DEDUCTION FROM WAGES

Mansi Trivedi

INTRODUCTION

The need to protect the wages earned by the worker had been felt from the early years of the 20th
century. Workers had always been exploited from one or the other way. In 1925 a private bill called
weekly payment bill was first time introduced in the legislative assembly. The bill was however
withdrawn on an assurance of the government that the matter was under consideration of the
government. Imposition of fines by employers on workers and deduction of double amount of
wages for absence period by way of fine was very much customary in those days. The desirability of
regulating the extent of fines and other deductions, through legislation was felt by the government in
1926.

The royal commission1 on labour in India made some valuable recommendations. The payment of
wages Act is based on these recommendations. The commission was of the opinion that legislation
regarding deduction from wages and fines was essential. These recommendations were:

a. Children were exempted from fine

b. The minimum amount which could be deducted should not exceed half an anna in the rupee
in any month
c. Fine should be utilized for some benefit of the employees recognized by an authority
d. A notice specifying the fine must be placed and any other fine shall be deem to be illegal
e. Any deduction made for goods damaged must not exceed its wholesale price
f. Deduction may be made for housing accommodation and tools and raw materials
g. Imposition of any fine and deduction made which is not permitted by law should be made
penal

This recommendation was introduced in Legislative Assembly I 1933. The Payment of wages Act
was passed in 1936 and came into force on 21st March, 1937.


Student, B.A. LLB. (Hons.), Institute of Law, Nirma University, Ahmedabad.
1
Royal commission in 1928 presented recommendations on wages.

Electronic copy available at: http://ssrn.com/abstract=1593043

The preamble of the Act states that the object of the Act is “to regulate the payment of wages to
certain classes of employed person”

The Bombay high Court has observed in Arvind Mills Ltd. v. K.R.. Gadgil2, the general purpose of the
Act is to provide that employed persons shall be paid their wages in a particular form and at regular
intervals without any unauthorized deduction”.

What is wages?

A wage is compensation, usually financial, received by workers in exchange for their labour.
Compensation in terms of wages is given to workers and compensation in terms of salary is given to
employees. Compensation is a monetary benefit given to employees in return for the services
provided by them3.

According to Black‟s Law Dictionary, wages means “to give security for a performance of a thing”.

According to Section 2 (vi) of payment of wages act, wages means all remuneration, whether by way
of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed
which would, if the terms employment , express or implied were fulfilled, be payable to a person
employed in respect of his employment or of work done in such employment.

It includes:

a. Any remuneration payable under any award or settlement between the parties or the order of
court
b. Any remuneration to which the person employed is is entitled in respect of overtime work or
holidays or nay leave period
c. Any additional remuneration payable under the terms of employment whether called a bonus
or by any other name.

2
AIR 1941 Bom 26
3
http://en.wikipedia.org/wiki/Wage

Electronic copy available at: http://ssrn.com/abstract=1593043

In case of D.P. Kelkar v. Ambadas4, it was held that, the definition of age is not limited to
remuneration payable under an agreement or contract. The amended definition would apply to all
kinds of remuneration arising out of a contract.

Minimum Wage Rate

A minimum wage is the lowest hourly, daily or monthly wage that employers may legally pay to
employees or workers. Equivalently, it is the lowest wage at which workers may sell their labor.
Although minimum wage laws are in effect in a great many jurisdictions, there are differences of
opinion about the benefits and drawbacks of a minimum wage. Supporters of the minimum wage
say that it increases the standard of living of workers and reduces poverty5.

Minimum Wages in India

In India, 422.6 (94%) million workers out of the total workforce of 457.5 million belong to the
unorganized/informal sector. These workers contribute to more than 60 per cent to India‟s GDP
growth. Among other sectors, these workers work as farm labourers, landless labourers, factory
workers and construction workers. Currently the number of scheduled employments in the Central
government is 45, whereas in the state sphere the number is 1232.

The Minimum Wage Act, 1948 provides for fixation and enforcement of minimum wages in respect
of schedule employments to prevent sweating or exploitation of labour through payment of low
wages. The objective of the Act is to ensure a minimum subsistence wage for workers. The Act
requires the appropriate government to fix minimum rates of wages in respect of employment
specified in the schedule and review and revise the minimum rates of wages at intervals not
exceeding five years.

4
AIR 1971 Bom 124
5
http://www.epi.org/content.cfm/issueguides_minwage, Real Value of the Minimum Wage

3
With effect from November 2009 the National Floor Level Minimum Wage has been increased to
Rs 100 from Rs 80 (in September 2007). The National Minimum Floor Level Wage was Rs 66 in
2004, Rs. 45 in 1999, Rs. 40 in 1998 and Rs. 35 in 19966.

DEDUCTION FROM WAGES

An employer can lawfully withhold amounts from an employee‟s wages only:

(1) When required or empowered to do so by state or federal law,

(2) when a deduction is expressly authorized in writing by the employee to cover insurance
premiums, benefit plan contributions or other deductions not amounting to a rebate on the
employee‟s wages,

(3) When a deduction to cover health, welfare, or pension contributions is expressly authorized by a
wage7.

Section 7 of payment of wages act, says about the deduction which may be made from wages.
Section 7 (1) provides that notwithstanding the provisions of Railway Act, wages for employed
person shall be paid to him without deduction of any kind except those authorized by law. It lays
down a general provision against any deduction from the wages of a worker.

Every payment made by the employed person to the employer or his agent shall be deem to be a
deduction from wages. It also lays down that any loss of wages resulting from the imposition, upon
a person, the following penalty should not be considered as deduction from wages:

1. Withholding of increment or promotion including the stoppage of increment at any

efficiency bar.

6
http://www.paycheck.in/main/officialminimumwages

7
http:/www.dir.ca.gov/dise/FAQs_dedductions.html

4
 2. The reduction to a lower post or time scale or to a lower stage in the scale.
3. Suspension.

According to Section 7(2) a permissible deduction can be made for absence from duty.

In the bank of India and another v. T.S. Kelawala Bombay and others8, the bank employees demanded wage
revision and pending acceptance of demand decided to go on four hours strike daily. The bank
issued a circular to deduct full day‟s wages of such employees who participated in the strike. It was
held that strikes and demonstrations are legitimate forms of protest and they are not banned in this
country. By an administrative circular the legitimate mode of protest allowed and recognized by law
cannot be stifled. It was held that payment of wages act is regulatory. Section 7 (2) read with Section
9 of the act provides the circumstances under which and the extent to which deduction can be
made. It is only when the employer has right to make deduction, resort should be had to the act to
ascertain the extent to which the deduction can be made. No deduction exceeding the limit provided
by the act is permissible even if the contract so provides. There cannot be contract contrary to or in
terms wider than the input of sections 7 and 9 of the act. Therefore wage deduction cannot be made
under section 7(2) of the payment of wages act if there is no such power to the employer under the
terms of contract.

In Surendranathan Nair and others v. Senior divisional personal officer (Rlys.)9, some of the railway employees
applied for casual leave to participate in an agitation against railway administration. The leave was
refused but the employees participated in the agitation. The management deducted the wages
treating the period of leave applied for as absence from duty. It was held that the leave rules to the
railway are contained in the railway established code and the rule made thereunder. The code derives
its authority from Article 309 of the constitution and the rules are made under the delegated power.
These rules have general application to all non-gazatted railway servants. Rejection of leave under
such circumstances was legal and proper. Absence from duty, especially for the purpose pf
participation in an agitation against his management is unauthorized. An unauthorized absentee has
no right to compel payment of wages for the period of unauthorized absence.

8
(1988) II L.L.J. 264 (Bom)
9
(1988) I L.L.J. 227 (Kerala)

5
In the case of Mineral Miner’s Union v. Kudremukh Iron Ore Co. Ltd.10, it was held by the Karnataka
High Court that deduction of wages for the Strike period is justified provided strike was illegal.

In the case of French Motor Car o. Ltd., workers Union v. French Motor Car Co. Ltd11., three questions
were decided. Some employees of the company indulge in go slow and resorted to strike for 3 days
and 29 employees were not allowed by the employer to resume work unless they sign a guarantee
bond. It has been held that on the principle of no work no pay, the management was justified in
deducting the wages of three days that is, the strike period. Further the authority under the payment
of wages act is not competent to examine whether the strike was legal or not. The wages of the
workmen could be deducted under section 7(2)(b) for absence from duty. However, the absence
from the duty by an employee must be voluntary and it cannot cover his absence when he is forced
by circumstances created by employer from carrying out his duty. Therefore no deduction can be
made from wages of 29 employees whose absence was not voluntary , in as much as they were not
allowed to resume their work without singing the guarantee bond. The third question was related to
nonpayment of variables.

Deduction for recovery of loans made from any fund

Section 7(2) provides that the recovery of loan may be made from any fund constituted for the
welfare of labour in accordance with the rule approved by state govt., and the interest due in respect
thereof.

Deduction from Recovery of Loses

The following deduction for recovery of losses may be made from the wages of an employed
person in accordance with the provisions of this ac:

1. Section 7 (2) (m) of the act authorize deduction for recovery of loses sustained by a railway
administration on account of acceptance by the employed person of counterfeit or mutilated
or forged currency notes.
2. Section 7 (2) (n) authorizes deduction sustained on account of failure of employed person to
invoice, bill or appropriate charges due to administration.
10
(1989) I L.L.J. 227 (Karnataka)
11
(1991) I L.L.J. 107 ( Gauhati)

6
 3. Section 7(2) (o) authorizes deduction sustained on account of any rebates or refunds
incorrectly granted where such loss is directly attributable to his neglect or default.

Permissible Total Deduction

Section 7 (3) lays down that total amount of deduction which may be made in any wage period from
the wage of the employed person shall not exceed 75% in case deduction for payment of partly of
wholly to Co-operative Societies and 50% in other cases.

If the deduction authorized exceeds the above limit then such may be recovered as in the manner
prescribed.

Deduction by Order of Court

No deductions can be made from the wages of an emplyoyee except otherwise provided under the
Act.

In Municipal Corporation v. N.L. Abhyankar12, a representative union requested the employer to collect
the levies from the employee and remit the same. The employer refused the request and the uion
made an application to the Labour Court to order the above request. The Labour Court ordered the
employer to accept the request of the Union. In an appeal made by the employer, it contended that
no deductions other than permissible under the act can be made. Therefore it was held by the court
that other than the deductions specified under Section 7(2) no other deductions can be made by the
employer. But umder Section 7(2) (h) it clearly allows deduction which are required to be made by
order of a court or other authority competent to male such deduction. In view of this the Industrial
Court or the Labour Court are competent to make an order for deduction.

In the case of Manager, Rajapalayam Mills Ltd. v. Labour Court, Madurai and another’s13 , the employee
resigned from the services. While he was in service he took some loan for house building. The
employer adjusted the salary which was due to him with the amount to be paid for the house
building. In the claim by the employee regarding the salary was rejected as he ceased to be an
emplyoyee due to his resignation. The court held that in such a case it is open to the employer to

12
(1979) II L.L.J. 258 (Bombay)
13
(1987) II L.L.J. 59 (Mad)

7
adjust the entire amount due on account of wage under Section 7(4) of the Payment of
Wages Act.

Section 814 provides that fine shall be imposed on any employed person in respect of any such act
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 u/s 8(2).

The total amount of fine which may be imposed in any wage period on any employed person shall
not exceed an amount equal to 3% of the wage payable to him in respect of the wage period.

All the fines and realization shall be recorded in a register to be kept by the person responsible for
the payment of wages u/s 3, in such a form as may be prescribed.

According to Section 915 of the Act the deduction may be made for the absence from duty. It lays
down that any such deduction may be made on account of the absence of employed person from
the place or places where, by the terms of employment, he is required to work.

In G.Y.N. Chainulu and others v. The Depot Manager, A.P.S.R.T.C. Amalpuram and another’s16 , it was held
that once the strike is declared as illegal u/s 3 of Essential Services Maintenance Act, a notice of
strike u/s 22 of Industrial Dispute Act is not a due notice. The employer has the right to deduct the
wages in case of absence from duty without dur notice and without a reasonable cause. But such an
absence is made an offence u/s 4 Essential Services Maintenance Act. The right given u/s 9 (2) of
Payment of Wages Act is inconsistent of Section 4 of Essential Services Maintenance Act. Therefore
deduction of wages is without authority of law and without jurisdiction.

In Prakash Chandra Johari v. Indian Overseas Bank and another’s17, it was held that the words „terms of
employment‟ would only refer to place or places of working of the employee and not the working
period. Therefore, the bank was justified in deducting the wages fro the part of the day.

In Kothari (madras) Ltd. v. Second A.J cum Appellate Authorities and Other’s18, the question for
consideration was regarding the validity of deduction of wage of employees who were prevented
from attending the duty on account of Andhra Bandh. It was held that if the tribunal finds that an

14
Payment of Wages Act, 1936
15
Payment of Wages Act, 1936
16
(1986) II L.L.J. 81 (A.P.)
17
(1986) II L.L.J. 496 (Raj)
18
(1991) II L.L.J. 604 (Andhra Pradesh)

8
employee was not responsible for the absence from duty or he was prevented from attending the
duty, the management is not entitled to deduct the wages. The tribunal has the power to look for the
reasons and record a finding in that regard. In this case the workmen were prevented from attending
the duty by the organizers of the Bandh. Therefore, the tribunal has the jurisdiction to look into sch
a matter and resolve accordingly.

Section 10 of the Payment of Wages Act, 1936 lays down the deduction for damages and loses. Any
deduction u/s 7(2) of Payment of Wages Act shall not exceed the amount of damages or loss caused
to the employer by the neglect or default of the employed. The employed person shall be given
opportunity of showing cause against the deduction. Any such deduction may be made only in
accordance with such procedure as prescribed for the purpose.

Section 1119 provides that any deduction 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.

According to Section 1220, any deduction for the recovery of advance is subject to certain
conditions:

a. Recovery to be made from first payment of wage and no recovery of travel expenses
b. Advance given after the employment began shall be subject ot such conditions as the
government may impose
c. Extent of loan and the rate of interest thereon should not exceed the amount so stated by
the state government.

19
Payment of Wages Act, 1936
20
Payment of Wages Act, 1936

9
UNAUTHORIZED DEDUCTION

If an employee believes that their employer has made an unlawful deduction from their wages they
are entitled to bring a claim to an Employment Tribunal. A claim must be submitted within three
months of the date of the deduction in question. Even if the tribunal rules in favour of the employee
and orders repayment they have no powers to award interest on the money owed.

Some common payroll deductions often made by employers that are unlawful include21:

a. Gratuities. An employer cannot collect, take, or receive any gratuity or part thereof given
or left for an employee, or deduct any amount from wages due an employee on account of a
gratuity given or left for an employee.

b. Photographs. If an employer requires a photograph of an applicant or employee, the

employer must pay the cost of the photograph.

c. Bond. If an employer requires a bond of an applicant or employee, the employer must pay
the cost of the bond.

d. Uniforms. If an employer requires that an employee wear a uniform, the employer must
pay the cost of the uniform.
21
http:/www.dir.ca.gov/dise/FAQs_dedductions.html

10
 e. Business Expenses. An employee is entitled to be reimbursed by his or her employer for
all expenses or losses incurred in the direct consequence of the discharge of the employee‟s
work duties.

f. Medical or Physical Examinations. An employer may not withhold or deduct from the
wages of any employee or require any prospective employee or applicant for employment to
pay for any pre-employment medical or physical examination taken as a condition of
employment, nor may an employer withhold or deduct from the wages of any employee, or
require any employee to pay for any medical or physical examination required by any federal
or state law or regulation, or local ordinance.

CASE LAW ANALYSIS

In case of The Divisional Engineer, G.I.P. Railway v. Mahadeo Raghoo and Anothers22,
respondent was a gangman in the employ of the Central Railway Act that time his wages were Rs. 18
per month plus dearness allowance. With effect from the 1st November 1947 the Railway Board
under Ministry of Railways of the Government of Indian introduced a scheme of grant of
compensatory (city) allowance and house rent allowance at rates specified in their memorandum.
This scheme was modified by the Railway Board's letter.

As a result of this scheme certain railway employees stationed at specified headquarters were eligible
for the allowance aforesaid at certain specified rates. The 1st respondent thus became entitled to the
allowance of Rs. 10 per month.

Therefore he was offered a rent allowance by the government which he refused. The question came
up for consideration that whether deduction could be made regarding the house allowance.

The Court held that, Section 7 of the Act deals with such deductions as may be made from the
wages as defined in the Act, of an employee. Sub-section (2) of section 7 categorically specifies the
heads under which deductions may lawfully be made from wages. Clause (d) of this sub-section has
reference to "deductions for house accommodation supplied by the employer", and section 11

22
AIR 1955 SC 295

11
provides that such a deduction shall not be made unless the house accommodation has been
accepted by the employee and shall not exceed the amount equivalent to the value of such
accommodation. The definition of "wages" in the Act also excludes from its operation the value of
house accommodation referred to in sections 7 and 11 as aforesaid. The legislature has used the
expression "value of any house accommodation" in the definition of "wages" as denoting something
which can be deducted from "wages". The one excludes the other. It is thus clear that the definition
of "wages" under the Act cannot include the value of any house accommodation supplied by the
employer to the employee; otherwise it would not be a legally permissible deduction from wages. It
is equally clear that house rent allowance which may in certain circumstances as aforesaid be
included in "wages" is not the same thing as the value of any house accommodation referred to in
the Act. That being so, there is no validity in the argument advanced on behalf of the 1st respondent
that rule 3(i) aforesaid is inconsistent with the provisions of sections 7 and 11 of the Act. Therefore
the appeal allowed.

In the case of Bank of India v. T.S. Kelawala and Ors.23 , the question which came for
consideration was that whether an employer has a right to deduct wages unilaterally and without
holding an enquiry for the period the employees go on strike or resort to go-slow.

The appellant in this case is a nationalized bank. The demands for wage-revision made by the
employees of all the banks were pending at the relevant time, and in support of the said demands
the All India Bank Employees' Association had given a call for a countrywide strike.

The appellant-Bank issued a circular to all its managers and agents to deduct wages of the employees
who would participate in the strike for the days they go on strike. the Bank issued an Administrative
Circular warning the employee that they would be committing a breach of their contract of service if
they participated in the strike and that they would not be entitled to draw the salary for the full day if
they did so, and consequently, they need not report for work for the rest of the working hours on
that day. The court held that, Section 7 (2) read with Section 9 of the Payment of Wages Act
provides the circumstances under which and the extent to which deduction can be made. It is only
when the employer has right to make deduction, resort should be had to the act to ascertain the
extent to which the deduction can be made. No deduction exceeding the limit provided by the act is
permissible even if the contract so provides. There cannot be contract contrary to or in terms wider

23
(1988) II L.L.J. 264 (Bom)

12
than the input of sections 7 and 9 of the act. Therefore wage deduction cannot be made under
section 7(2) of the payment of wages act if there is no such power to the employer under the terms
of contract.

In case of P.C. Agarwala v. Payment of Wages Inspector, M.P. and Ors.24, in the present case
the Company n enable to pay the wages to its workers. The question which came up for
consideration was that whether the Director can be held personally liable for not paying the wages?
The court held that, the Director cannot be held liable as there was no evidence to show that the
Director should be both employer and the manager of the Factory and in the present case, there was
no such evidence or allegation. It also further held that the assets lying with the Official Liquidator
be sold soon so as to make the payments.

CONCLUSION

The need to protect the wages earned by the worker had been felt from the early years. Workers had
always been exploited from one or the other way. Today also the wages are not paid to the labours
to their satisfaction.

The employer and employee are always been in conflict for one or the other reasons. Wages are one
of those issues. And deduction from wages has always been criticized by the employees. Though
there are various provisions made under the Payment of Wages Act, 1936 where deduction can be
made in certain circumstances. But such deduction must be permissible deduction so that the
employers do not get resentful with such deduction.

Therefore Section 7 to Section 12 specifically provides for the deduction that can be made from the
wages of the employee.

24
AIR 2006 SC 3576

13
BIBLIOGRAPHY

WEBSITES
http://en.wikipedia.org/wiki/Wage.

http://www.epi.org/content.cfm/issueguides_minwage.

http://www.paycheck.in/main/officialminimumwages.

http:/www.dir.ca.gov/dise/FAQs_dedductions.html .

BOOKS

Misra, S. (2009). Labour & Industrial Laws. Central Law Publications.

CASES

Arvind Mills Ltd. v. K.R.. Gadgil, AIR 1941 Bom 26

D.P. Kelkar v. Ambadas. AIR 1971 Bom 124

Bank of India and another v. T.S. Kelawala Bombay and others, (1988) II L.L.J. 264 (Bom)

Sudrenathan Nair and others v. Senior divisional personal officer (Rlys.), (1988) I L.L.J. 227 (Kerala)

Mineral Miner’s Union v. Kudremukh Iron Ore Co. Ltd, (1989) I L.L.J. 227 (Karnataka)

French Motor Car o. Ltd., workers Union v. French Motor Car Co. Ltd, (1991) I L.L.J. 107 ( Gauhati)

14
Municipal Corporation v. N.L. Abhyankar, (1979) II L.L.J. 258 (Bombay)

Manager, Rajapalayam Mills Ltd. v. Labour Court, Madurai and another’s, (1987) II L.L.J. 59 (Mad)

G. Y.N. Chainulu and others v. The Depot Manager, A.P.S.R.T.C. Amalpuram and another’s, (1986) II L.L.J. 81
(A.P.)

Prakash Chandra Johari v. Indian Overseas Bank and another’s, (1986) II L.L.J. 496 (Raj)

Kothari (madras) Ltd. v. Second A.J cum Appellate Authorities and Other’s, (1991) II L.L.J. 604 (Andhra
Pradesh)

The Divisional Engineer, G.I.P. Railway v. Mahadeo Raghoo and Anothers, AIR 1955 SC 295

P.C. Agarwala v. Payment of Wages Inspector, M.P. and Ors., AIR 2006 SC 3576

15