible for
the payment of wages under section 3 is likely to evade payment of any amount that may be
directed to be paid under section 15 or section 17 the authority or the court as the case may
be except in cases where the authority or court is of opinion that the ends of justice would be
defeated by the delay after giving the employer or other person an opportunity of being
heard may direct the attachment of so much of the property of the employer or other person
responsible for the payment of wages as is in the opinion of the authority or court sufficient
to satisfy the amount which may be payable under the direction.
2. The provisions of the Code of Civil Procedure 1908 (5 of 1908) relating to attachment
before judgment under that Code shall so far as may be apply to any order for attachment
under sub-section (1).

Powers of Authorities Appointed under Section 15

Every authority appointed under sub-section (1) of section 15 shall have all the powers o f a
civil court under the Code of Civil Procedure 1908 (5 of 1908) for the purpose of taking
evidence and of enforcing the attendance of witnesses and compelling the production of
documents and every such authority shall be deemed to be a civil court for all the purposes of
section 195 and of Chapter XXVI of the Code of Criminal Procedure 1973 (2 of 1974).

5.3 PENALTY FOR OFFENCES UNDER THE ACT

1. Whoever being responsible for the payment of wages to an employed person contravenes
any of the provisions of any of the following sections namely section 5 except sub-section
(4) thereof section 7 section 8 except sub-section (8) thereof, section 9 section 10 except
sub-section (2) thereof and section 11 to 13 both inclusive shall be punishable with fine
which shall not be less than two hundred rupees but which may extend to one thousand
rupees.

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2. Whoever contravenes the provisions of section 4 sub-section (4) of section 5 section 6 sub-
section (8) of section 8 sub-section (2) of section 10 or section 25 shall be punishable with
fine which may extend to five hundred rupees.

3. Whoever being required under this Act to maintain any records or registers or to furnish any
information or return -
a. fails to maintain such register or record; or
b. wilfully refuses or without lawful excuse neglects to furnish such information or return;
or
c. wilfully furnishes or causes to be furnished any information or return which he knows to
be false; or
d. refuses to answer or wilfully gives a false answer to any question necessary for
obtaining any information required to be furnished under this Act shall for each such
offence be punishable with fine which shall not be less than two hundred rupees but
which may extend to one thousand rupees.

4. Whoever -
a. wilfully obstructs an Inspector in the discharge of his duties under this Act; or
b. refuse or wilfully neglects to afford an Inspector any reasonable facility for making any
entry inspection examination supervision or inquiry authorised by or under this Act in
relation to any railway factory or industrial or other establishment; or
c. wilfully refuses to produce on the demand of an Inspector any register or other
document kept in pursuance of this Act; or
d. prevents or attempts to prevent or does anything which he has any reason to believe is
likely to prevent any person from appearing before or being examined by an Inspector
acting in pursuance of his duties under this Act;
shall be punishable with fine which shall not be less than two hundred rupees but which may
extend to one thousand rupees.

5. If any person who has been convicted of any office punishable under this Act is again guilty
of an offence involving contravention of the same provision he shall be punishable on a
subsequent conviction with imprisonment for a term which shall not be less than one month
but which may extend to six months and with fine which shall not be less than five hundred
rupees but which may extend to three thousand rupees.
Provided that for the purpose of this sub-section no cognizance shall be taken of any
conviction made more than two years before the date on which the commission of the
offence which is being punished came to the knowledge of the Inspector.

6. If any person fails or willfully neglects to pay the wages of any employed person by the date
fixed by the authority in this behalf he shall without prejudice to any other action that may
be taken against him be punishable with an additional fine which may extend to one
hundred rupees for each day for which such failure or neglect continues.
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5.4 PROCEDURE IN TRIAL OF OFFENCES

1. No court shall take cognizance of a complaint against any person for an offence under sub-
section (1) of section 20 unless an application in respect of the facts constituting the offence
has been presented under section 15 and has been granted wholly or in part and the authority
empowered under the latter section or the appellate Court granting such application has
sanctioned the making of the complaint.
2. Before sanctioning the making of a complaint against any person for an offence under sub-
section (1) of section 20 the authority empowered under section 15 or the appellate Court as
the case may be shall give such person an opportunity of showing cause against the granting
of such sanction and the sanction shall not be granted if such person satisfies the authority or
Court that his default was due to -
a. a bona fide error or bona fide dispute as to the amount payable to the employed person
or
b. the occurrence of an emergency or the existence of exceptional circumstances such that
the person responsible for the payment of the wages was unable though exercising
reasonable diligence to make prompt payment or
c. the failure of the employed person to apply for or accept payment.
3. No Court shall take cognizance of a contravention of section 4 or of section 6 or of a
contravention of any rule made under section 26 except on a complaint made by or with the
sanction of an Inspector under this Act.
4. No Court shall take cognizance of any offence punishable under sub-section (3) or sub-
section (4) of section 20 except on a complaint made by or with the sanction of an Inspector
under this Act.
5. In imposing any fine for an affiance under sub-section (1) of section 20 the court shall take
into consideration the amount of any compensation already awarded against the accused in
any proceedings taken under section 15.

Bar of Suits

No Court shall entertain any suit for the recovery of wages or of any deduction from wages in
so far as the sum so claimed -
1. forms the subject of an application under section 15 which has been presented by the
plaintiff and which is pending before the authority appointed under that section or of an
appeal under section 17; or
2. has formed the subject of a direction under section 15 in favour of the plaintiff; or
3. has been adjudged in any proceeding under section 15 not to be owned to the plaintiff; or
4. could have been recovered by an application under section 15.

Protection of Action taken in Good Faith

No suit prosecution or other legal proceeding shall lie against the government or any officer of
the government for anything which is in good faith done or intended to be done under this Act.
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Contracting out

Any contract or agreement whether made before or after the commencement of this Act
whereby an employed person relinquishes any right conferred by this Act shall be null and void
in so far as it purports to deprive him of such right.

Display by Notice of Abstracts of the Act

The person responsible for the payment of wages of persons employed in a factory or an
industrial or other establishment shall cause to be displayed in such factory or industrial or other
establishment a notice containing such abstracts of this Act and of the rules made there under in
English and in the language of the majority of the persons employed in the factory, or industrial
or other establishment as may be prescribed.

Payment of Undisbursed Wages in Case of Death of Employed Person

1. Subject to the other provisions of the Act all amounts payable to an employed person as
wages shall if such amounts could not or cannot be paid on account of his death before
payment or on account of his whereabouts not being known -
a. be paid to the person nominated by him in this behalf in accordance with the rules made
under this Act; or
b. where no such nomination has been made or where for any reasons such amounts cannot
be paid to the person so nominated be deposited with the prescribed authority who shall
deal with the amounts so deposited in such manner as may be prescribed.
2. Where in accordance with the provisions of sub-section (1) all amounts payable to an
employed person as wages -
a. are paid by the employer to the person nominated by the employer person; or
b. are deposited by the employer with the prescribed authority, the employer shall be
discharged of his liability to pay those wages.

5.5 RULE-MAKING POWER

1. The State Government may make rules to regulate the procedure to be followed by the
authorities and courts referred to in sections 15 and 17.

2. The State Government may by notification in the Official Gazette make rules for the
purpose of carrying into effect the provisions of this Act.
3. In particular and without prejudice to the generality of the foregoing power rules made
under sub-section (2) may -

77
 a. require the maintenance of such records registers returns and notice as are necessary for
the enforcement of the Act prescribe the form thereof and the particulars to be entered in
such registers or records;
b. require the display in a conspicuous place on premises where employment is carried on
of notices specifying rates of wages payable to persons employed on such premises;
c. Provide for the regulate inspection of the weights measures and weighing machines used
by employers in checking or ascertaining the wages of persons employed by them;
d. prescribe the manner of giving notice of the days on which wages will be paid;
e. prescribe the authority competent to approve under sub-section (1) of section 8 acts and
omissions in respect of which fines may be imposed;
f. prescribe the procedure for the imposition of fines under section 8 and for making of the
deductions referred to in section 10;
g. prescribe the conditions subject to which deductions may be made under the proviso the
sub-section (2) of section 9;
h. prescribe the authority competent to approve the purposes on which the proceeds of
fines shall be expended;
i. prescribe the extent to which advances may be made and the instalments by which they
may be recovered with reference to clause (b) of section 12;
i. prescribe the extent to which loans may be granted and the rate of interest payable
thereon with reference to section 12A;
ii. prescribe the powers of Inspectors for the purposes of this Act;
j. regulate the scales of costs which may allowed in proceedings under this Act;
k. prescribe the amount of court-fees payable in respect of any proceedings under this Act
l. prescribe the abstracts to be contained in the notices required by section 25;
i. prescribe the form and manner in which nominations may be made for the
purposes of sub-section (1) of section 25A the cancellation or variation of any such
nomination or the making of any fresh nomination in the event of the nominee
predeceasing the person making nomination and other matters connected with such
nominations;
ii. specify the authority with whom amounts required to be deposited under clause (b)
of sub-section (1) of section 25A shall be deposited and the manner in which such
authority shall deal with the amounts deposited with it under that clause;
m. provide for any other matter which is to be or may be prescribed.

4. In making any rule under this section the State Government may provide that a
contravention of the rule shall be punishable with fine which may extend to two hundred
rupees.

5. All rules made under this section shall be subject to the condition of previous publication
and the date to be specified under clause (3) of section 23 of the General Clauses Act 1897
(10 of 1897) shall not be less than three months from the date on which the draft of the
proposed rules was published.
78
6. Every rule made by the Central Government under this section shall be laid as soon as may
be after it is made before each House of Parliament while it is in session for a total period of
thirty days which may be comprised in one session or in two or more successive sessions
and if before the expiry of the session immediately following the session or the successive
sessions aforesaid both Houses agree in making any modification in the rule or both Houses
agree that the rule should not be made the rule shall thereafter have effect only in such
modified form or be of no effect as the case may be; so however that any such modification
or annulment shall be without prejudice to the validity of anything previously done under
that rule.

5.6 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Fine should be recovered within ------- days from the date on which fine were imposed.
a) 30 days
b) 45 days
c) 60 days
d) 75 days
2) If 10 or more persons together absent for the duty without any notice and without reasonable
cause, employer can make -------- days wages as deduction from their wage.
a) 30 day
b) 10 day
c) 7 day
d) 8 day
3) If wage period exceed one month, the employer may be punished with fine which shall not
be less than -------- 1000/- rupees but which may extend to --------- 7500/- rupees.
a) Rs.1000/- and Rs.7500/-
b) Rs.1000/- and Rs.10,000/-
c) Rs. 500/- and Rs. 5000/-
d) Rs.750/- and Rs.6000/-
4) Whoever obstructs an Inspector in the discharge of his duties under this Act, he may be
punished with fine which may extend --------- rupees
a) Rs.5000/-
b) Rs.3000/-
c) Rs.7500/-
d) Rs.3500/-
5) Fine should not be imposed on any employee who is under the age of ------- years.
a) 21 years
b) 18 years
c) 15 years
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 d) 14 years

Answers: 1 (c), 2 (d), 3 (a), 4 (b), 5 (c)

Long Answer Questions

Q1. Mention the various power‘s which the Authorities have under the Payment of Wages Act,
1936?

Q2. Mention the penalties defined for various offences under the Payment of Wages Act, 1936.

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 LESSON 6

THE MINIMUM WAGES ACT, 1948

6 STRUCTURE

6.1. Object and Scope of the Legislation

6.2. Definitions
6.3. Interpretation of the Act
6.4. Fixing of Minimum Rates of Wages
6.5. Advisory Committees and Sub-Committees (Repealed by The Minimum Wages
(Amendment) Act 1957)
6.6. Self-Assessment Questions

6.1 OBJECT AND SCOPE OF THE LEGISLATION (The Minimum Wages Act,1948)

The Minimum Wages Act was passed in 1948 and it came into force on 15th March, 1948. The
National Commission on Labour has described the passing of the Act as landmark in the history
of labour legislation in the country. The philosophy of the Minimum Wages Act and its
significance in the context of conditions in India, has been explained by the Supreme Court in
Unichoyi v. State of Kerala (A.I.R. 1962 SC 12), as follows:

―What the Minimum Wages Act purports to achieve is to prevent exploitation of labour and for
that purpose empowers the appropriate Government to take steps to prescribe minimum rates of
wages in the scheduled industries. In an underdeveloped country which faces the problem of
unemployment on a very large scale, it is not unlikely that labour may offer to work even on
starvation wages.

The policy of the Act is to prevent the employment of such sweated labour in the interest of
general public and so in prescribing the minimum rates, the capacity of the employer need not
to be considered.

What is being prescribed is minimum wage rates which a welfare State assumes every employer
must pay before he employs labour‖.

According to its preamble the Minimum Wages Act, 1948, is an Act to provide for fixing
minimum rates of wages in certain employments. The employments are those which are
included in the schedule and are referred to as ‗Scheduled Employments‘.

The Act extends to whole of India.

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6.2 DEFINITIONS

―Appropriate Government‖ means –

i. in relation to any scheduled employment carried on by or under the authority of the Central
or a railway administration, or in relation to a mine, oilfield or major part or any corporation
established by a Central Act, the Central Government, and
ii. in relation to any other scheduled employment, the State Government.

Employee [Section 2(i)]

―Employee‖ means any person who is employed for hire or reward to do any work, skilled or
unskilled, manual or clerical in a scheduled employment in respect of which minimum rates of
wages have been fixed; and includes an outworker to whom any articles or materials are given
out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired,
adapted or otherwise processed for sale purpose of the trade or business of that other person
where the processes is to be carried out either in the home of the out-worker or in some other
premises, net being premises under the control and management of that person; and also
includes an employee declared to be an employee by the appropriate Government; but does not
include any member of Armed Forces of the Union.

Employer [Section 2(e)]

―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 minimum rates of wages have been fixed under this Act, and
includes, except, in sub-section (3) of Section 26 –

i. in a factory where 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 (1) of Section 7 of the Factories Act, 1948, as manager of the factory;
ii. in 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 the supervision and control of employees or where no
person of authority is so appointed, the Head of the Department;
iii. in any scheduled employment under any local authority in respect of which minimum rates
of wages have been fixed under this Act the person 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;
iv. 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 of the supervision and control of the employees or for the payment of wages.
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The definitions of ―employees‖ and ―employer‖ are quite wide. Person who engages workers
through another like a contractor would also be an employer (1998 LLJ I Bom. 629).

It was held in Nathu Ram Shukla v. State of Madhya Pradesh A.I.R. 1960 M.P. 174 that if
minimum wages have not been fixed for any branch of work of any scheduled employment, the
person employing workers in such branch is not an employer with the meaning of the Act.
Similarly, in case of Loknath Nathu Lal v. State of Madhya Pradesh A.I.R. 1960 M.P. 181 an
out-worker who prepared goods at his residence, and then supplied them to his employer was
held as employee for the purpose of this Act.

Scheduled Employment [Section 2(g)]

―Scheduled employment‖ means an employment specified in the Schedule or any process or

branch of work forming part of such employment.

Note: The schedule is divided into two parts namely, Part I and Part II. When originally enacted
Part I of Schedule had 12 entries. Part II relates to employment in agriculture. It was realised
that it would be necessary to fix minimum wages in many more employments to be identified in
course of time.

Accordingly, powers were given to appropriate Government to add employments to the

Schedule by following the procedure laid down in Section 21 of the Act. As a result, the State
Government and Central Government have made several additions to the Schedule and it differs
from State to State.

Wages [Section 2(h)]

―Wages‖ means all remunerations capable of being expressed in terms of money, which would,
if the terms of the contract of employment, express of 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:

1. the value of:

a. any house accommodation, supply of light, water medical;
b. any other amenity or any service excluded by general or social order of the appropriate
Government;
2. contribution by the employer to any Pension Fund or Provides Fund or under any scheme of
social insurance;
3. any traveling allowance or the value of any traveling concession;
4. any sum paid to the person employed to defray special expenses entailed on him by the
nature of his employment;
5. any gratuity payable on discharge.
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6.3 INTERPRETATION OF THE ACT (Bare Act , 2018)

In this Act unless there is anything repugnant in the subject or context –

1. "adolescent" means a person who has completed his fourteenth year of age but has not
completed his eighteenth year;
(1a) "adult" means a person who has completed his eighteenth year of age;
2. "appropriate government" means –
a. 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 oilfield or
major port or any corporation established by a Central Act the Central Government and
b. in relation to any other scheduled employment the State Government;
(2b) "child" means a person who has not completed his fourteenth year of age;
3. "competent authority" means the authority appointed by the appropriate government by
notification in its Official Gazette to ascertain from time to time the cost of living index
number applicable to the employees employed in the scheduled employments specified in
such notification;
4. "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 employee in such employment;
5. "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 minimum rates of wages have been fixed under this Act
and includes except in sub-section (3) of section 26 –
a. in a factory where 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 (1) of section 7 of the Factories Act 1948 (63 of 1948) as manager of
the factory;
b. in 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 the supervision and control of employees or where no
person or authority is so appointed the head of the department;
c. in any scheduled employment under any local authority in respect of which minimum
rates of wages have been fixed under this Act the persons 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;
d. 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 or for the payment of wages;
6. "prescribed" means prescribed by rules made under this Act;

84
7. "schedule employment" means an employment specified in the Schedule or any process or
branch of work forming part of such employment;
8. "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;
9. "employee" means any person who is employed for hire or reward to do any work skilled or
unskilled manual or clerical in a scheduled employment in respect of which minimum rates
of wages have been fixed; and includes an out-worker to whom any articles or materials are
given out by another person to be made up cleaned washed altered ornamented finished
repaired adapted or otherwise processed for sale for the purposes of the trade or business of
that other person where the process is to be carried out either in the home of the out-worker
or in some other premises not being premises under the control and management of that
other person; and also includes an employee declared to be an employee by the appropriate
government; but does not include any member of the Armed Forces of the Union.

6.4 FIXING OF MINIMUM RATES OF WAGES

1. The appropriate government shall in the manner hereinafter provided –

a. fix the minimum rates of wages payable to employees employed in an employment

specified in Part I or Part II of the Schedule and in an employment added to either Party
by notification under section 27 :

Provided that the appropriate government may in respect of employees employed in an

employment specified in Part II of the Schedule instead of fixing minimum rates of
wages under this clause for the whole State fix such rates for a part of the State or for
any specified class or classes of such employment in the whole State or part thereof;

b. review at such intervals as it may think fit such intervals not exceeding five years the
minimum rates of wages so fixed and revise the minimum rates if necessary :

85
 Provided that where for any reason the appropriate government has not reviewed the
minimum rates of wages fixed by it in respect of any scheduled employment within any
interval of five years nothing contained in this clause shall be deemed to prevent it from
reviewing the minimum rates after the expiry of the said period of five years and revising
them if necessary and until they are so revised the minimum rates in force immediately
before the expiry of the said period of five years shall continue in force.
2. Notwithstanding anything contained in sub-section (1) the appropriate government may
refrain from fixing minimum rates of wages in respect of any scheduled employment in
which there are in the whole State less than one thousand employees engaged in such
employment but if at any time the appropriate government comes to a finding after such
inquiry as it may make or cause to be made in this behalf that the number of employees in
any scheduled employment in respect of which it has refrained from fixing minimum rates
of wages has risen to one thousand or more it shall fix minimum rates of wages payable to
employees in such employment as soon as may be after such finding.
3. The appropriate government may fix –
a. a minimum rate of wages for time work (hereinafter referred to as "a minimum time
rate");
b. a minimum rates of wages for piece work (hereinafter referred to as "a minimum piece
rate");
c. a minimum rate of remuneration to apply in the case of employees employed on piece
work for the purpose of securing to such employees a minimum rate of wages on a time
work basis (hereinafter referred to as "a guaranteed time rate");
d. a minimum rate (whether a time rate or a piece rate) to apply in substitution for the
minimum rate which would otherwise be applicable in respect of overtime work done
by employees (hereinafter referred to as "overtime rate").
4. Where in respect of an industrial dispute relating to the rates of wages payable to any of the
employees employed in a scheduled employment any proceeding is pending before a
Tribunal or National Tribunal under the Industrial Disputes Act 1947 (14 of 1947) or before
any like authority under any other law for the time being in force or an award made by any
Tribunal National Tribunal or such authority is in operation and a notification fixing or
revising the minimum rates of wages in respect of the scheduled employment is issued
during the pendency of such proceeding or the operation of the award then notwithstanding
anything contained in this Act the minimum rates of wages so fixed or so revised shall not
apply to those employees during the period in which the proceeding is pending and the
award made therein is in operation or as the case may be where the notification is issued
during the period of operation of an award during that period; and where such proceeding or
award relates to the rates of wages payable to all the employees in the scheduled
employment no minimum rates of wages shall be fixed or revised in respect of that
employment during the said period.
5. In fixing or revising minimum rates of wages under this section –
a. different minimum rates of wages may be fixed for –
i. different scheduled employments;
86
 ii. different classes of work in the same scheduled employment;
iii. adults adolescents children and apprentices;
iv. different localities;
b. minimum rates of wages may be fixed by any one or more of the following wage
periods; namely :
i. by the hour
ii. by the day
iii. by the month or
iv. by such other larger wage-period as may be prescribed
and where such rates are fixed by the day or by the month the manner of calculating wages for a
month or for a day as the case may be may be indicated :

Provided that where any wage-periods have been fixed under section 4 of the Payment of
Wages Act 1936 (4 of 1936) minimum wages shall be fixed in accordance therewith.

Minimum Rate of Wages

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 (hereinafter referred to as the "cost of living allowance"); or
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 supplied 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.

Procedure for Fixing and Revising Minimum Wages

1. In fixing minimum rates of wages in respect of any scheduled employment for the first time
under this Act or in revising minimum rates of wages so fixed the appropriate government
shall either –
a. appoint as many committees and sub-committees as it considers necessary to hold
enquiries and advise it in respect of such fixation or revision as the case may be or

87
 b. by notification in the Official Gazette publish its proposals for the information of
persons likely to be affected thereby and specify a date not less than two months from
the date of the notification on which the proposals will be taken into consideration.
2. After considering the advice of the committee or committee appointed under clause (a) of
sub-section (1) or as the case may be all representations received by it before the date
specified in the notification under clause (b) of that sub-section the appropriate government
shall by notification in the Official Gazette fix or as the case may be revise the minimum
rates of wages in respect of each scheduled employment and unless such notification
otherwise provides it shall come into force on the expiry of three months from the date of its
issue :

Provided that where the appropriate government proposes to revise the minimum rates of
wages by the mode specified in clause (b) of sub-section (1) the appropriate government
shall consult the Advisory Board also.

6.5 ADVISORY COMMITTEES AND SUB-COMMITTEES (REPEALED BY THE

MINIMUM WAGES (AMENDMENT) ACT 1957)

Advisory Board

For the purpose of co-coordinating work of committees and sub-committees appointed under
section 5 and advising the appropriate government generally in the matter of fixing and revising
minimum rates of wages the appropriate government shall appoint an Advisory Board.

Central Advisory Board

1. For the purpose of advising the Central and State Governments in the matters of the fixation
and revision of minimum rates of wages and other matters under this Act and for co-
coordinating the work of the Advisory Boards the Central Government shall appoint a
Central Advisory Board.
2. The Central Advisory Board shall consist of persons to be nominated by the Central
Government representing employers and employees in the scheduled employments who
shall be equal in number and independent persons not exceeding one-third of its total
number of members; one of such independent persons shall be appointed the Chairman of
the Board by the Central Government.

Composition of Committees

Each of the committee‘s sub-committees and the Advisory Board shall consist of persons to be
nominated by the appropriate government representing employers and employees in the
scheduled employments who shall be equal in number and independent persons not exceeding

88
one-third of its total number of members; one of such independent persons shall be appointed
the Chairman by the appropriate government.

Correction of Errors

1. The appropriate government may at any time by notification in the Official Gazette correct
clerical or arithmetical mistakes in any order fixing or revising minimum rates of wages
under this Act or errors arising therein from any accidental slip or omission.
2. Every such notification shall as soon as may be after it is issued be placed before the
Advisory Board for information.

Wages in Kind

1. Minimum wages payable under this Act shall be paid in cash.

2. Where it has been the custom to pay wages wholly or partly in kind the appropriate
government being of the opinion that it is necessary in the circumstances of the case may by
notification in the Official Gazette authorize the payment of minimum wages either wholly
or partly in kind.
3. If appropriate government is of the opinion that provision should be made for the supply of
essential commodities at concession rates the appropriate government may by notification in
the Official Gazette authorize the provision of such supplies at concessional rates.
4. The cash value of wages in kind and of concessions in respect of supplies of essential
commodities at concession rates authorized under sub-sections (2) and (3) shall be estimated
in the prescribed manner.

Payment of Minimum Rate of Wages

1. Where in respect of any scheduled employment a notification under section 5 is in force the
employer shall pay to every employee engaged in a scheduled employment under him
wages at a rate not less than the minimum rate of wages fixed by such notification for that
class of employees in that employment without any deductions except as may be authorized
within such time and subject to such conditions as may be prescribed.
2. Nothing contained in this section shall affect the provisions of the Payment of Wages Act
1936 (4 of 1936)

Fixing Hours for Normal working Day

1. In regard to any scheduled employment minimum rates of wages in respect of which have
been fixed under this Act the appropriate government may –
a. fix the number of hours of work which shall constitute a normal working day inclusive
of one or more specified intervals;

89
 b. provide for a day of rest in every period of seven days which shall be allowed to all
employees or to any specified class of employees and for the payment of remuneration
in respect of such days of rest;
c. provide for payment for work on a day of rest at a rate not less than the overtime rate.
2. The provisions of sub-section (1) shall in relation to the following classes of employees
apply only to such extent and subject to such conditions as may be prescribed :-
a. employees engaged on urgent work or in any emergency which could not have been
foreseen or prevented;
b. employees engaged in work in the nature of preparatory or complementary work which
must necessarily be carried on outside the limits laid down for the general working in
the employment concerned;
c. employees whose employment is essentially intermittent;
d. employees engaged in any work which for technical reasons has to be completed before
the duty is over;
e. employees engaged in a work which could not be carried on except at times dependent
on the irregular action of natural forces.
3. For the purposes of clause (c) of sub-section (2) employment of an employee is essentially
intermittent when it is declared to be so by the appropriate government on the ground that
the daily hours of duty of the employee or if there be no daily hours of duty as such for the
employee the hours of duty normally include periods of inaction during which the employee
may be on duty but is not called upon to display either physical activity or sustained
attention.

Overtime

1. Where an employee whose minimum rate of wages is fixed under this Act by the hour by
the day or by such a longer wage-period as may be prescribed works on any day in excess of
the number of hours constituting a normal working day the employer shall pay him for
every hour or for part of an hour so worked in excess at the overtime rate fixed under this
Act or under any law of the appropriate government for the time being in force whichever is
higher.

2. Nothing in this Act shall prejudice the operation of the provisions of section 59 of the
Factories Act 1948 (63 of 1948) in any case where those provisions are applicable.

Comment: "Overtime under Section 14 is payable to those employees who are getting a
minimum rate of wage as prescribed under the Minimum Wages Act, 1948. These are the
only employees to whom overtime under Section 14 would become payable. In the present
case the respondents cannot be described as employees who are getting a minimum rate of
wages fixed under the Minimum Wages Act, 1948. They are getting much more and that too
under the Madhya Pradesh Municipal Service (Scales of Pay and Allowances) Rules, 1967.
Therefore, Section 14 has no application to them. We have not been shown any other
90
 provision under which they can claim overtime" Municipal Council, Hatta v. Bhagat Singh.
AIR 1998

Wages of Worker who Works for Less than Normal Working Day

If an employee whose minimum rate of wages has been fixed under this Act by the day works
on any day on which he was employed for a period less than the requisite number of hours
constituting a normal working day he shall save as otherwise hereinafter provided be entitled to
receive wages in respect of work done by him on that day as if he had worked for a full normal
working day:
Provided however that he shall not be entitled to receive wages for a full normal working day –
i. in any case where his failure to work is caused by his unwillingness to work and not by the
omission of the employer to provide him with work and
ii. in such other cases and circumstances as may be prescribed.

Wages for Two or More Classes of Work

Where an employee does two or more classes of work to each of which a different minimum
rate of wages is applicable the employer shall pay to such employee in respect of the time
respectively occupied in each such class of work wages at not less than the minimum rate in
force in respect of each such class.

Minimum Time Rate Wages for Piece Work

Where an employee is employed on piece work for which minimum time rate and not a
minimum piece rate has been fixed under this Act the employer shall pay to such employee
wages at not less than the minimum time rate.

Maintenance of Registers and Records

1. Every employer shall maintain such registers and records giving such particulars of
employees employed by him the work performed by them the wages paid to them the
receipts given by them and such other particulars and in such form as may be prescribed.
2. Every employer shall keep exhibited in such manner as may be prescribed in the factory
workshop or place where the employees in the scheduled employment may be employed or
in the case of out-workers in such factory workshop or place as may be used for giving out
work to them notices in the prescribed form containing prescribed particulars.
3. The appropriate government may by rules made under this Act provide for the issue of wage
books or wage slips to employees employed in any scheduled employment in respect of
which minimum rates of wages have been fixed and prescribed to manner in which entries
shall be made and authenticated in such wage books or wage slips by the employer or his
agent.
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6.6 SELF-ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Statutory Minimum wage is fixed under

a) Payment of Wages Act, 1936
b) Equal Remuneration Act, 1976
c) Workmen‘s Compensation Act, 1923
d) Minimum Wages Act, 1948
2) Under the Minimum Wages Act, 1948 the appropriate government shall fix the minimum
rates of wages payable to the employees employed in an employment specified in
a) Schedule I part I
b) Schedule I part II
c) Schedule I, Part I, II and the employments and added under section 27
d) Schedule I and II
3) Which of the following is not a method for fixing Minimum Wages under the Minimum
Wages Act, 1948?
a) Notification Method
b) Committee Method
c) Bargaining Method
d) None of the above
4) The minimum wages as fixed under the Minimum Wages Act, 1948 must be revised at least
once in
a) 2 years
b) 3 years
c) 5 years
d) No mention under the Act
5) The Minimum Wages Act, 1948 has
a) One schedule covering different types of industries.
b) One schedule covering different types of industries, shops and establishments.
c) One schedule covering shops and establishments.
d) Two schedules covering industrial establishments and agriculture.

Answers: 1 (d), 2 (c), 3 (c), 4 (c), 5 (d)

Long Answer Questions

Q1. Define the Object and Scope of the Legislation under the Minimum Wages Act, 1948.

Q2. Explain the concept of ‗Wages‘ and the process defined by Indian Government for fixing
the minimum rates of Wages under the given Act.

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 LESSON 7

THE MINIMUM WAGES ACT, 1948: POWERS AND PENALTY

7 STRUCTURE

7.1. Powers of Authorities

7.2. Penalties for Certain Offences
7.3. Payment of Undisbursed amounts due to Employees
7.4. Power of Government related to the Act
7.5. Validation of Fixation of Certain Minimum Rates of Wages
7.6. Self-Assessment Questions

7.1 POWERS OF AUTHORITIES

Inspectors

1. The appropriate government may by notification in the Official Gazette appoint such
persons as it thinks fit to be Inspectors for the purposes of this Act and define the local
limits within which they shall exercise their functions.
2. Subject to any rules made in this behalf an Inspector may within the local limits for which
he is appointed –
a. enter at all reasonable hours with such assistants (if any) being persons in the service of
the government or any local or other public authority as he thinks fit any premises or
place where employees are employed or work is given out to out-workers in any
scheduled employment in respect of which minimum rates of wages have been fixed
under this Act for the purpose of examining any register record of wages or notices
required to be kept or exhibited by or under this Act or rules made thereunder and
require the production thereof for inspection;
b. examine any person whom he finds in any such premises or place and who he has
reasonable cause to believe is an employee employed therein or an employee to whom
work is given out therein;
c. require any person giving out-work and any out-workers to give any information which
is in his power to give with respect to the names and addresses of the persons to for and
from whom the work is given out or received and with respect to the payments to be
made for the work;
d. seize or take copies of such register record or wages or notices or portions thereof as he
may consider relevant in respect of an offence under this Act which he has reason to
believe has been committed by an employer; and
e. exercise such other powers as may be prescribed.

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3. Every Inspector shall be deemed to be a public servant within the meaning of the Indian
Penal Code (45 of 1860).
4. Any person required to produce any document or thing or to give any information by an
Inspector under sub-section (2) shall be deemed to be legally bound to do so within the
meaning of section 175 and section 176 of the Indian Penal Code (45 of 1860).

Claim

1. The appropriate government may by notification in the Official Gazette appoint any
Commissioner for Workmen's Compensation or any officer of the Central Government
exercising functions as a Labor Commissioner for any region or any officer of the State
Government not below the rank of Labor Commissioner or any other officer with
experience as a judge for a civil court or as a Stipendiary Magistrate to be the authority to
hear and decide for any specified area all claims arising out of payment of less than the
minimum rates of wages or in respect of the payment of remuneration for days of rest or for
work done on such days under clause (b) or clause (c) of sub-section (1) of section 13 or of
wages at the overtime rate under section 14 to employees employed or paid in that area.
2. Where an employee has any claim of the nature referred to in sub-section (1) the employee
himself or any legal practitioner or any official of a registered trade union authorized in
writing to act on his behalf or any Inspector or any person acting with the permission of the
authority appointed under sub-section (1) may apply to such authority for a direction under
sub-section (3):
Provided that every such application shall be presented within six months from the date on
which the minimum wages or other amount became payable:
Provided further that any application may be admitted after the said period of six months
when the applicant satisfies the authority that he had sufficient cause for not making the
application within such period.
3. When any application under sub-section (2) is entertained the authority shall hear the
applicant and the employer or give them an opportunity of being heard and after such
further inquiry if any as it may consider necessary may without prejudice to any other
penalty to which the employer may be liable under this Act direct –
i. in the case of a claim arising out of payment of less than the minimum rates of wages
the payment to the employee of the amount by which the minimum wages payable to
him exceed the amount actually paid together with the payment of such compensation
as the authority may think fit not exceeding ten times the amount of such excess;
ii. in any other case the payment of the amount due to the employee together with the
payment of such compensation as the authority may think fit not exceeding ten rupees;
and the authority may direct payment of such compensation in cases where the excess or
the amount due is paid by the employer to the employee before the disposal of the
application.

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4. If the authority hearing any application under this section is satisfied that it was either
malicious or vexatious it may direct that a penalty not exceeding fifty rupees be paid to be
employer by the person presenting the application.
5. Any amount directed to be paid under this section may be recovered –
i. if the authority is a Magistrate by the authority as if it were a fine imposed by the
authority as a Magistrate or
ii. if the authority is not a Magistrate by any Magistrate to whom the authority makes
application in this behalf as if it were a fine imposed by such Magistrate.
6. Every direction of the authority under this section shall be final.
7. Every authority appointed under sub-section (1) shall have all the powers of a civil court
under the Code of Civil Procedure 1908 (5 of 1908) for the purpose of taking evidence and
of enforcing the attendance of witnesses and compelling the production of documents and
every such authority shall be deemed to be a civil court for all the purposes of section 195
and Chapter XXXV of the Code of Criminal Procedure 1898 (5 of 1898).

Single Application in Respect of a Number of Employees

1. Subject to such rules as may be prescribed a single application may be presented under
section 20 on behalf or in respect of any number of employees employed in the scheduled
employment in respect of which minimum rates of wages have been fixed and in such cases
the maximum compensation which may be awarded under sub-section (3) of section 20
shall not exceed ten times the aggregate amount of such excess or ten rupees per head as the
case may be.
2. The authority may deal with any number of separate pending applications presented under
section 20 in respect of employees in the scheduled employments in respect of which
minimum rates of wages have been fixed as a single application presented under sub-section
(1) of this section and the provisions of that sub-section shall apply accordingly.

7.2 PENALTIES FOR CERTAIN OFFENCES

Any employer who

a. pays to any employee less than the minimum rates of wages fixed for that employee's
class of work or less than the amount due to him under the provisions of this Act or
b. contravenes any rule or order made under section 13;

shall be punishable with imprisonment for a term which may extend to six months or with fine
which may extend to five hundred rupees or with both :

Provided that in imposing any fine for an offence under this section the court shall take into
consideration the amount of any compensation already awarded against the accused in any
proceedings taken under section 20.

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General Provision for Punishment of other Offences

Any employer who contravenes any provision of this Act or of any rule or order made there
under shall if no other penalty is provided for such contravention by this Act be punishable with
fine which may extend to five hundred rupees.

Cognizance of Offences

1. No court shall take cognizance of a complaint against any person for an offence –
a. under clause (a) of section 22 unless an application in respect of the facts constituting
such offence has been presented under section 20 and has been granted wholly or in part
and the appropriate government or an officer authorized by it is this behalf has
sanctioned the making of the complaint;
b. under clause (b) of section 22 or under section 22A except on a complaint made by or
with the sanction of an Inspector.
2. No court shall take cognizance of an offence –
a. under clause (a) or clause (b) of section 22 unless complaint thereof is made within one
month of the grant of sanction under this section;
b. under section 22A unless complaint thereof is made within six months of the date on
which the offence is alleged to have been committed.

Offences by Companies

1. If the person committing any offence under this Act is a company every person who at the
time the offence was committed was in charge of and was responsible to the company for
the conduct of the business of the company as well as the company shall be deemed to be
guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to
any punishment provided in this Act if he proves that the offence was committed without his
knowledge or that he exercised all due diligence to prevent the commission of such offence.

2. Notwithstanding anything contained in sub-section (1) where any offence under this Act has
been committed by a company and it is proved that the offence has been committed with the
consent or connivance of or is attributable to any neglect on the part of any director manager
secretary or other officer of the company such director manager secretary or other officer of
the company shall also be deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.

Explanation: For the purposes of this section –

a. "company" means anybody corporate and includes a firm or other association of
individuals and
b. "director" in relation to a firm means a partner in the firm.
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7.3 PAYMENT OF UNDISBURSED AMOUNTS DUE TO EMPLOYEES

All amounts payable by an employer to an employee as the amount of minimum wages of the
employee under this Act or otherwise due to the employee under this Act or any rule or order
made there under shall if such amounts could not or cannot be paid to the employee on account
of his death before payment or on account of his whereabouts not being known be deposited
with the prescribed authority who shall deal with the money so deposited in such manner as
may be prescribed.

Protection against Attachment of Assets of Employer with Government

Any amount deposited with the appropriate government by an employer to secure the due
performance of a contract with that government and any other amount due to such employer
from that government in respect of such contract shall not be liable to attachment under any
decree or order of any court in respect of any debt or liability incurred by the employer other
than any debt or liability incurred by the employer towards any employee employed in
connection with the contract aforesaid.

Application of Payment of Wages Act 1936 to Scheduled Employments

1. Notwithstanding anything contained in the Payment of Wages Act 1936 (4 of 1936) the
appropriate government may by notification in the Official Gazette direct that subject to the
provisions of sub-section (2) all or any of the provisions of the said Act shall with such
modifications if any as may be specified in the notification apply to wages payable to
employees in such scheduled employments as may be specified in the notification.
2. Where all or any of the provisions of the said Act are applied to wages payable to
employees in any scheduled employment under sub-section (1) the Inspector appointed
under this Act shall be deemed to be the Inspector for the purpose of enforcement of the
provisions so applied within the local limits of his jurisdiction.

Exemption of Employer from Liability in Certain Cases

Where an employer is charged with an offence against this Act he shall be entitled upon
complaint duly made by him to have any other person whom he charges as the actual offender
brought before the court at the time appointed for hearing the charge; and if after the
commission of the offence has been proved the employer proves to the satisfaction of the court-
a. that he has used due diligence to enforce the execution of this Act and
b. that the said other person committed the offence in question without his knowledge
consent or connivance.
that other person shall be convicted of the offence and shall be liable to the like punishment
as if he were the employer and the employer shall be discharged :

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 Provided that in seeking to prove as aforesaid the employer may be examined on oath and
the evidence of the employer or his witness if any shall be subject to cross-examination by
or on behalf of the person whom the employer charges as the actual offender and by the
prosecution.

Bar of Suits

No court shall entertain any suit for the recovery of wages in so far as the sum so claimed –
a. forms the subject of an application under section 20 which has been presented by or
on behalf of the plaintiff or
b. has formed the subject of a direction under that section in favor of the plaintiff or
c. has been adjudged in any proceeding under that section not to be due to the plaintiff
or
d. could have been recovered by an application under that section.

Contracting Out

Any contract or agreement whether made before or after the commencement of this Act
whereby an employee either relinquishes or reduces his right to a minimum rate of wages or any
privilege or concession accruing to him under this Act shall be null and void in so far as it
purports to reduce the minimum rate of wages fixed under this Act.

Exemption and Exceptions

1. The appropriate government may subject to such conditions if any as it may think fit to
impose direct that the provisions of this Act shall not apply in relation to the wages payable
to disabled employees.
2. The appropriate government if for special reasons it thinks so fit by notification in the
Official Gazette direct that subject to such conditions and for such period as it may specify
the provisions of this Act or any of them shall not apply to all or any class of employees
employed in any scheduled employment or to any locality where there is carried on a
scheduled employment.
3. The appropriate government may if it is of opinion that having regard to the terms and
conditions of service applicable to any class of employees in a scheduled employment
generally or in a scheduled employment in a local area or to any establishment or a part of
any establishment in a scheduled employment it is not necessary to fix minimum wages in
respect of such employees of that class or in respect of employees in such establishment or
such part of any establishment as are in receipt of wages exceeding such limit as may be
prescribed in this behalf direct by notification in the Official Gazette and subject to such
conditions if any as it may think fit to impose that the provisions of this Act or any of them
shall not apply in relation to such employees.

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4. Nothing in this Act shall apply to the wages payable by an employer to a member of his
family who is living with him and is dependent on him.
Explanation: In this sub-section a member of the employer's family shall be deemed to
include his or her spouse or child or parent or brother or sister.

7.4 POWER OF GOVERNMENT RELATED TO THE ACT

Power of State Government to Add to Schedule

The appropriate government after giving by notification in the Official Gazette not less than
three months' notice of its intention so to do may be like notification add to either Part of the
Schedule any employment in respect of which it is of opinion that minimum rates of wages
should be fixed under this Act and thereupon the Schedule shall in its application to the State be
deemed to be amended accordingly.

Power of Central Government to give Directions

The Central Government may give directions to a State Government as to the carrying into
execution of this Act in the State.

Power of Central Government to make Rules

The Central Government may subject to the condition of previous publication by notification in
the Official Gazette make rules prescribing the term of office of the members the procedure to
be followed in the conduct of business the method of voting the manner of filling up casual
vacancies in membership and the quorum necessary for the transaction of business of the
Central Advisory Board.

Power of Appropriate Government to make Rules

1. The appropriate government may subject to the condition of previous publication by

notification in the Official Gazette make rules for carrying out the purposes of this Act.
2. Without prejudice to the generality of the foregoing power such rules may –
a. prescribe the term of office of the members the procedure to be followed in the conduct
of business the method of voting the manner of filling up casual vacancies in
membership and the quorum necessary for the transaction of business of the committees
sub-committees and the Advisory Board;
b. prescribe the method of summoning witnesses production of documents relevant to the
subject-matter of the enquiry before the committees sub-committees and the Advisory
Board;
c. prescribe the mode of computation of the cash value of wages in kind and of
concessions in respect of supplies of essential commodities at concession rates;
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 d. prescribe the time and conditions of payment of and the deductions permissible from
wages;
e. provide for giving adequate publicity to the minimum rates of wages fixed under this
Act;
f. provide for a day of rest in every period of seven days and for the particulars to be
entered in such registers and records;
g. prescribe the number of hours of work which shall constitute a normal working day;
h. prescribe the cases and circumstance in which an employee employed for a period of
less than the requisite number of hours constituting a normal working day shall not be
entitled to receive wages for a full normal working day;
i. prescribe the form of registers and records to be maintained and the particulars to be
entered in such registers and records;
j. provide for the issue of wage book and wage slips and prescribe the manner of making
and authenticating entries in wage books and wage slips;
k. prescribe the powers of Inspectors for purposes of this Act;
l. regulate the scale of costs that may be allowed in proceedings under section 20 and
m. prescribe the amount of court-fees payable in respect of proceedings under section 20;
and
n. Provide for any other matter which is to be or may be prescribed.

Rules made by Central Government to be laid before Parliament

Every rule made by the Central Government under this Act shall be laid as soon as may be after
it is made before each House of Parliament while it is in session for a total period of thirty days
which may be comprised in one session or two successive sessions and if before the expiry of
the session in which it is so laid or the session immediately following both Houses agree in
making any modification in the rule or both Houses agree that the rule should not be made the
rule shall thereafter have effect only in such modified form or be of no effect as the case may be
so however that any such modification or annulment shall be without prejudice to the validity of
anything previously done under that rule.

7.5 VALIDATION OF FIXATION OF CERTAIN MINIMUM RATES OF WAGES

Where during the period –

a. commencing on the 1st day of April 1952 and ending with the date of the
commencement of the Minimum Wages (Amendment) Act 1954 (26 of 1954); or
b. commencing on the 31st day of December 1954 and ending with the date of the
commencement of the Minimum Wages (Amendment) Act 1957 (30 of 1957); or
c. commencing on the 31st day of December 1959 and ending with the date of the
commencement of the Minimum Wages (Amendment) Act 1961 (31 of 1961) minimum
rate of wages have been fixed by an appropriate government as being payable to
employees employed in any employment specified in the Schedule in the belief or
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 purported belief that such rates were being fixed under clause (a) of sub-section (1) of
section 3 as in force immediately before the commencement of the Minimum Wages
(Amendment) Act 1954 (26 of 1954) or the Minimum Wages (Amendment) Act 1957
(30 of 1957) or the Minimum Wages (Amendment) Act 1961 (31 of 1961) as the case
may be such rates shall be deemed to have been fixed in accordance with law and shall
not be called in question in any court on the ground merely that the relevant date
specified for the purpose in that clause had expired at the time the rates were fixed :

Provided that nothing contained in this section shall extend or be construed to extend to affect
any person with any punishment or penalty whatsoever by reason of the payment by him by
way of wages to any of his employees during any period specified in this section of an amount
which is less than the minimum rates of wages referred to in this section or by reason of non-
compliance during the period aforesaid with any order or the rule issued under section 13.

7.6 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) What are the methods mentioned in Section 5 of the Minimum Wages Act, 1948 for
fixation/revision of minimum wages.
a) Committee method
b) Notification method.
c) Voting method
d) Both (a) & (b)
2) The Central Advisory Board shall consist of the following members nominated by the
Central Government
a) The employers
b) The employees
c) Independent persons
d) All the above
3) If an employee works on any day on which he was employed for a period less than the
requisite number of hours constituting a normal working day, he shall be entitled to receive
wages
a) for a full normal working day
b) for the hours he had worked
c) for a half working day
d) None of the above
4) To provide guidelines for wage structures in the country, a tripartite Committee Viz., "The
Committee on Fair Wage" was constituted on --------
a) 1946
b) 1948
c) 1964
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 d) 1950
5) Under this act, the appropriate Governments have the power to notify any employment
where ------- number of employees are working in 'schedule of employment' to fix the rates
of minimum wages
(a) 500 or more
(b) 100 or more
(c) 1000 or more
(d) 250 or more

Answers: 1 (d), 2 (d), 3 (a), 4 (b), 5 (c)

Long Answer Questions

Q1. Mention various penalties decided by Indian Government for offences under The Minimum
Wages Act, 1948.

Q2. Describe the Powers of Various Authorities defined under The Minimum Wages Act, 1948.

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 LESSON 8

THE WORKMEN’S COMPENSATION ACT, 1923

8 STRUCTURE

8.1. Introduction
8.2. Definitions
8.3. Workmen‘s Compensation
8.4. Methods of Calculating Wages
8.5. Insolvency of Employer
8.6. Self-Assessment Questions

8.1 INTRODUCTION (The Workmen's Compensation Act,1923)

The Workmen‘s Compensation Act, 1923 provides for payment of compensation to workmen
and their dependents in case of injury and accident (including certain occupational disease)
arising out of and in the course of employment and resulting in disablement or death. The Act
applies to railway servants and persons employed in any such capacity as is specified in
Schedule II of the Act. The schedule II includes persons employed in factories, mines,
plantations, mechanically propelled vehicles, construction works and certain other hazardous
occupations.

The amount of compensation to be paid depends on the nature of the injury and the average
monthly wages and age of workmen. The minimum and maximum rates of compensation
payable for death (in such cases it is paid to the dependents of workmen) and for disability have
been fixed and is subject to revision from time to time.

A Social Security Division has been set up under the Ministry of Labour and Employment,
which deals with framing of social security policy for the workers and implementation of the
various social security schemes. It is also responsible for enforcing this Act. The Act is
administered by the State Governments through Commissioners for Workmen's Compensation.

8.2 DEFINITIONS

a. [Clause (a) omitted w.e.f. 1-6-1959.]

b. "Commissioner" means a Commissioner for Workmen's Compensation appointed under
section 20;
c. "compensation" means compensation as provided for by this Act;
d. "dependent" means any of the following relatives of a deceased workman namely:

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 i. a widow a minor legitimate or adopted son an unmarried legitimate or adopted daughter
or a widowed mother; and
ii. if wholly dependent on the earnings of the workman at the time of his death a son or a
daughter who has attained the age of 18 years and who is infirm;
iii. if wholly or in part dependant on the earnings of the workman at the time of his death-
• a widower
• a parent other than a widowed mother
• a minor illegitimate son an unmarried illegitimate daughter or a daughter legitimate
or illegitimate or adopted if married and a minor or if widowed and minor
• a minor brother or an unmarried sister or a widowed sister if a minor
• a widowed daughter-in-law
• a minor child of a pre-deceased son
• a minor child of a pre-deceased daughter where no parent of the child is alive or
• a paternal grandparent if no parent of the workman is alive;
Explanation: For the purpose of sub-clause (ii) and items (f) and (g) of sub-clause (iii)
references to a son daughter or child include an adopted son daughter or child respectively.
e. "employer" includes anybody of persons whether incorporated or not and any managing
agent of an employer and the legal representative of a deceased employer and when the
services of a workman are temporarily lent or let on hire to another person by the person
with whom the workman has entered into a contract of service or apprenticeship means such
other person while the workman is working for him;
f. "managing agent" means any person appointed or acting as the representative of another
person for the purpose of carrying on such other person's trade or business but does not
include an individual manager subordinate to an employer;
• "minor" means a person who has not attained the age of 18 years;
g. "partial disablement" means where the disablement is of a temporary nature such
disablement as reduces the earning capacity of a workman in any employment in which he
was engaged at the time of the accident resulting in the disablement and where the
disablement is of a permanent nature such disablement as reduces his earning capacity in
every employment which he was capable of undertaking at that time :
Provided that every injury specified in Part II of Schedule shall be deemed to result in
permanent partial disablement;
h. "prescribed" means prescribed by rules made under this Act;
i. "qualified medical practitioner" means any person registered under any Central Act or an
Act of the Legislature of a State providing for the maintenance of a register of medical
practitioners or in any area where no such last-mentioned Act is in force any person declared
by the State Government by notification in the Official Gazette to be a qualified medical
practitioner for the purpose of this Act;
j. [Clause (j) omitted by Act 15 of 1933]
k. "seaman" means any person forming part of the crew of any ship but does not include the
master of the ship;

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l. "total disablement" means such disablement whether of a temporary or permanent nature as
incapacitates a workman for all work which he was capable of performing at the time of the
accident resulting in such disablement :
Provided that permanent total disablement shall be deemed to result from every injury
specified in Part I of Schedule I or from any combination of injuries specified in Part II
thereof where the aggregate percentage of the loss of earning capacity as specified in the
said Part II against those injuries amount to one hundred per cent or more;
m. "wages" includes any privilege or benefit which is capable of being estimated in money
other than a traveling allowance or the value of any traveling concession or a contribution
paid by the employer of a workman towards any pension or provident fund or a sum paid to
a workman to cover any special expenses entailed on him by the nature of his employment;
n. "workman" means any person (other than a person whose employment is of a casual nature
and who is employed otherwise than for the purposes of the employer's trade or business)
who is -
i. a railway servant as defined in Section 3 of the Indian Railways Act 1890 (9 of
1890) not permanently employed in any administrative district or sub-divisional
office of a railway and not employed in any such capacity as is specified in Schedule
II or

• a master seaman or other member of the crew of a ship.

• a captain or other member of the crew of an aircraft
• a person recruited as driver helper mechanic cleaner or in any other capacity in
connection with a motor vehicle
• a person recruited for work abroad by a company and who is employed outside
India in any such capacity as is specified in Schedule II and the ship aircraft or
motor vehicle or company as the case may be is registered in India or;
ii. employed in any such capacity as is specified in Schedule II whether the contract of
employment was made before or after the passing of this Act and whether the
contract is expressed or implied oral or in writing; but does not include any person
working in the capacity of a member of the Armed Forces of the Union; and any
reference to a workman who has been injured shall where the workman is dead
includes a reference to his dependants or any of them.
• The exercise and performance of the powers and duties of a local authority or of any
department acting on behalf of the Government shall for the purposes of this Act
unless a contrary intention appears be deemed to be the trade or business of such
authority or department.
• The Central Government or the State Government after giving by notification in the
Official Gazette not less than three months' notice of its intention so to do may by a
like notification add to Schedule II any class of persons employed in any occupation
which it is satisfied is a hazardous occupation and the provisions of this Act shall
thereupon apply in case of notification by the Central Government within the

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 territories to which the Act extends or in the case of a notification by a State
Government within the State to such classes of persons :

Provided that in making addition the Central Government or the State Government as
the case may be may direct that the provisions of this Act shall apply to such classes of
persons in respect of specified injuries only.

8.3 WORKMEN’S COMPENSATION

Employer's Liability for Compensation

1. If personal injury is caused to a workman by accident arising out of and in the course of his
employment his employer shall be liable to pay compensation in accordance with the
provisions of this Chapter: Provided that the employer shall not be so liable -
a. in respect of any injury which does not result in the total or partial disablement of the
workman for a period exceeding three days;
b. in respect of any injury not resulting in death or permanent total disablement caused by
an accident which is directly attributable to -
the workman having been at the time thereof under the influence of drink or drugs or the
willful disobedience of the workman to an order expressly given or to a rule expressly
framed for the purpose of securing the safety of workmen or the willful removal or
disregard by the workman of any safety guard or other device he knew to have been
provided for the purpose of securing the safety of workman.
2. If a workman employed in any employment specified in Part A of Schedule III contracts any
disease specified therein as an occupational disease peculiar to that employment or if a
workman whilst in the service of an employer in whose service he has been employed for a
continuous period of not less than six months (which period shall not include a period of
service under any other employer in the same kind of employment) in any employment
specified in Part B of Schedule III contracts any disease specified therein as an occupational
disease peculiar to that employment or if a workman whilst in the service of one or more
employers in any employment specified in Part C of Schedule III for such continuous period
as the Central Government may specify in respect of each such employment contracts any
disease specified therein as an occupational disease peculiar to that employment the
contracting of the disease shall be deemed to be as injury by accident within the meaning of
this section and unless the contrary is proved the accident shall be deemed to have arisen out
of and in the course of the employment : Provided that if it proved -
that a workman whilst in the service of one or more employers in any employment specified
in Part C of Schedule III has contracted a disease specified therein as an occupational
disease peculiar to that employment during a continuous period which is less than the period
specified under this sub-section for that employment; and that the disease has arisen out of
and in the course of the employment the contracting of such disease shall be deemed to be
an injury by accident within the meaning of this section : Provided further that if it is proved
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 that a workman who having served under any employer in any employment specified in Part
B of Schedule III or who having served under one or more employers in any employment
specified in Part C of that Schedule for a continuous period specified under this sub-section
for that employment and he has after the cessation of such service contracted any disease
specified in the said Part B or the said Part C as the case may be as an occupational disease
peculiar to the employment and that such disease arose out of the employment the
contracting of the disease shall be deemed to be injury by accident within the meaning of
this section.
3. If a workman employed in any employment specified in Part C of Schedule III contracts any
occupational disease peculiar to that employment the contracting whereof is deemed to be
an injury by accident within the meaning of this section and such employment was under
more than one employer all such employers shall be liable for the payment of the
compensation in such proportion as the Commissioner may in the circumstances deem just.
4. The Central Government or the State Government after giving by notification in the Official
Gazette not less than three months' notice of its intention so to do may by a like notification
add any description of employment to the employments specified in Schedule III and shall
specify in the case of employments so added the diseases which shall be deemed for the
purposes of this section to be occupational diseases peculiar to those employments
respectively and thereupon the provisions of sub-section (2) shall apply in the case of a
notification by the Central Government within the territories to which this Act extends or in
case of and notification by the State Government within the State as if such diseases had
been declared by this Act to be occupational diseases peculiar to those employments. Save
as provided by sub-sections (2), (2A) and (3) no compensation shall be payable to a
workman in respect of any disease unless the disease is directly attributable to a specific
injury by accident arising out of and in the course of his employment. Nothing herein
contained shall be deemed to confer any right to compensation on a workman in respect of
any injury if he has instituted in a civil court a suit for damages in respect of the injury
against the employer or any other person; and no suit for damages shall be maintainable by a
workman in any court of law in respect of any injury –

a. if he has instituted a claim to compensation in respect of the injury before a

Commissioner; or
b. if an agreement has been come to between the workman and his employer providing
for the payment of compensation in respect of the injury in accordance with the
provisions of this Act.

Amount of Compensation

1. Subject to the provisions of this Act the amount of compensation shall be as follows
namely:-
where death results from the injury an amount equal to fifty per cent of the monthly wages
of the deceased workman multiplied by the relevant factor; or an amount of fifty thousand
107
 rupees whichever is more; where permanent total disablement results from the injury an
amount equal to sixty per cent of the monthly wages of the injured workman multiplied by
the relevant factor; or an amount of sixty thousand rupees whichever is more.

Explanation I: For the purpose of clause (a) and clause (b) relevant factor in relation to a
workman means the factor specified in the second column of Schedule IV against the entry
in the fits column of that Schedule specifying the number of years which are the same as the
completed years of the age of the workman on his birthday immediately preceding the date
on which the compensation fell due;

Explanation II: Where the monthly wages of a workman exceed two thousand rupees his
monthly wages for the purposes of clause
a. and clause
b. shall be deemed to be two thousand rupees only;
c. where permanent partial disablement results from the injury in the case of an injury
specified in Part II of Schedule I such percentage of the compensation which would
have been payable in the case of permanent total disablement as is specified therein
as being the percentage of the lass of earning capacity caused by that injury; and in
the case of an injury specified in Schedule I such percentage of the compensation
payable in the case of permanent total disablement as is proportionate to the loss of
earning capacity (as assessed by the qualified medical practitioner) permanently
caused by the injury;

Explanation I: Where more injuries than one are caused by the same accident the amount
of compensation payable under this head shall be aggregated but not so in any case as to
exceed the amount which would have been payable if permanent total disablement had
resulted from the injuries.

Explanation II: In assessing the loss of earning capacity for the purpose of sub-clause

(ii) the qualified medical practitioner shall have due regard to the percentages of loss of
earning capacity in relation to different injuries specified in Schedule I;

d. where temporary disablement whether total or partial results from the injury a half
monthly payment of the sum equivalent to twenty five per cent of monthly wages of
the workman to be paid in accordance with the provisions of sub-section (2).

2. Notwithstanding anything contained in sub-section (1) while fixing the amount of

compensation payable to a workman in respect of an accident occurred outside India the
Commissioner shall take into account the amount of compensation if any awarded to such
workman in accordance with the law of the country in which the accident occurred and shall

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 reduce the amount fixed by the amount of compensation awarded to the workman in
accordance with the law of that country.

3. The half-monthly payment referred to in clause (d) of sub-section (1) shall be payable on the
sixteenth day -
from the date of disablement where such disablement lasts for a period of twenty-eight days
or more or after the expiry of a waiting period of three days from the date of disablement
where such disablement lasts for a period of less than twenty-eight days; and thereafter half-
monthly during the disablement or during a period of five years whichever period is shorter:

Provided that -there shall be deducted from any lump sum or half monthly payments to
which the workman is entitled the amount of any payment or allowance which the workman
has received from the employer by way of compensation during the period of disablement
prior to the receipt of such lump sum or of the first half monthly payment as the case may
be; and no half monthly payment shall in any case exceed the amount if any by which half
the amount of the monthly wages of the workman before the accident exceeds half the
amount of such wages which he is earning after the accident.

Explanation: Any payment or allowance which the workmen has received from the
employer towards his medical treatment shall not be deemed to be a payment or allowance
received by him by way of compensation within the meaning of clause (a) of the proviso.

On the ceasing of the disablement before the date on which any half monthly payment falls
due there shall be payable in respect of that half monthly a sum proportionate to the duration
of the disablement in that half month. If the injury of the workman results in his death the
employer shall in addition to the compensation under sub-section

(1) deposit with the Commissioner a sum of one thousand rupees for payment of the same of
the eldest surviving dependant of the workman towards the expenditure of the funeral of
such workman or where the workman did not have a dependant or was not living with his
dependant at the time of his death to the person who actually incurred such expenditure. 4A.
Compensation to be paid when due and penalty for default Compensation under section 4
shall be paid as soon as it falls due.

(2) In cases where the employer does not accept the liability for compensation to the extent
claimed he shall be bound to make provisional payment based on the extent of liability
which he accepts and such payment shall be deposited with the Commissioner or made to
the workman as the case may be without prejudice to the right of the workman to make any
further claim.

direct that the employer shall in addition to the amount of the arrears pay simple interest
thereon at the rate of twelve per cent annum or at such higher rate not exceeding the
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maximum of the lending rates of any scheduled bank as may be specified by the Central
Government by notification in the Official Gazette on the amount due; and if in his opinion
there is no jurisdiction for the delay direct that the employer shall in addition to the amount
of the arrears and interest thereon pay a further sum not exceeding fifty per cent of such
amount by way of penalty :

Provided that an order for the payment of penalty shall not be passed under clause (b)
without giving a reasonable opportunity to the employer to shoe cause why it should not be
passed.

Explanation : For the purposes of this sub-section "scheduled bank" means a bank for the
time being included in the Second Schedule to the Reserve Bank of India Act 1934 (2 of
1934

(3A) The interest payable under sub-section (3) shall be paid to the workman or his
dependant as the case may be and the penalty shall be credited to the State Government.

Method of calculating wages In this Act and for the purpose thereof the expression "monthly
wages" means the amount of wages deemed to be payable for a months' service (whether the
wages are payable by the month or by whatever other period or at piece rates) and calculated
as follows namely :-

where the workman has during a continuous period of not less than twelve months
immediately preceding the accident been in the service of the employer who is liable to pay
compensation the monthly wages of the workman shall be one-twelfth of the total wages
which have fallen due for payment to him by the employer in the last twelve months of that
period; where the whole of the continuous period of service immediately preceding the
accident during which the workman was in the service of the employer who is liable to pay
the compensation was less than one month the monthly wages of the workman shall be the
average monthly amount which during the twelve months immediately preceding the
accident was being earned by a workman employed on the same work by the same employer
or if there was no workman so employed by a workman employed on similar work in the
same locality; in other cases including cases in which it is not possible for want of necessary
information to calculate the monthly wages under clause (b) the monthly wages shall be
thirty times the total wages earned in respect of the last continuous period of service
immediately preceding the accident from the employer who is liable to pay compensation
divided by the number of days comprising such period.

Explanation: A period of service shall for the purposes of this section be deemed to be
continuous which has not been interrupted by a period of absence from work exceeding
fourteen days.

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Compensation to be Paid when Due and Penalty for Default—

1. Compensation under section 4 shall be paid as soon as it falls due.

2. In cases where the employer does not accept the liability for compensation to the extent
claimed, he shall be bound to make provisional payment based on the extent of liability
which he accepts, and, such payment shall be deposited with the Commissioner or made to
the workman, as the case may be, without prejudice to the right of the workman to make any
further claim.
3. Where any employer is in default in paying the compensation due under this Act within one
month from the date it fell due, the Commissioner shall—
a. direct that the employer shall, in addition to the amount of the arrears, pay simple
interest thereon at the rate of twelve per cent per annum or at such higher rate not
exceeding the maximum of the lending rates of any scheduled bank as may be
specified by the Central Government, by notification in the Official Gazette, on the
amount due; and
b. if, in his opinion, there is no justification for the delay, direct that the employer shall,
in addition to the amount of the arrears, and interest thereon pay a further sum not
exceeding fifty per cent of such amount by way of penalty:
Provided that an order for the payment of penalty shall not be passed under clause (b)
without giving a reasonable opportunity to the employer to show cause why it should not
be passed.
Explanation.—For the purposes of this sub-section, ―scheduled bank‖ means a bank for
the time being included in the Second Schedule to the Reserve Bank of India Act, 1934
(2 of 1934).
4. The interest and the penalty payable under sub-section (3) shall be paid to the workman or
his dependant, as the case may be.

8.4 METHOD OF CALCULATING WAGES

In this Act and for the purposes thereof the expression ―monthly wages‖ means the amount of
wages deemed to be payable for a month‘s service (whether the wages are payable by the month
or by whatever other period or at piece rates), and calculated] as follows, namely:—
a. where the workman has, during a continuous period of not less than twelve months
immediately preceding the accident, been in the service of the employer who is liable to pay
compensation, the monthly wages of the workman shall be one-twelfth of the total wages
which have fallen due for payment to him by the employer in the last twelve months of that
period;
b. where the whole of the continuous period of service immediately preceding the accident
during which the workman was in the service of the employer who is liable to pay the
compensation was less than one month, the monthly wages of the workman shall be the
average monthly amount which, during the twelve months immediately preceding the
accident, was being earned by a workman employed on the same work by the same
111
 employer, or, if there was no workman so employed, by a workman employed on similar
work in the same locality;]
c. in other cases [including cases in which it is not possible for want of necessary information
to calculate the monthly wages under clause (b)]], the monthly wages shall be thirty times
the total wages earned in respect of the last continuous period of service immediately
preceding the accident from the employer who is liable to pay compensation, divided by the
number of days comprising such period.
Explanation— A period of service shall, for the purposes of 8 [this section] be deemed to be
continuous which has not been interrupted by a period of absence from work exceeding
fourteen days.

Review Any Half-Monthly Payment Payable under this Act

1. Either under an agreement between the parties or under the order of a Commissioner may be
reviewed by the Commissioner on the application either of the employer or of the workman
accompanied by the certificate of a qualified medical practitioner that there has been a
change in the condition of the workman or subject to rules made under this Act on
application made without such certificate.
2. Any half-monthly payment may on review under this section subject to the provisions of
this Act be continued increased decreased or ended or if the accident is found to have
resulted in permanent disablement be converted to the lump sum to which the workman is
entitled less any amount which he has already received by way of half-monthly payments.

Commutation of Half-Monthly Payments

Any right to receive half-monthly payments may by agreement between the parties or if the
parties cannot agree and the payments have been continued for not less than six months on the
application of either party to the Commissioner be redeemed by the payment of a lump sum of
such amount as may be agreed to by the parties or determined by the Commissioner as the case
may be.

Distribution of Compensation

No payment of compensation in respect of a workman whose injury has resulted in death and no
payment of a lump sum as compensation to a woman or a person under a legal disability shall
be made otherwise than by deposit with the Commissioner and no such payment directly by an
employer shall be deemed to be a payment of compensation:

Provided that in the case of a deceased workman an employer may make to any dependant
advances on account of compensation of an amount equal to three months' wages of such
workman and so much of such amount as does not exceed the compensation payable to that

112
dependant shall be deducted by the Commissioner from such compensation and repaid to the
employer.

Any other sum amounting to not less than ten rupees which is payable as compensation may be
deposited with the Commissioner on behalf of the person entitled thereto. The receipt of the
Commissioner shall be a sufficient discharge in respect of any compensation deposited with
him. On the deposit of any money under sub-section (1) as compensation in respect of a
deceased workman the Commissioner shall if he thinks necessary cause notice to be published
or to be served on each dependant in such manner as he thinks fit calling upon the dependants to
appear before him on such dates as he may fix for determining the distribution of the
compensation. If the Commissioner is satisfied after any inquiry which he may deem necessary
that no dependant exists he shall repay the balance of the money to the employer by whom it
was paid. The Commissioner shall on application by the employer furnish a statement showing
in detail all disbursements made. Compensation deposited in respect of a deceased workman
shall subject to any deduction made under sub-section (4) be apportioned among the dependants
of the deceased workman or any of them in such proportion as the Commissioner thinks fit or
may in the desecration of the Commissioner be allotted to any one dependant. Where any
compensation deposited with the Commissioner is payable to any person the Commissioner
shall if the person to whom the compensation is payable is not a woman or a person under a
legal disability and may in other cases pay the money to the person entitled thereto. Where any
lump sum deposited with the Commissioner is payable to a woman or a person under a legal
disability such sum may be invested applied or otherwise dealt with for the benefit of the
woman or of such person during his disability in such manner as the Commissioner may direct;
and where a half-monthly payment is payable to any person under a legal disability the
Commissioner may of his own motion or on an application made to him in this behalf order that
the payment be made during the disability to any dependant of the workman or to any other
person whom the Commissioner thinks best fitted to provide for the welfare of the workman.
Where on application made to him in this behalf or otherwise the Commissioner is satisfied that
on account of neglect of children on the part of a parent or on account of the variation of the
circumstances of any dependant of for any other sufficient cause an order of the Commissioner
as to the distribution of any sum paid as compensation or as to the manner in which any sum
payable to any such dependant is to be invested applied or otherwise dealt with ought to be
varied the Commissioner may make such order for the variation of the former order as he thinks
just in the circumstances of the case :

Provided that no such order prejudicial to any person shall be made unless such person has been
given an opportunity of showing cause why the order should not be made or shall be made in
and case in which it would involve the repayment by a dependant of any sum already paid to
him.

Where the Commissioner varies any order under sub-section (8) by reason of the fact that
payment of compensation to any person has been obtained by fraud impersonation or other
113
improper means any amount so paid to or on behalf of such person may be recovered in the
manner hereinafter provided in section 31.

Compensation NOT to be Assigned Attached or Charged

Save as provided by this Act no lump sum or half-monthly payment payable under this Act shall
in any way be capable of being assigned or charged or be liable to attachment or pass to any
person other than the workman by operation of law nor shall any claim be set off against the
same.

Notice and Claim

1. No claim for compensation shall be entertained by a Commissioner unless notice of the

accident has been given in the manner hereinafter provided as soon as practicable after the
happening thereof and unless the claim is preferred before him within two years of the
occurrence of the accident or in case of death within two years from the date of death:

Provided that where the accident is the contracting of a disease in respect of which the
provisions of sub-section (2) of section 3 are applicable the accident shall be deemed to
have occurred on the first of the days during which the workman was continuously absent
from work in consequence of the disablement caused by the disease :

Provided further that in case of partial disablement due to the contracting of any such
disease and which does not force the workman to absent him from work the period of two
years shall be counted from the day the workman gives notice of the disablement to his
employer:

Provided further that if a workman who having been employed in an employment for a
continuous period specified under sub-section (2) of section 3 in respect of that employment
ceases to be so employed and develops symptoms of an occupational disease peculiar to that
employment within two years of the cessation of employment the accident shall be deemed
to have occurred on the day on which the symptoms were first detected:

Provided further that the want of or any defect or irregularity in a notice shall not be a bar to
the entertainment of a claim –

a. if the claim is preferred in respect of the death of a workman resulting from an

accident which occurred on the premises of the employer or at any place where the
workman at the time of the accident was working under the control of the employer
or of any person employed by him and the workman died on such premises or at
such place or on any premises belonging to the employer or died without having left
the vicinity of the premises or place where the accident occurred or
114
 b. if the employer or any one of several employers or any person responsible to the
employer for the management of any branch of the trade or business in which the
injured workman was employed had knowledge of the accident from any other
source at or about the time when it occurred :

Provided further that the Commissioner may entertain and decide any claim to
compensation in any case notwithstanding that the notice has not been given or the claim
has not been preferred in due time as provided in this sub-section if he is satisfied that
the failure so to give the notice or prefer the claim as the case may be was due to
sufficient cause.

2. Every such notice shall give the name and address of the person injured and shall state in
ordinary language the cause of the injury and the date on which the accident happened and
shall be served on the employer or upon any one of several employers or upon any person
responsible to the employer for the management of any branch of the tread or business in
which the injured workman was employed.

3. The State Government may require that any prescribed class of employers shall maintain at
these premises at which workmen are employed a notice book in the prescribed form which
shall be readily accessible at all reasonable times to any injuries workman employed on the
premises and to any person acting bona fide on his behalf.

4. A notice under this section may be served by delivering it at or sending it by registered post
addressed to the residence or any office or place of business of the person on whom it is to
be served or where a notice book is maintained by entry in the notice-book.

Power to require from Employers Statements regarding Fatal Accident

1. Where a Commissioner receives information from any source that a workman has died as a
result of an accident arising out of and in the course of his employment he may send by
registered post a notice to the workman's employer requiring him to submit within thirty
days of the service of the notice a statement in the prescribed form giving the circumstances
attending the death of the workman and indicating whether in the opinion of the employer
he is or is not liable to deposit compensation on account of the death.
2. If the employer is of opinion that he is liable to deposit compensation he shall make the
deposit within thirty days of the service of the notice.
3. If the employer is of opinion that he is not liable to deposit compensation he shall in his
statement indicate the grounds on which he disclaims liability.
4. Where the employer has so disclaimed liability the Commissioner after such inquiry as he
may think fit may inform any of the dependants of the deceased workman that it is open to
the dependants to prefer a claim for compensation and may give them such other further
information as he may think fit.
115
Reports of Fatal Accidents and Serious Bodily Injuries

1. Where by any law for the time being in force notice is required to be given to any authority
by or on behalf of an employer of any accident occurring on his premises which results in
death or serious bodily injury the person required to give the notice shall within seven days
of the death or serious bodily injury send a report to the Commissioner giving the
circumstances attending the death or serious bodily injury:

Provided that where the State Government has so prescribed the person required to give the
notice may instead of sending such report to the Commissioner send it to the authority to
whom he is required to give the notice.

Explanation: "Serious bodily injury" means an injury which involves or in all probability
will involve the permanent loss of the use of or permanent injury to any limb or the
permanent loss of or injury to the sight or hearing or the fracture of any limb or the enforced
absence of the injured person from work for a period exceeding twenty days.

2. The State Government may by notification in the Official Gazette extend the provisions of
sub-section (1) to any class of premises other than those coming within the scope of that
sub-section and may by such notification specify the person who shall send the report to the
Commissioner.
3. Nothing in this section shall apply to factories to which the Employees' State Insurance Act
1948 (34 of 1948) applies.

Medical Examination

1. Where a workman has given notice of an accident he shall if the employer before the expiry
of three days from the time at which service of the notice has been effected offers to have
him examined free of charge by a qualified medical practitioner submit himself for such
examination and any workman who is in receipt of a half-monthly payment under this Act
shall if so required submit himself for such examination from time to time:
2. Provided that a workman shall not be required to submit himself for examination by a
medical practitioner otherwise than in accordance with rules made under this Act or at more
frequent intervals than may be prescribed.
3. If a workman on being required to do so by employer under sub-section (1) or by the
Commissioner at any time refuses to submit himself for examination by a qualified medical
practitioner or in any way obstructs the same his right to compensation shall be suspended
during the continuance of such refusal or obstruction unless in the case of refusal he was
prevented by any sufficient cause from so submitting himself.
4. If a workman before the expiry of the period within which he is liable under sub-section (1)
to be required to submit himself for medical examination voluntarily leaves without having

116
 been so examined the vicinity of the place in which he was employed his right to
compensation shall be suspended until he returns and offers himself for such examination.

Where a workman whose right to compensation has been suspended under sub-section (2) or
sub-section (3) dies without having submitted himself for medical examination as required by
either of those sub-sections the Commissioner may if he thinks fit direct the payment of
compensation to the dependants of the deceased workman. Where under sub-section (2) or sub-
section (3) a right to compensation is suspended no compensation shall be payable in respect of
the period of suspension and if the period of suspension commences before the expiry of the
waiting period referred to in clause (d) of sub-section (1) of section 4 the waiting period shall be
increased by the period during which the suspension continues. Where an injured workman has
refused to be attended by a qualified medical practitioner whose services have been offered to
him by the employer free of charge or having accepted such offer has deliberately disregarded
the instructions of such medical practitioner then if it is proved that the workman has not
thereafter been regularly attended by a qualified medical practitioner or having been so attended
has deliberately failed to follow his instructions and that such refusal disregard or failure was
unreasonable in the circumstances of the case and that the injury has been aggravated thereby
the injury and resulting disablement shall be deemed to be of the same nature and duration as
they might reasonably have been excepted to be if the workman had been regularly attended by
a qualified medical practitioner whose instructions he had followed and compensation if any
shall be payable accordingly.

Contracting

Where any person (hereinafter in this section referred to as the principal) in the course of or for
the purposes of his trade or business contract with any other person (hereinafter in this section
referred to as the contractor for the execution by or under the contractor of the whole or any part
of any work which is ordinarily part of the trade or business of the principal the principal shall
be liable to pay to any workman employed in the execution of the work any compensation
which he would have been liable to pay if that workman had been immediately employed by
him; and where compensation is claimed from the principal this Act shall apply as if references
to the principal were substituted for references to the employer except that the amount of
compensation shall be calculated with reference to the wages of the workman under the
employer by whom he is immediately employed.

Where the principal is liable to pay compensation under this section he shall be entitled to be
indemnified by the contractor or any other person from whom the workman could have
recovered compensation and where a contractor who is himself a principal is liable to a pay
compensation or to indemnify a principal under this section be shall be entitled to be
indemnified by any person standing to him in the relation of a contractor from whom the
workman could have recovered compensation and all questions as to the right to and the amount
of any such indemnity shall in default of agreement be settled by the Commissioner. Nothing in
117
this section shall be construed as preventing a workman from recovering compensation from the
contractor instead of the principal. This section shall not apply in any case where the accident
occurred elsewhere that on in or about the premises on which the principal has undertaken or
usually undertakes as the case may be to execute the work or which are otherwise under his
control or management.

Remedies of Employer against Stranger

Where a workman has recovered compensation in respect of any injury caused under
circumstances creating a legal liability of some person other than the person by whom the
compensation was paid to pay damages in respect thereof the person by whom the
compensation was paid and any person who has been called on to pay an indemnity under
section 12 shall be entitled to be indemnified by the person so liable to pay damages of
aforesaid.

8.5 INSOLVENCY OF EMPLOYER

Where any employer has entered into a contract with any insurers in respect of any liability
under this Act to any workman then in the event of the employer becoming insolvent or making
a compensation or scheme of arrangement with his creditors or if the employer is a company in
the event of the company having commenced to be wound up the rights of the employer against
the insurers as respects that liability shall notwithstanding anything in any law for the time
being in force relating to insolvency or the winding up of companies be transferred to and vest
in the workman and upon any such transfer the insurers shall have the same rights and remedies
and be subject to the same liabilities as if they were the employer so however that the insurers
shall not be under any greater liability to the workman than they would have been under the
employer. If the liability of the insurers to the workman is less than the liability of the employer
to the workman the workman may prove for the balance in the insolvency proceedings or
liquidation. Where in any case such as is referred to in sub-section (1) the contract of the
employer with the insurers to void or voidable by reason of non-compliance on the part of the
employer with any terms or conditions of the contract (other than a stipulation for the payment
of premia) the provisions of that sub-section shall apply as if the contract were not void or
voidable and the insurers shall be entitled to prove in the insolvency proceedings or liquidation
for the amount paid to the workman : Provided that the provisions of this sub-section shall not
apply in any case in which the workman fails to give notice to the insurers of the happening of
the accident and of any resulting disablement as soon as practicable after he becomes aware of
the institution of the insolvency or liquidation proceedings.

There shall be deemed to be included among the debts which under section 49 of the
Presidency-towns Insolvency Act 1909 (3 of 1909) or under section 61 of the Provincial
Insolvency Act 1920 (5 of 1920) or under Section 530 of the Companies Act 1956 (1 of 1956)
are in the distribution of the property of an insolvent or in the distribution of the assets of a
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company being wound up to be paid in priority to all other debts the amount due in respect of
any compensation the liability where for accrued before the date of the order of adjudication of
the insolvent or the date of the commencement of the winding up as the case may be and those
Acts shall have effect accordingly. Where the compensation is a half-monthly payment the
amount due in respect thereof shall for the purpose of this section be taken to be the amount of
the lump sum for which the half-monthly payment could if redeemable be redeemed if
application were made for that purpose under section 7 and a certificate of the Commissioner as
to the amount of such sum shall be conclusive proof thereof. The provisions of sub-section (4)
shall apply in the case of any amount for which an insurer is entitled to prove under sub-section
(3) but otherwise those provisions shall not apply where the insolvent or the company being
wound up has entered into such a contract with insurers as is referred to in sub-section (1). This
section shall not apply where a company is wound up voluntarily merely for the purposes of
reconstruction or of amalgamation with another company.

Compensation to be first charge on Assets transferred by Employer

Where an employer transfers his assets before any amount due in respect of any compensation
the liability where for accrued before the date of the transfer has been paid such amount shall
notwithstanding anything contained in any other law for the time being in force be a first charge
on that part of the assets so transferred as consists of immovable property.

Special Provisions Relating to Master and Seamen

This Act shall apply in the case of workmen who are masters of ships or seamen subject to the
following modifications namely:-

The notice of the accident and the claim for compensation may except where the person injured
is the master of the ship be served on the master of the ship as if he were the employer but
where the accident happened and the disablement commenced on board the ship it shall not be
necessary for any seaman to give any notice of the accident. In the case of the death of a master
or seaman the claim for compensation shall be made within one year after the news of the death
has been received by the claimant or where the ship has been or is deemed to have been lost
with all hands within eighteen months of the date on which the ship was or is deemed to have
been so lost:

Provided that the Commissioner may entertain any claim to compensation in any case
notwithstanding that the claim has not been preferred in due time as provided in this sub-section
if he is satisfied that the failure so to prefer the claim was due to sufficient cause.

Where an injured master or seaman is discharged or left behind any part of India or in any
foreign country any depositions taken by any Judge or Magistrate in that part or by any
Consular Officer in the foreign country and transmitted by the person by whom they are taken
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to the Central Government or any State Government shall in any proceedings for enforcing the
claim be admissible in evidence -

if the deposition is authenticated by the signature of the Judge Magistrate or Consular Officer
before whom it is made; if the defendant or the person accused as the case may be had an
opportunity by himself or his agent to cross-examine the witness; and if the deposition was
made in the course of a criminal proceeding on proof that the deposition was made in the
presence of the person accused and it shall not be necessary in any case to prove the signature or
official character of the person appearing to have signed any such deposition and a certificate by
such person that the dependant or the person accused had an opportunity or cross-examining the
witness and that the deposition if made in a criminal proceeding was made in the presence of
the person accused shall unless the contrary is proved be sufficient evidence that he had that
opportunity and that it was so made.

No half-monthly payment shall be payable in respect of the period during which the owner of
the ship is under any law in force for the time being relating to merchant shipping liable to
defray the expenses of maintenance of the injured master or seaman.

No compensation shall be payable under this Act in respect of any injury in respect of which
provision is made for payment of gratuity allowance or pension under the War Pensions and
Detention Allowances (Mercantile Marine etc.) Scheme 1939 or the War Pensions and
Detention Allowances (Indian Seamen etc.) Scheme 1941 made under the Pensions (Navy
Army Air Force and Mercantile Marine) Act 1939 (2 & 3 Geo. 6 c 83) or under the War
Pensions and Detention Allowances (Indian Seamen) Scheme 1942 made by the Central
Government. Failure to give a notice or make a claim or commence proceedings within the time
required by this Act shall not be a bar to the maintenance of proceedings under this Act in
respect of any personal injury if - an application has been made for payment in respect of that
injury under any of the schemes referred to in the preceding clause and the State Government
certifies that the said application was made in the reasonable belief that the injury was one in
respect of which the scheme under which the application was made makes provision for
payments and that the application was rejected or that payments made in pursuance of the
application were discontinued on the ground that the injury was not such an injury and the
proceedings under this Act are commenced within one month from the date on which the said
certificate of the State Government was furnished to person commencing the proceedings.

Special Provisions relating to Captains and other Members of Crew of Aircraft

This Act shall apply in the case of workmen who are captains or other members of the crew of
aircraft subject to the following modifications namely:

The notice of the accident and the claim for compensation may except where the person injured
is the captain of the aircraft be served on the captain of the aircraft as if he were the employer
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but where the accident happened and the disablement commenced on board the aircraft it shall
not be necessary for any member of the crew to give notice of the accident. In the case of the
death of the caption or other member of the crew the claim for compensation shall be made
within one year after the news of the death has been received by the claimant or where the
aircraft has been or is deemed to have been lost with all hands within eighteen months of the
date on which the aircraft was or is deemed to have been so lost : Provided that the
Commissioner may entertain any claim for compensation in any case notwithstanding that the
claim has not been preferred in due time as provided in this sub-section if he is satisfied that the
failure so to prefer the claim was due to sufficient cause.

Where an injured captain of other member of the crew of the aircraft is discharged or left behind
in any part of India or in any other country any depositions taken by any Judge or Magistrate in
that part or by any Consular Officer in the foreign country and transmitted by the person by
whom they are taken to the Central Government or any State Government shall in any
proceedings for enforcing the claims be admissible in evidence –

a. if the deposition is authenticated by the signature of the Judge Magistrate or Consular

Officer before whom it is made;

b. if the defendant or the person accused as the case may be had an opportunity by himself
or his agent to cross-examine the witness;

c. if the deposition was made in the course of a criminal proceeding on proof that the
deposition was made in the presence of the person accused and it shall not be necessary
in any case to prove the signature or official character of the person appearing to have
signed any such deposition and a certificate by such person that the defendant or the
person accused had an opportunity of cross-examining the witness and that the
deposition if made in a criminal proceeding was made in the presence of the person
accused shall unless the contrary is proved be sufficient evidence that he had that
opportunity and that it was so made.

Special Provisions relating to Workmen aboard of Companies and Motor Vehicles

This Act shall apply -

in the case of workmen who are persons recruited by companies registered in India and working
as such aboard and persons sent for work abroad along with motor vehicles registered under the
Motor Vehicles Act 1988 (59 of 1988) as drives helpers mechanics cleaners or other workmen
subject to the following modifications namely :- The notice of the accident and the claim for
compensation may be served on the local agent of the company or the local agent of the owner
of the motor vehicle in the country of accident as the case may be. In the case of death of the
workman in respect of whom the provisions of this section shall apply the claim for
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compensation shall be made within one year after the news of the death has been received by
the claimant:

Provided that the Commissioner may entertain any claim for compensation in any case
notwithstanding that the claim had not been preferred in due time as proved in this sub-section
if he is satisfied that the failure so to prefer the claim was due to sufficient cause.

Where an injured workman is discharged or left behind in any part of India or in any other
country any depositions taken by any Judge or Magistrate in that part or by any Consular
Officer in the foreign country and transmitted by the person by whom they are taken to the
Central Government or any State Government shall in any proceedings for enforcing the claims
be admissible in evidence –

a. if the deposition is authenticated by the signature of the Judge Magistrate or Consular

Officer before whom it is made;

b. if the defendant or the person accused as the case may be had an opportunity by himself
on his agent to cross-examine the witness;

c. if the deposition was made in the course of a criminal proceeding on proof that the
deposition was made in the presence of the person accused and it shall not be necessary
in any case to prove the signature or official character of the person appearing to have
signed any such deposition and a certificate by such person that the dependant or the
person accused had an opportunity of cross-examining the witness and that the
deposition if made in a criminal processing was made in the presence of the person
accused shall unless the contrary is proved be sufficient evidence that he had that
opportunity and that it was so made.

Returns as to Compensation

The State Government may by notification in the Official Gazette direct that every person
employing workmen or that any specified class of such persons shall send at such time and in
such form and to such authority as may be specified in the notification a correct return
specifying the number of injuries in respect of which compensation has been paid by the
employer during the previous year and the amount of such compensation together with such
other particulars as to the compensation as the State Government may direct.

Contracting out Any Contract or Agreement

Whether made before or after the commencement of this Act whereby a workman relinquishes
any right of compensation from the employer for personal injury arising out of or in the course

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of the employment shall be null and void in so far as it purports to remove or reduce the liability
of any person to pay compensation under this Act.

Penalties

1. Whoever -

a. fails to maintain a notice-book which he is required to maintain under sub-section

(3) of section 10 or
b. fails to send to the Commissioner a statement which he is required to send under
sub-section (1) of section 10A or
c. fails to send a report which he is required to send under section 10B or
d. fails to make a return which he is required to make under section 16 shall be
punishable with fine which may extend to five thousand rupees.

2. No prosecution under this section shall be instituted except by or with the previous sanction
of a Commissioner and no Court shall take cognizance of any offence under this section
unless complaint thereof is made within six months of the date on which the alleged
commission of the offence came to the knowledge of the Commissioner.

8.6 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) Under Workmen‘s Compensation Act, 1923

a) Individual manager subordinate to an employer cannot act as managing agent.
b) Managing agent includes an individual manager subordinate to an employer.
c) Only employer can act as managing agent.
d) The appropriate government shall appoint managing agent.
2) While working at the construction of a multi-storeyed building of a company, a worker
employed by a ‗contractor‘, supplied by a ‗sirdar‘, faced an accident and became
temporarily disabled. For paying compensation to the worker, who shall be held responsible
as per law?
a) The contractor who employed the worker
b) The sirdar who supplied the worker
c) Both (a) and (b)
d) None of the above
3) If the money is due from the employer under the settlement or award, the workman or his
assignee can make an application to the appropriate government for the recovery within the
period given below.
a) One year.

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 b) One year and also after the said period of the appropriate government is satisfied that the
applicant has sufficient cause for not making the application within one year
c) Two years.
d) Three years.
4) The name of which of the following legislations has been recently changed?
a) Workmen‘s‘ Compensation Act
b) Employees‘ State Insurance Act
c) Maternity Benefit Act
d) Payment of Gratuity Act
5) Which of the following statements relating to the Employees‘ Compensation Act is not
correct?
a) This Act has a link with the Workmen‘s Compensation Act
b) This act is the outcome of the amendment that was made to the Workmen‘s
Compensation Act
c) This act does not have any provision relating to temporary disablement of workmen
d) This act has a provision relating to permanent partial disablement

Answers: 1 (d), 2 (a), 3 (b), 4 (a), 5 (c)

Long Answer Questions

Q1. Describe Employers Liabilities for Compensation and amount of Compensation to be paid
to employees under the Workmen‘s compensation Act, 1923.

Q2. Explain the method of Calculating Wages described under the Workmen‘s compensation
Act, 1923. Also Explain the process followed in case and Employer becomes Insolvent.

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 LESSON 9

THE WORKMEN’S COMPENSATION ACT, 1923:

PROCEDURES AND RULES

9 STRUCTURE

9.1. Procedure in Proceedings before Commissioner

9.2. Form of Application
9.3. Registration of Agreements
9.4. Rules
9.5. Self-Assessment Questions

9.1 PROCEDURE IN PROCEEDINGS BEFORE COMMISSIONER

Reference of Commissioners

If any question arises in any proceedings under this Act as to the liability of any person to pay
compensation (including any question as to whether a person injured is or is not a workman) or
as to the amount of duration of compensation (including any question as to the nature or extent
of disablement) the question shall in default of agreement be settled by a Commissioner.

No Civil Court shall have jurisdiction to settle decided or deal with any question which is by or
under this Act required to be settled decided or dealt with by a Commissioner or to enforce any
liability incurred under this Act.

Appointment of Commissioners

1. The State Government may by notification in the Official Gazette appoint any person to be a
Commissioner for Workmen's Compensation for such area as may be specified in the
notification.

2. Where more than one Commissioner has been appointed for any area the State Government
may by general or special order regulate the distribution of business between them.

3. Any Commissioner may for the purpose of deciding any matter referred to him for decision
under this Act choose one or more persons possessing special knowledge of any matter
relevant to the matter under inquiry to assist him in holding the inquiry.

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4. Every Commissioner shall be deemed to be a public servant within the meaning of the
Indian Penal Code (45 of 1860).

Venue of Proceedings and Transfer

The venue of proceedings and Transfer are as follows:

1. Where any matter under this Act is to be done by or before a Commissioner the same shall
subject to the provisions of this Act and to any rules made hereunder be done by or before
the Commissioner for the area in which -
a. the accident took place which resulted in the injury; or
b. the workman or in case of his death the dependent claiming the compensation ordinarily
resides; or
c. the employer has his registered office :

Provided that no matter shall be processed before or by a Commissioner other than the
Commissioner having jurisdiction over the area in which the accident took place without his
giving notice in the manner prescribed by the Central Government to the Commissioner
having jurisdiction over the area and the State Government concerned
Provided further that where the workman being the master of a ship or a seaman or the
captain or a member of the crew of an aircraft or a workman in a motor vehicle or a
company meets with the accident outside India any such matter may be done by or before a
Commissioner for the area in which the owner or agent of the ship aircraft or motor vehicle
resides or carries on business or the registered office of the company is situate as the case
may be.

2. If a Commissioner other than the Commissioner with whom any money has been deposited
under section 8 proceeds with a matters under this Act the former may for the proper
disposal of the matter call for transfer of any records or moneys remaining with the latter
and on receipt of such a request he shall comply with the same.

3. If a Commissioner is satisfied that any matter arising out of any proceedings pending before
him can be more conveniently dealt with by any other Commissioner whether in the same
State or not he may subject to rules made under this Act order such matter to be transferred
to such other Commissioner either for report or for disposal and if he does so shall forthwith
transmit to such other Commissioner all documents relevant for the decision of such matter
and where the matter in transferred for disposal shall also transmit in the prescribed manner
any money remaining in his hands or invested by him for the benefit of any party to the
proceedings :

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4. Provided that the Commissioner shall not where any party to the proceedings has appeared
before him made any order of transfer relating to the distribution among dependants of a
lump sum without giving such party an opportunity of being heard :

5. The Commissioner to whom any matter is so transferred shall subject to rules made under
this Act inquire there into and if the matter was transferred for disposal continue the
proceedings as if they had originally commenced before him.

6. On receipt of report from a Commissioner to whom any matter has been transferred for
report under sub-section (2) the Commissioner by whom it was referred shall decide the
matter referred in conformity with such report.

7. The State Government may transfer any matter from any Commissioner appointed by it to
any other Commissioner appointed by it.

9.2 FORM OF APPLICATION

Form of Application

1. Where an accident occurs in respect of which liability to pay compensation under this Act
arises a claim for such compensation may subject to the provisions of this Act be made
before the Commissioner,

2. Subject to the provisions of sub-section (1) no application for the settlement of any matter of
Commissioner other than an application by a dependent or dependents for compensation
shall be made unless and until some question has arisen between the parties in connection
therewith which they have been unable to settle by agreement.

3. An application to a Commissioner may be made in such form and shall be accompanied by

such fee if any as may be prescribed and shall contain in addition to any particulars which
may be prescribed the following particulars namely :-

a. A concise statement of the circumstances in which the application is made and the relief
or order which the applicant claims;
b. in the case of a claim for compensation against an employer the date of service of notice
of the accident on the employer and if such notice has not been served or has not been
served in due time the reason for such omission;
c. the names and addresses of the parties; and
d. except in the case of an application by dependents for compensation a concise statement
of the matters on which agreement has and of those on which agreement has not been
come to.

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4. If the applicant is illiterate or for any other reason is unable to furnish the required
information in writing the application shall if the applicant so desires be prepared under the
direction of the Commissioner.

Power of Commissioner to require further Deposit in cases of Fatal Accident

1) Where any sum has been deposited by an employer as compensation payable in respect of a
workman whose injury has resulted in death and in the opinion of the Commissioner such
sum is insufficient the Commissioner may by notice in writing stating his reasons call upon
the employer to show cause why he should not make a further deposit within such time as
may be stated in the notice.
2) If the employer fails to show cause to the satisfaction of the Commissioner the
Commissioner may make an award determining the total amount payable and requiring the
employer to deposit the deficiency

Powers and procedure of Commissioners

The Commissioner shall have all the powers of a Civil Court under the Code of Civil Procedure
1908 (5 of 1908) for the purpose of taking evidence on oath (which such Commissioner is
hereby empowered to impose) and of enforcing the attendance of witnesses and compelling the
production of documents and material objects and the Commissioner shall be deemed to be a
Civil Court for all the purposes of section 195 and of Chapter XXVI of the Code of Criminal
Procedure 1973 (2 of 1974).

Appearance of Parties

Any appearance application or act required to be made or done by any person before or to a
Commissioner (other than an appearance of a party which is required for the purpose of his
examination as a witness) may be made or done on behalf of such person by a legal practitioner
or by an official of an Insurance company or a registered Trade Union or by an Inspector
appointed under sub-section (1) of section 8 of the Factories Act 1948 (63 of 1948) or under
sub-section (1) of section 5 of the Mines Act 1952 (35 of 1952) or by any other officer specified
by the State Government in this behalf authorized in writing by such person or with the
permission of the Commissioner by any other person so authorized.

Method of Recording Evidence

The Commissioner shall make a brief memorandum of the substance of the evidence of every
witness as the examination of the witness proceeds and such memorandum shall be written and
signed by the Commissioner with his own hand and shall form part of the record :

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Provided that if the Commissioner is prevented from making such memorandum he shall record
the reason of his inability to do so and shall cause such memorandum to be made in writing
from his dictation and shall sign the same and such memorandum shall form part of the record :

Provided further that the evidence of any medical witness shall be take down as nearly as may
be word for word.

Costs

All costs incidental to any proceedings before a Commissioner shall subject to rules made under
this Act are in the discretion of the Commissioner.

Power of Submit Cases

A Commissioner may if he thinks fit submit any question of law for the decision of the High
Court and if he does so shall decide the question in conformity with such decision.

9.3 REGISTRATION OF AGREEMENTS

Registration of Agreements

1. Where the amount of any lump sum payable as compensation has been settled by agreement
whether by way of redemption of a half-monthly payment or otherwise or where any
compensation has been so settled as being payable to a woman or a person under a legal
disability a memorandum thereof shall be sent by the employer to the Commissioner who
shall on being satisfied as to its genuineness record the memorandum in a register in the
prescribed manner: Provided that –

a. no such memorandum shall be recorded before seven days after communication by the
Commissioner of notice to the parties concerned;
b. [Clause (b) omitted by Act 5 of 1929.]
c. the Commissioner may at any time rectify the register;
d. where it appears to the Commissioner that an agreement as to the payment of a lump
sum whether by way of redemption of a half-monthly payment or otherwise or an
agreement as to the amount of compensation payable to a woman or a person under a
legal disability ought not to be registered by reason of the inadequacy of the sum or
amount or by reason of the agreement having been obtained by fraud or undue influence
or other improper means he may refuse to record the memorandum of the agreement and
may make such order including an order as to any sum already paid under the agreement
as he thinks just in the circumstances.

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2. An agreement for the payment of compensation which has been registered under sub-section
(1) shall be enforceable under this Act notwithstanding anything contained in the Indian
Contract Act 1872 (9 of 1872) or in any other law for the time being in force.

Effect of failure to Register Agreement

Where a memorandum of any agreement the registration of which is required by section 28 is

not sent to the Commissioner as required by that section the employer shall be liable to pay the
full amount of compensation which he is liable to pay under the provisions of this Act and
notwithstanding anything contained in the proviso to sub-section (1) of section 4 shall not
unless the Commissioner otherwise directs be entitled to deduct more than half of any amount
paid to the workman by way of compensation whether under the agreement or otherwise.

Appeals

1. An appeal shall lie to the High Court from the following orders of a Commissioner namely:-
a. an order as awarding as compensation a lump sum whether by way of redemption of a
half-monthly payment or otherwise or disallowing a claim in full or in part for a lump
sum;
o an order awarding interest or penalty under section 4A;
o an order refusing to allow redemption of a half-monthly payment;
o an order providing for the distribution of compensation among the dependants of a
deceased workman or disallowing any claim of a person alleging himself to be such
dependant;
o an order allowing or disallowing any claim for the amount of an indemnity under the
provisions of sub-section (2) of section 12; or
o an order refusing to register a memorandum of agreement or registering the same or
providing for the registration of the same subject to conditions :
Provided that no appeal shall lie against any order unless a substantial question of law is
involved in the appeal and in the case of an order other than an order such as is referred
to in clause (b) unless the amount in dispute in the appeal is not less than three hundred
rupees :
Provided further that no appeal shall lie in any case in which the parties have agreed to
abide by the decision of the Commissioner or in which the order of the Commissioner
gives effect to an agreement come to by the parties :
Provided further that no appeal by an employer under clause (a) shall lie unless the
memorandum of appeal is accompanied by a certificate by the Commissioner to the
effect that the appellant has deposited with him the amount payable under the order
appealed against.

The period of limitation for an appeal under this section shall be sixty days.

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 (3) The provisions of section 5 of the Limitation Act 1963 (36 of 1963) shall be
applicable to appeals under this section.

Withholding of certain payments pending decision of appeal

Where an employer makes an appeal under clause (a) of sub-section (1) of section 30 the
Commissioner may and if so directed by the High Court shall pending the decision of the appeal
withhold payment of any sum in deposit with him.

Recovery

The Commissioner may recover as an arrear of land revenue any amount payable by any person
under this Act whether under an agreement for the payment of compensation or otherwise and
the Commissioner shall be deemed to be a public officer within the meaning of section 5 of the
Revenue Recovery Act 1890 (1 of 1890).

9.4 RULES

Power of the State Government to make rules

1. The State Government may make rules to carry out the purpose of this Act.
2. In particular and without prejudice to the generality of the foregoing power such rules may
provide for all or any of the following matters namely:-
a. for prescribing the intervals at which and the conditions subject to which an application
for review may be made under section 6 when not accompanied by a medical certificate;
b. for prescribing the intervals at which and the conditions subjects to which a workman
may be required to submit himself for medical examination under sub-section (1) of
section 11;
c. for prescribing the procedure to be followed by Commissioners in the disposal of cases
under this Act and by the parties in such cases;
d. for regulating the transfer of matters and cases from one Commissioner to another and
the transfer of money in such cases;
e. for prescribing the manner in which money in the hands of a Commissioner may be
invested for the benefit of dependants of a deceased workman and for the transfer of
money so invested from one Commissioner to another;
f. for the representation in proceedings before Commissioners of parties who are minors or
are unable to make an appearance;
g. for prescribing the form and manner in which memorandum of agreements shall be
presented and registered;
h. for the withholding by Commissioners whether in whole or in part of half-monthly
payments pending decision on application for review of the same;
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 i. for regulating the scales of costs which may be allowed in proceedings under this Act;
j. for prescribing and determining the amount of the fees payable in respect of any
proceedings before a Commissioner under this Act;
k. for the maintenance by Commissioners of registers and records of proceedings before
them;
l. for prescribing the classes of employers who shall maintain notice-books under sub-
section (3) of section 10 and the form of such notice-books;
m. for prescribing the form of statement to be submitted by employers under section 10A;
n. for prescribing the cases in which the report referred to in section 10B may be sent to an
authority other than the Commissioner;
o. for prescribing abstracts of this Act and requiring the employers to display notices
containing such abstracts;
p. for prescribing the manner in which diseases specified as occupation diseases may be
diagnosed;
q. for prescribing the manner in which diseases may be certified for any of the purposes of
this Act;
r. for prescribing the manner in which and the standards by which incapacity may be
assessed.
3. Every rule made under this section shall be laid as soon as may be after it is made before the
State Legislature.

Publication of Rules

The power to make rules conferred by section 32 shall be subject to the condition of the rules
being made after previous publication.

The date to be specified in accordance with clause (3) of section 23 of the General Clauses Act
1897 (10 of 1897) as that after which a draft of rules proposed to be made under section 32 will
be taken into consideration shall not be less than three months from the date on which the draft
of proposed rules was published for general information.

Rules so made shall be published in the Official Gazette and on such publication shall have
effect as if enacted in this Act.

Rules to give Effect to arrangements with other Countries for the transfer of Money paid
as Compensation

1. The Central Government may by notification in the Official Gazette make rules for the
transfer to any foreign country of money deposited with a Commissioner under this Act
which has been awarded to or may be due to any person residing or about to reside in such
foreign country and for the receipt distribution and administration in any State of any money

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 deposited under the law relating to workmen's compensation in any foreign country which
has been awarded to or may be due to any person residing or about to reside in any State :
Provided that no sum deposited under this Act in respect of fatal accidents shall be so
transferred without the consent of the employer concerned until the Commissioner receiving
the sum has passed orders determining its distribution and apportionment under the
provisions of sub-sections (4) and (5) of section 8.
2. Where money deposited with a Commissioner has been so transferred in accordance with
the rules made under this section the provisions elsewhere contained in this Act regarding
distribution by the Commissioner of compensation deposited with him shall cease to apply
in respect of any such money.

Rules made by Central Government to be laid before Parliament

Every rule made under this Act by the Central Government shall be laid as soon as may be after
it is made before each House of Parliament while it is in session for a total period of thirty days
which may be comprised in one session or in two or more successive sessions and if before the
expiry of the session immediately following the session of the successive sessions aforesaid
both Houses agree in making any modification in the rule or both Houses agree that the rule
should not be made the rule shall thereafter have effect only in such modified form or be of no
effect as the case may be; so however that any such modification or annulment shall be without
prejudice to the validity of anything previously done under that rule.

9.5 SELF ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) If there is willful removal or disregard by the workman of any safety guard or other device
which he knew to have been provided for the purpose of securing safety of workman,
a) Employer is liable to pay compensation
b) Employer is not liable to pay compensation
c) Appropriate government is liable to pay compensation
d) The Trade Union is liable to pay compensation

2) In case of fatal accident if the commissioner serves notice to the employer based on his
source
a) The employer can neglect the notice.
b) If the employer thinks liable, he shall make the deposit within sixty days of the service
of notice.
c) If the employer thinks liable, he shall make the deposit within thirty days of the service
of notice.
d) If the employer is not liable, he shall in his statement indicate the grounds on which he
disclaims liability.
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 i) All statements are correct.
ii) All statements are incorrect.
iii) Only (a) and (d) are correct.
iv) Only (c) and (d) are correct.

3) Under Workmen‘s Compensation Act, 1923, which of the following are considered as
dependent of deceased workman for the purpose of paying compensation?
a) a minor brother or an unmarried sister or a widowed sister
b) a widowed daughter-in-law
c) a minor child of a pre-deceased son
d) a minor child of a pre-deceased daughter where no parent of the child is alive
e) a paternal grandparent if no parent of the workman is alive;
i) a, b & e
ii) a, b, c & d
iii) a, b, c & e
iv) a, b, c, d & e
4) Under this Act, employer shall not be liable to pay compensation in respect of any injury
which does not result in the total or partial disablement of the workman for a period
exceeding ------- days;
a) 7
b) 3
c) 5
d) 2
5) Under this Act, employer shall not be liable to pay compensation in respect of any injury not
resulting in death or permanent total disablement caused by an accident
a) Under the influence of drink or drugs
b) Due to the willful disobedience of the workman to an order expressly given or to a rule
expressly framed for the purpose of securing the safety of workmen
c) Due to the willful removal or disregard by the workman of any safety guard or other
device he knew to have been provided for the purpose of securing the safety of workman
d) All the above

Answers: 1 (b), 2 (iv), 3 (iv), 4 (b), 5 (d)

Long Answer Questions

Q1. Explain the Role of Commissioner played under the under the Workmen‘s Compensation
Act, 1923?

Q2. Describe the Powers of State Government for making Rules under the Workmen‘s
Compensation Act, 1923?

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 LESSON 10

THE MATERNITY BENEFIT ACT, 1961

10 STRUCTURE

10.1 Introduction
10.2 Definitions
10.3 Employment of, or Work by Women Prohibited during certain Periods
10.4 Rights related to Payment Under Maternity Act
10.5 Policy related to Leaves Under The Maternity Act
10.6 Dismissal during Absence of Pregnancy
10.7 Appointment and Powers of Inspectors
10.8 Other Aspects of Maternity Benefits
10.9 Penalties related to the Act
10.10 Power of Central Government to give Directions
10.11 Self-Assessment Questions

10.1 INTRODUCTION (Rastogi, 2018)

The Maternity Benefits Act, 1961 aims at regulating employment of women employees all over
the country. The act provides 12 weeks as the maximum period for which any working woman
shall be entitled to maternity benefit. She can avail this benefit as 6 weeks up to and including
the day of her delivery and 6 weeks immediately following the day of her delivery. (Section 4)

Applicability of the Act

The Act applies to:

1. to every establishment being a factory, mine or plantation including any such establishment
belonging to government and to every establishment wherein persons are employed for the
exhibition of equestrian, acrobatic and other performances;
2. to every shop or establishment within the meaning of any law for the time being in force in
relation to shops and establishments in a State, in which ten or more persons are employed,
or were employed, on any day of the preceding twelve months:

PROVIDED that the State Government may, with the approval of the Central Government, after
giving not less than two months' notice of its intention of so doing, by notification in the
Official Gazette, declare that all or any of the provisions of this Act shall apply also to any other
establishment or class of establishments, industrial, commercial, agricultural or otherwise.

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Save as otherwise provided in sections 5A and 5B nothing contained in this Act shall apply to
any factory or other establishment to which the provisions of the Employees' State Insurance
Act, 1948 (34 of 1948), apply for the time being.

In 2017, India amended its maternity law – surpassing many European and Asian countries with
regards to maternity benefits being provided to working mothers.

The Maternity Benefit (Amendment) Act, 2017, has increased the duration of maternity leave
from 12 weeks to 26 weeks for two surviving children. In cases where a woman has more than
two children, the leave is limited to 12 weeks only.

Some of the other important provisions of the Act include the following:

 Significance to commissioning and adopting mother –a woman who adopts a child

below three months or commissioning mothers can avail maternity leave for up to 12
weeks. The period of maternity leave is calculated from the date when the child is
handed over to the parent;
 Provision to work from home – depending on the nature of work and her employer‘s
consent, a new mother can now choose to work from home; and
 A mandatory provision of on-site day care services – every establishment with 50 or
more employees is required to provide for crèche facilities within a prescribed distance.
A new provision under the amended Act permits women-employee to visit crèche four
times during the day, including the regular rest interval.

The new Act also provides for additional maternity leave of four weeks in case of illness
supported by a doctor‘s opinion.

To claim leave prior to expected delivery, the employee should give a notice in writing stating
the date of absence from work and a certificate of pregnancy. The employer is obliged to make
payment in advance of this period.

Following the date of delivery, the employee must also send another notice with a certificate of
delivery. Notably, remaining payment must be transferred within 48 hours.

Employers must note that during the maternity period women employees are entitled to full
wages.

Applicability of the Act

 Establishment: The MB Act applies to every factory, mine and plantation, and any shop
or establishment in which ten or more persons are employed, or were employed on any
day of the preceding twelve months. It does not, however, apply to factory or other
establishments to which other maternity benefit laws apply.

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  Employee: To avail the maternity benefits, a woman employee must have worked in the
establishment for a period of at least 80 days during the 12 months immediately
preceding the date of her expected delivery.

For calculating the number of days on which a woman has actually worked in the previous year,
the days she was on holiday with wages, must also be counted.

Employers must note that there is no wage ceiling or any restriction with regards to the type of
work a woman is engaged in, for coverage under the Act. The definition of a woman employee
under the Act extends the benefit to all women employees including those employed through an
agency or on a contract basis.

Compliance requirements for Employers

 Review and amend employee maternity leave policies to reflect the expanded benefits
under the 2017 Amendment Act;
 Update and include appropriate references with respect to maternity benefits in
employment contracts – reflecting the new maternity benefit entitlements and obligation
under the law;
 Develop systems, processes, and policies to allow working mothers to work from home;
 Develop the infrastructure for mandatory crèche facilities for working mothers; and
 Devise a non-discriminatory performance appraisal system taking acknowledging the
absence of female employees.

Taking into account the health and safety measures of new mothers, the Act also mandates
employers to ensure that no woman works during the six weeks immediately following the day
of her delivery or her miscarriage. It is also illegal for an employer to discharge or dismiss a
woman employee on account of such absence.

Furthermore, the employer must not employ pregnant woman employee to do any work of an
arduous nature or work that involves long standing hours.

If an employer contravenes to the provisions or the rules of the Act, the Act provides for
penalties either with imprisonment which may extend to one year, or with a fine which may
extend to Rs 5000 (US$70), or with both.

Challenges for Employers

One of the key challenges for employers providing maternity benefits in India is that they have
to bear the cost of it on their own. Whereas in most other countries, the cost of maternity
benefits is shared by both the employer and the state government.

Under the amended Act, the provision of full payment of wages during maternity leave, and
building of mandatory creche facilities further hikes the costs for employers – increasing
employers‘ preference for hiring male workers.

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To support employers with the extra financial burden and ensure women‘s equal participation at
work, India‘s labor ministry has recently proposed a policy.

Though yet to be finalized, the policy aims to reimburse employers the salaries paid for seven of
the additional 14 weeks of maternity leave for female employees in the Rs 15,000 (US$208)
salary bracket who have been Employment Provident Fund Organization (EPFO) subscribers
for 12 months.

Alternative laws that provide maternity benefits in India

Besides the Maternity Benefit Act, there are several other laws in India that provide for
maternity benefits in India.

The Employees‘ State Insurance (ESI), a self-financing social security and health insurance
scheme for workers provides for maternity benefits to women in lower-income jobs. It is
applicable to employees earning Rs 15,000 (US$208) or less per month, with the employer
contributing 4.75 percent and the employee contributing 1.75 percent.

Those who qualify may receive maternity benefits under the ESI scheme instead of the
Maternity Benefits Act.

Other laws offering maternity benefits include the Working Journalists (Conditions of Service)
and Miscellaneous Provisions Act, 1955 that grants 12 weeks of maternity benefits; and the
Factories Act, 1948 that grants 12 weeks of maternity leave with full wages.

10.2 DEFINITIONS (The Bare Act,2018)

(a) "appropriate government" means, in relation to an establishment being a mine, 7[or an

establishment where in persons are employed for the exhibition of equestrian, acrobatic and
other performances], the Central Government and in relation to any other establishment, the
State Government;

(b) "child" includes a still-born child;

(c) "delivery" means the birth of a child;

(d) "employer" means-

(i) in relation to an establishment which is under the control of the government a person or
authority appointed by the government for the supervision and control of employees or
where no person or authority is so appointed, the head of the department;

(ii) in relation to an establishment under any local authority, the person 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;

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 (iii) in any other case, the person who, or the authority which, has the ultimate control over
the affairs of the establishment and where the said affairs are entrusted to any other person
whether called a manager, managing director, managing agent, or by any other name, such
person;

(e) "establishment" means-

(i) a factory;

(ii) a mine;

(iii) a plantation;

(iv) an establishment wherein persons are employed for the exhibition of equestrian,
acrobatic and other performance; 8[***]

(iva) a shop or establishment; or]

(v) an establishment to which the provisions of this Act have been declared under sub-section
(1) of section 2 to be applicable;]

(f) "factory" means a factory as defined in clause (m) of section 2 of the Factories Act, 1948 (63
of 1948);

(g) "inspector" means an Inspector appointed under section 14;

(h) "maternity benefit" means the payment referred to in sub-section (1) of section 5;

10[(ha) "medical termination of pregnancy" means the termination of pregnancy permissible

under the provisions of Medical Termination of Pregnancy Act, 1971;]

(i) "mine" means a mine as defined in clause (j) of section (2) of the Mines Act, 1952 (35 of
1952);

(j) "miscarriage" means expulsion of the contents of a pregnant uterus at any period prior to or
during the twenty-sixth week of pregnancy but does not include any miscarriage, the causing of
which is punishable under the Indian Penal Code (45 of 1860);

(k) "plantation" means a plantation as defined in clause (f) of section 2 of the Plantations Labor
Act, 1951 (69 of 1951);

(l) "prescribed" means prescribed by rule made under this Act;

(m) "State Government", in relation to a Union territory, means the Administrator thereof;

(n) "wages" means all remuneration paid or payable in cash to a woman, if the terms of the
contract of employment, express or implied, were fulfilled and includes-

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 (1) such cash allowances (including dearness allowance and house rent allowances) as a
woman is for the time being entitled to,

(2) incentive bonus, and

(3) the money value of the concessional supply of food grains and other articles but does not
include-

(i) any bonus other than incentive bonus;

(ii) over-time earnings and any deduction or payment made on account of fines;

(iii) any contribution paid or payable by the employer to any pension fund or provident
fund or for the benefit of the woman under any law for the time being in force; and

(iv) any gratuity payable on the termination of service;

(o) "woman" means a woman employed, whether directly or through any agency, for wages in
any establishment.

10.3 EMPLOYMENT OF, OR WORK BY WOMEN PROHIBITED DURING CERTAIN

PERIODS

1. No employer shall knowingly employ a woman in any establishment during the six weeks
immediately following the day of her delivery, miscarriage or medical termination of
pregnancy.
2. No woman shall work in any establishment during the six weeks immediately following the
day of her delivery miscarriage or medical termination of pregnancy.
3. Without prejudice to the provisions of section 6, no pregnant woman shall, on a request
being made by her in this behalf, be required by her employer to do during the period
specified in sub-section (4) any work which is of an arduous nature or which involves long
hours of standing, or which in any way is likely to interfere with her pregnancy or the
normal development of the fetus, or is likely to cause her miscarriage or otherwise to
adversely affect her health.
4. The period referred to in sub-section (3) shall be-
a. the period of one month immediately preceding the period of six weeks, before the date
of her expected delivery;
b. any period during the said period of six weeks for which the pregnant woman does not
avail of leave of absence under section 6.

10.4 RIGHTS RELATED TO PAYMENT UNDER MATERNITY ACT

Right to Payment of Maternity Benefits

1. Subject to the provisions of this Act, every woman shall be entitled to, and her employer
shall be liable for, the payment of maternity benefit at the rate of the average daily wage for
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 the period of her actual absence, that is to say, the period immediately preceding the day of
her delivery, the actual day of her delivery and any period immediately following that day.
Explanation: For the purpose of this sub-section, the average daily wage means the average
of the woman's wages payable to her for the days on which she has worked during the
period of three calendar months immediately preceding the date from which she absents
herself on account of maternity, the minimum rate of wage fixed or revised under the
Minimum Wages Act, 1948 (11 of 1948) or ten rupees, whichever is the highest.
2. No woman shall be entitled to maternity benefit unless she has actually worked in an
establishment of the employer from whom she claims maternity benefit, for a period of not
less than (eighty days) in the twelve months immediately preceding the date of her expected
delivery:
PROVIDED that the qualifying period of (eighty days) aforesaid shall not apply to a woman
who has immigrated into the State of Assam and was pregnant at the time of the
immigration.
Explanation: For the purpose of calculating under this sub-section the days on which a
woman has actually worked in the establishment, the days for which she has been laid off or
was on holidays declared under any law for the time being in force to be holidays with
wages during the period of twelve months immediately preceding the date of her expected
delivery shall be taken into account.
The maximum period for which any woman shall be entitled to maternity benefit shall be
twelve weeks of which not more than six weeks shall precede the date of her expected
delivery:
PROVIDED that where a woman dies during this period, the maternity benefit shall be
payable only for the days up to and including the day of her death:
PROVIDED FURTHER that where a woman, having been delivered of a child, dies during
her delivery or during the period immediately following the date of her delivery for which
she is entitled for the maternity benefit, leaving behind in either case the child, the employer
shall be liable for the maternity benefit for that entire period but if the child also dies during
the said period, then, for the days up to and including the date of the death of the child.

Comment: The provisions of S. 5 of the Act quoted above make it clear that a woman
worker who expects a child is entitled to maternity benefits for a maximum period of twelve
weeks which is split up into two periods viz. pre-natal and post-natal. The first one i.e. pre-
natal or ante-natal period is limited to the period of woman's actual absence extending upto
six weeks immediately preceding and including the day on which her delivery occurs and
the second one which is post-natal compulsory period consists of six weeks immediately
following the day of delivery. B. Shah v. Presiding Officer, Labor Court Coimbatore, AIR
1978 SUPREME COURT 12

Continuance of Payment of Maternity Benefit in certain Cases

Every woman entitled to the payment of maternity benefit under this Act shall, notwithstanding
the application of the Employees' State Insurance Act, 1948 (34 of 1948), to the factory or other
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establishment in which she is employed, continue to be so entitled until she becomes qualified
to claim maternity benefit under section 50 of that Act.]

Payment of Maternity Benefit in certain Cases

Every woman-

a. who is employed in a factory or other establishment to which the provisions of the

Employees' State Insurance Act, 1948 (34 of 1948), apply;
b. whose wages (excluding remuneration for over-time work) for a month exceed the
amount specified in sub-clause (b) of clause (9) of section 2 of that Act; and
c. who fulfils the conditions specified in sub-section (2) of section 5,shall be entitled to the
payment of maternity benefit under this Act.]

Notice of Claim for Maternity Benefit and Payment Thereof

1. Any woman employed in an establishment and entitled to maternity benefit under the
provisions of this Act may give notice in writing in such form as may be prescribed, to her
employer, stating that her maternity benefit and any other amount to which she may be
entitled under this Act may be paid to her or to such person as she may nominate in the
notice and that she will not work in any establishment during the period for which she
receives maternity benefit.
2. In the case of a woman who is pregnant, such notice shall state the date from which she will
be absent from work, not being a date earlier than six weeks from the date of her expected
delivery.
3. Any woman who has not given the notice when she was pregnant may give such notice as
soon as possible after the delivery.
4. On receipt of the notice, the employer shall permit such woman to absent herself from the
establishment during the period for which she receives the maternity benefit.
5. The amount of maternity benefit for the period preceding the date of her expected delivery
shall be paid in advance by the employer to the woman on production of such proof as may
be prescribed that the woman is pregnant, and the amount due for the subsequent period
shall be paid by the employer to the woman within forty-eight hours of production of such
proof as may be prescribed that the woman has been delivered of a child.
6. The failure to give notice under this section shall not disentitle a woman to maternity benefit
or any other amount under this Act if she is otherwise entitled to such benefit or amount and
in any such case an Inspector may either of his own motion or on an application made to
him by the woman, order the payment of such benefit or amount within such period as may
be specified in the order.

Payment of Maternity Benefit in case of Death of a Woman

If a woman entitled to maternity benefit or any other amount under this Act, dies before
receiving such maternity benefit or amount, or where the employer is liable for maternity

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benefit under the second proviso to sub-section (3) of section 5, the employer shall pay such
benefit or amount to the person nominated by the woman in the notice given under section 6
and in case there is no such nominee, to her legal representative.

Payment of Medical Bonus

Every woman entitled to maternity benefit under this Act shall also be entitled to receive from
her employer a medical bonus, of 17[two hundred and fifty rupees], if no pre-natal confinement
and post-natal care is provided for by the employer free of charge.

10.5 POLICY RELATED TO LEAVES UNDER THE MATERNITY ACT

Leave for Miscarriage

In case of miscarriage or medical termination of pregnancy, a woman shall, on production of

such proof as may be prescribed, be entitled to leave with wages at the rate of maternity benefit,
for a period of six weeks immediately following the day of her miscarriage or, as the case may
be, her medical termination of pregnancy.

Leave with Wages for Tubectomy Operation

In case of Tubectomy operation, a woman shall, on production of such proof as may be

prescribed, be entitled to leave with wages at the rate of maternity benefit for a period of two
weeks immediately following the day of her Tubectomy operation.

Leave for Illness arising out of Pregnancy, Delivery, Premature Birth of Child,
(Miscarriage, Medical Termination of Pregnancy or Tubectomy Operation)

A woman suffering from illness arising out of pregnancy, delivery, premature birth of child,
[miscarriage, medical termination of pregnancy or Tubectomy operation] shall, on production of
such proof as may be prescribed, be entitled, in addition to the period of absence allowed to her
under section 6, or, as the case may be, under section 9, to leave with wages at the rate of
maternity benefit for a maximum period of one month.

Nursing Breaks

Every woman delivered of a child who returns to duty after such delivery shall, in addition to
the interval for rest allowed to her, be allowed in the course of her daily work two breaks of the
prescribed duration for nursing the child until the child attains the age of fifteen months.

10.6 DISMISSAL DURING ABSENCE OF PREGNANCY

1. When a woman absents herself from work in accordance with the provisions of this Act, it
shall be unlawful for her employer to discharge or dismiss her during or on account of such
absence or to give notice of discharge or dismissal on such a day that the notice will expire
during such absence, or to vary to her disadvantage any of the conditions of her service.

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 a. The discharge or dismissal of a woman at any time during her pregnancy, if the woman
but for such discharge or dismissal would have been entitled to maternity benefit or
medical bonus referred to in section 8, shall not have the effect of depriving her of the
maternity benefit or medical bonus:
PROVIDED that where the dismissal is for any prescribed gross misconduct, the
employer may, by order in writing communicated to the woman, deprive her of the
maternity benefit or medical bonus or both.
b. Any woman deprived of maternity benefit or medical bonus, or both, or discharged or
dismissed during or on account of her absence from work in accordance with the
provisions of this Act, may, within sixty days from the date on which order of such
deprivation or discharge or dismissal is communicated to her, appeal to such authority as
may be prescribed, and the decision of that authority on such appeal, whether the woman
should or should not be deprived of maternity benefit or medical bonus, or both, or
discharged or dismissed shall be final.
c. Nothing contained in this sub-section shall effect the provisions contained in sub-section
(1).

No Deduction of Wages in certain Cases

No deduction from the normal and usual daily wages of a woman entitled to maternity benefit
under the provisions of this Act shall be made by reason only of-

a. the nature of work assigned to her by virtue of the provisions contained in sub-section
(3) of section 4; or
b. breaks for nursing the child allowed to her under the provisions of section 11.

10.7 APPOINTMENT AND POWERS OF INSPECTORS

Appointment of Inspectors

The appropriate government may, by notification in the Official Gazette, appoint such officers
as it thinks fit to be Inspectors for the purposes of this Act and may define the local limits of the
jurisdiction within which they shall exercise their functions under this Act.

Powers and Duties of Inspectors

An Inspector may, subject to such restrictions or conditions as may be prescribed, exercise all or
any of the following powers, namely:-

a. enter at all reasonable times with such assistants, if any, being person in the service of
the government or any local or other public authority, as he thinks fit, any premises or
place where women are employed or work is given to them in an establishment, for the
purposes of examining any register, records and notices required to be kept or exhibited
by or under this Act and require their production for inspection;

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 b. examine any person whom he finds in any premises or place and who, he has reasonable
cause to believe, is employed in the establishment;
PROVIDED that no person shall be compelled under this section to answer any question
or give any evidence tending to incriminate him;
c. require the employer to give information regarding the names and addresses of women
employed, payments made to them and applications or notices received from them under
this Act; and
d. Take copies of any registers and records or notices or any portions thereof.

Inspectors to be Public Servants

Every Inspector appointed under this Act shall be deemed to be a public servant within the
meaning of section 21 of the Indian Penal Code (45 of 1860).

Power of Inspector to Direct Payments to be made

1. Any woman claiming that-

a. maternity benefit or any other amount to which she is entitled under this Act and any
person claiming that payment due under section 7 has been improperly withheld;
b. her employer has discharged or dismissed her during or on account of her absence from
work in accordance with the provisions of this Act, may make a complaint to the
Inspector.
2. The Inspector may, of his own motion or on receipt of a complaint referred to in sub-section
(1), make an inquiry or cause an inquiry to be made and if satisfied that-
a. payment has been wrongfully withheld, may direct the payment to be made in
accordance with his orders;
b. she has been discharged or dismissed during or on account of her absence from work in
accordance with the provisions of this Act, may pass such orders as are just and proper
according to the circumstances of the case.
3. Any person aggrieved by the decision of the Inspector under sub-section (2) may, within
thirty days from the date on which such decision is communicated to such person, appeal to
the prescribed authority.
4. The decision of the prescribed authority where an appeal has been preferred to it under sub-
section (3) or of the Inspector where no such appeal has been preferred, shall be final.
5. Any amount payable under this section shall be recoverable by the Collector on a certificate
issued for that amount by the Inspector as an arrear of land revenue.

10.8 OTHER ASPECTS OF MATERNITY BEENFITS

Forfeiture of Maternity Benefit

If a woman works in any establishment after she has been permitted by her employer to absent
herself under the provisions of section 6 for any period during such authorized absence, she
shall forfeit her claim to the maternity benefit for such period.

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Abstract of Act and Rules there under to be Exhibited: An abstract of the provisions of this
Act and the rules made there under in the language or languages of the locality shall be
exhibited in a conspicuous place by the employer in every part of the establishment in which
women are employed.

Registers

Every employer shall prepare and maintain such registers, records and muster-rolls and in such
manner as may be prescribed.

10.9 PENELTIES RELATED TO THE ACT

Penalty for Contravention of Act by Employer

1. If any employer fails to pay any amount of maternity benefit to a woman entitled under this
Act or discharges or dismisses such woman during or on account of her absence from work
in accordance with the provisions of this Act, he shall be punishable with imprisonment
which shall not be less than three months but which may extend to one year and with fine
which shall not be less than two thousand rupees but which may extend to five thousand
rupees:
PROVIDED that the court may, for sufficient reasons to be recorded in writing, impose a
sentence of imprisonment for a lesser term or fine only in lieu of imprisonment.
2. If any employer contravenes the provisions of this Act or the rules made there under, he
shall, if no other penalty is elsewhere provided by or under this Act for such contravention,
be punishable with imprisonment which may extend to one year, or with fine which may
extend to five thousand rupees, or with both:
PROVIDED that where the contravention is of any provision regarding maternity benefit or
regarding payment of any other amount and such maternity benefit or amount has not
already been recovered, the court shall, in addition, recover such maternity benefit or
amount as if it were a fine and pay the same to the person entitled thereto.

Penalty for Obstructing Inspector

Whoever fails to produce on demand by the Inspector any register or document in his custody
kept in pursuance of this Act or the rules made there under or conceals or prevents any person
from appearing before or being examined by an Inspector shall be punishable with
imprisonment which may extend to one year, or with fine which may extend to five thousand
rupees, or with both.

Cognizance of Offences

1. Any aggrieved woman, an office-bearer of a trade union registered under the Trade Unions
Act, 1926 (16 of 1926) of which such woman is a member or a voluntary organization
registered under the Societies Registration Act, 1860 (21 of 1860) or an Inspector, may file
a complaint regarding the commission of an offence under this Act in any court of
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 competent jurisdiction and no such complaint shall be filed after the expiry of one year from
the date on which the offence is alleged to have been committed.
2. No court inferior to that of a Metropolitan Magistrate or a Magistrate of the first class shall
try any offence under this Act.

Protection of Action taken in Good Faith

No suit, prosecution or other legal proceedings shall lie against any person for anything which is
in good faith done or intended to be done in pursuance of this Act or of any rule or order made
there under.

10.10 POWER OF CENTRAL GOVERNMENT TO GIVE DIRECTIONS

The Central Government may give such directions as it may deem necessary to a State
Government regarding the carrying into execution of the provisions of this Act and the State
Government shall comply with such directions.

Power to Exempt Establishments

If the appropriate government is satisfied that having regard to an establishment or a class of

establishments providing for the grant of benefits which are not less favorable than those
provided in this Act, it is necessary so to do, it may, by notification in the Official Gazette,
exempt, subject to such conditions and restrictions, if any, as may be specified in the
notification, the establishment or class of establishments from the operation of all or any of the
provisions of this Act or of any rule made there under.

Effect of Laws and Agreements Inconsistent with this Act

1. The provisions of this Act shall have effect notwithstanding anything inconsistent therewith
contained in any other law or in the terms of any award, agreement or contract of service,
whether made before or after the coming into force of this Act:
PROVIDED that where under any such award, agreement, contract of service or otherwise,
a woman is entitled to benefits in respect of any matter which are more favorable to her than
those to which she would be entitled under this Act, the woman shall continue to be entitled
to the more favorable benefits in respect of that matter, notwithstanding that she is entitled
to receive benefits in respect of other matters under this Act.
2. Nothing contained in this Act shall be construed to preclude a woman from entering into an
agreement with her employer for granting her rights or privileges in respect of any matter
which are more favorable to her than those to which she would be entitled under this Act.

Power to make Rules

1. The appropriate government may, subject to the condition of previous publication and by
notification in the Official Gazette, make rules for carrying out the purpose of this Act.

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2. In particular, and without prejudice to the generality of the foregoing power, such rules may
provide for-
a. the preparation and maintenance of registers, records and muster-rolls;
b. the exercise of powers (including the inspection of establishments) and the performance
of duties by Inspectors for the purposes of this Act;
c. the method of payment of maternity benefit and other benefits under this Act insofar as
provision has not been made therefor in this Act;
d. the form of notices under section 6;
e. the nature of proof required under the provisions of this Act;
f. the duration of nursing breaks referred to in section 11;
g. acts which may constitute gross misconduct for purposes of section 12;
h. the authority to which an appeal under clause (b) of sub-section (2) of section 12 shall
lie; the form and manner in which such appeal may be made and the procedure to be
followed in disposal thereof;
i. the authority to which an appeal shall lie against the decision of the Inspector under
section 17; the form and manner in which such appeal may be made and the procedure
to be followed in disposal thereof;
j. the form and manner in which complaints may be made to Inspectors under sub-section
(1) of section 17 and the procedure to be followed by them when making inquiries or
causing inquiries to be made under sub-section (2) of that section;
k. any other matter which is to be, or may be prescribed.
3. Every rule made by the Central Government under this section shall be laid as soon as may
be after it is made, before each House of Parliament while it is in session for a total period
of thirty days which may be comprised in one session or in two or more successive sessions
and if, before the expiry of the session immediately following the session or the successive
sessions, aforesaid both Houses agree in making any modification in the rule or both Houses
agree that the rule should not be made, the rule shall thereafter have effect only in such
modified form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything previously
done under that rule.

Amendment of Act 69 of 1951

In section 32 of the Plantations Labor Act, 1951-

1. in sub-section (1), the letter and brackets "(a)" before the words "in the case of sickness", the
word "and" after the words "sickness allowances" and clause (b) shall be omitted;
2. in sub-section (2), the words "or maternity" shall be omitted.

Repeal

On the application of this Act-

1. to mines, the Mines Maternity Benefit Act, 1941 (19 of 1941); and
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2. to factories situate in the Union territory of Delhi, Bombay Maternity Benefit Act, 1929
(Bombay Act VII of 1929); as in force in that territory, shall stand repealed

10.11 SELF-ASSESSMENT QUESTIONS

Multiple Choice Questions:

1) State true or false:

Section 10 discusses about the leave for illness arising out of pregnancy.
a) True
b) False.
2) State the objectives of the act?
a) To regulate the employment of women workers in such establishments for certain period
before and after child birth.
b) Application of act in every establishment being a factory, mine or plantation
c) To provide satisfactory conditions to expectant women
d) All of the above
3) As per section 18, if an employer discharges or dismisses a woman during or on account of
her absence from work during the maternity leave, then what is the punishment faced by an
employer?
a) 3 months or more and will extend to 1 year
b) 6 months or more and will extend to 2 years
c) 3 months or more and will extend to 2 years
d) None of the above
4) As per section 9, for how many weeks a woman is entitled for leave in case of a
miscarriage?
a) 3 weeks
b) 9 weeks
c) 1 week
d) 6 weeks
5) State true or false:
Section 17 describes the obligations of the employer under the maternity benefit act.
a) True
b) False

Answers: 1 (a), 2 (a), 3 (a), 4 (d), 5 (b)

Long Answer Questions

Q1. Mention the recent Amendments done to the Maternity Act in 2017 along with the various
rights related to payment under the Act?

Q2. Define Policies related to ‗leaves‘ under the Maternity Act and penalties related to the Act?

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References

1) Arul, P. G. (2018). Compensation Management. Pondicherry University.

2) Bare Act . (2018). Retrieved from The Minimum Wages Act,1948:

http://www.advocatekhoj.com/library/bareacts/minimumwages/index.php?Title=Minimum%20W
ages%20Act,%201948

3) Bhattacharyya, D. K. (2009). Compensation Management. New Delhi: Oxford University Press.

4) Projects4MBA. (2018). Retrieved from http://www.projects4mba.com/employee-welfare-its-

benefits-and-principles/118/

5) Rastogi, V. (2018, November 15). Maternity Leave in India: The Law and Benefits. Retrieved from
https://www.india-briefing.com/news/maternity-leave-india-law-benefits-10294.html/

6) saralpaypack. (2018). Retrieved from https://www.saralpaypack.com/blogs/payment-of-bonus-

act/

7) The Bare Act,2018. (n.d.). Retrieved from

http://www.advocatekhoj.com/library/bareacts/maternitybenefits/index.php?Title=Maternity%20
Benefit%20Act,%201961

8) The Minimum Wages Act,1948. (n.d.). Retrieved from https://www.legalbites.in/minimum-wages-

act/

9) The Payment of Bonus Act,1965. (n.d.). Retrieved from

http://www.advocatekhoj.com/library/bareacts/paymentofbonus/index.php?Title=Payment%20of
%20Bonus%20Act,%201965

10) The Payment of Wages Act,1936. (n.d.). Retrieved from

http://www.advocatekhoj.com/library/bareacts/paymentofwages/index.php?Title=Payment%20of
%20Wages%20Act,%201936

11) The Workmen's Compensation Act,1923. (n.d.). Retrieved from Business.gov.in:

https://archive.india.gov.in/business/legal_aspects/compensation_1923.php

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