Unit-II

-[Link]
Assistant Professor
BMSCL
 Students to Note:
When question is asked for essay - to discuss the features of any Act, then you must elaborate the
features and explain it as per the provisions of the Act. Don’t just write the points.
Wages
 Concept of wages
• The aggregate earning of employee for a given period of time such as
day, hour, week, month, year.
• Basically, wages are the price paid for the service of labour in the
process of production.
• Wages= Basic Wages+Other remuneration
• A wage is the remuneration paid for the services of
labour.
• It is a sum of money paid to the employee by the
employer for rendering service under a contract.
• It is being expressed in terms of money.
• Wages composed two parts:
a. Basic wages- It includes basic salary
b. Other allowances-It includes holiday pay, bonus,
overtime, etc.
The wages must include basic wages + DA + HRA
(Other allowances)
But does not include :
- The value of
- House accommodation, supply of light, water, medical
attendance.
- Any other amenities or service excluded by A.G
- Any travelling allowance or the value of any travelling
allowance.
- Any sum paid to the person employed to defray
special expenses entailed on him by the nature of his
employment.
 Manganese Ore India Ltd v
Chandi Lal Saha & Others
- The management was paying to the employee attendance
bonus and was supplying the grains to them at concessional
rates.
- The question for consideration was, whether these can be
included in the wages.
- The supreme court ruled out that the supply of grain at
concessional rate to the workmen is an amenity and cannot be
included in the rates of wages prescribed by the notification
fixing the rates of wages for different categories of workmen.
- There cannot be wages in kind under the scheme of the Act
unless there is notification by the appropriate government.
 Concept of Wages
 Minimum wages
Living wages
 Fair wages
 Minimum Wages
• wage which must be paid to the employees whether the firm earns
profit or not.
• Minimum wages may be defined as the lowest wage necessary to
maintain a worker and his family at the minimum level of subsistence,
which includes food, clothing and shelter.
• The expression minimum wages is not defined in the Act because it
will not be possible to lay down a uniform minimum wages for all
industries throughout the country on account of different and varying
conditions prevailing in industry to industry and one part of the
country to another.
 Living wages
• Living wages has been defined differently by different people in
different countries.
• Justice Higgins – “leaving wage is a wage sufficient to ensure the
workman food, shelter, clothing, frugal comfort, provision for evil
days, etc. as regards for the skill of an artisan, if he is one.
• Living wage is defined as –one which should enable
the earner to provide for himself and his family not
only the bare essentials of food, clothing and shelter
but a measure of comfort, including education for his
children, protection against ill-health, requirements of
essential social needs and a measure of insurance
against more important misfortunes, including old
ages.
• Living wage is more than the concept of minimum
wage.
• Such a wage is determined keeping in view the
national income and paying capacity of industrial
sector.
Living wages include :-
- Necessitates of life ( food, clothing shelter)
- Maintenance of health, education and basic comforts.
- Recreation which are quite essential for the person to meet his life in
society as human being.
- Living wages differ from country to country ( because it depends on
the level of the necessities of the life and it is deemed by socio
economic conditions of a particular country.
- Living wages are wages without which working people cannot live and
perform their duties as citizens.
 Article 43 of the Constitution:
• The state shall endeavour to secure, by suitable
legislation or economic organisation or in any other
way, to all workers, agricultural, industrial or
otherwise, work, a living wage, conditions of work
ensuring a decent standard of life and full enjoyment
of leisure and social and cultural opportunities and, in
particular, the State shall endeavour to promote
cottage industries on an individual or co-operative
basis in rural areas.
 Fair wage
• Fair wage stands in between the minimum wage and living wage.
• While the lower limit of the fair wage must obviously be the minimum wage, the upper
limit is equally set by what may broadly be called the capacity of industry to pay.
• This will depend not only on the present economic position of the industry but on its
future prospects.
• Between these two limits the actual wage will depend on-
i. The productivity of labour
ii. the prevailing rates of wages in the same or similar occupations in the same or
neighbouring localities
iii. the level of national income and its distribution
iv. the place of the industry in the economy of the country.
Theories of wages
 Subsistence theory
• This theory is known as the Iron Law of wages or the Brazen law of Wages.
• It was first formulated by Physiocrats, it was later developed by a German
economists Lasalle.
• The father of economics Adam Smith has also mentioned such theory in his
book ‘ Wealth of nations’.
• He stated that wages which are to be paid to workers should be enough so
that they can live and support their family.
• David Ricardo is considered as one of the best exponents of this theory and
his contributions helped in developing this theory.
• Under the theory of Exploitation, Karl Marx also made it as a basis.
• This theory states that, wages that are provided to a labourer should be
sufficient to satisfy the necessities of life
 Wage fund theory
• This theory stated that wages are depended upon the proportion
between the population and the capital.
• A part of the capital is kept aside for the sole purpose of wages and
the determinant is the population to calculate the wages.
• Population under this theory means, the labourers or the working
class and theorists asserted that competition in the market is effected
by these two factors- capital and population.
• Under this theory, wage fund means capital.
• Wages are paid out of a predetermined fund of wealth.
• If fund is large, wages should be high and if it is small, wages
would be reduced.
• Demand for labour and wages paid are determined by the size of
the fund.
 Surplus Value Theory
• This theory was developed by Karl Marx .
• This theory is based on the basic assumption that like other article,
labour is also an article which could be purchased on payment of its
price i.e. wages.
• He stated that for capitalists, the workers are a mere instrument in
gaining capital, and in case, where a labourer is working for extra
productivity, there is a surplus-value that is generated and it adds to
the capital of the industry which goes back to the owner.
• Marx in his theory has attacked the capitalists and has drawn the
negative aspects of industries which derives the workers to work
more than they are paid for.
• It states a situation where even overtime is not paid to the
workers and the extra productivity is used by the owners of such
industry to increase their capital.
 Residual claimant theory
• Propounded by Prof. Walker.
• This theory states that the wages of a worker are equal to the product
minus rent, profit and interest.
• Thus, rent, interest and profits are understood as not a part of wages and
after subtracting such determinants from the capital of productivity given,
the wages should be given to the workers.
• This theory came with lot of flaws as there was no way that the wages
could be fixed after the production has started as they are fixed before
starting the production in an industry.
• Therefore, in such a case the residual claimant will be the entrepreneur
and not the labour.
 Marginal productivity theory
• Von Thunen first stated this theory and then it was developed by
[Link], Wicksteed and Walrus.
• This theory states that the wages of a worker are dependent upon
the productivity of the worker.
• This theory is more practical and it says that, employer can only
employ workers up to a mark where he is able to pay the wages for
productivity.
• Thus, productivity is given importance.
• Moreover, it is in compliance with the other factors of the market like
supply and demand.
 Bargaining theory of wages
• This theory explains that wages depend upon the bargaining power
of the workers.
• John Davidson in his book ‘the Bargain theory of Wages’ propounded
this theory and stated that there are various factors which influence
the wages in a bargain of the workers and producers.
• Under this theory, the more the worker is able to work, the more he
gets paid.
• This works in small industries like labour for carrying goods through
lorry or other transport or daily wage workers or workers employed
for a specific period of time.
 Behavioral theories of wages
- Based on research studies and action programmes conducted, some
behavioral scientists have also developed theories of wages.
- Their theories are based on elements like employees acceptance to a
wage level, the prevalent internal wage structure, employees
consideration on money or wages and salaries motivators
 Competitive theory
• Wages were fixed in accordance with demand and supply.
• Workers would be attracted by high wages to industries, occupations
and localities.
1. Piece Wages:
• Piece wages are the wages paid according to the work done by the
worker. To calculate the piece wages, the number of units produced
by the worker are taken into consideration.
2. Time Wages:
• If the labourer is paid for his services according to time, it is called as
time wages. For example, if the labour is paid Rs. 35 per day, it will be
termed as time wage.
3. Cash wages :-
• Cash wages refer to the wages paid to the labour in terms of money. The
salary paid to a worker is an instance of cash wages.
4. Wages in Kind:
• When the labourer is paid in terms of goods rather than cash, is called
the wage in kind. These types of wages are popular in rural areas.
5. Contract Wages:
• Under this type, the wages are fixed in the beginning for complete work.
For instance, if a contractor is told that he will be paid Rs. 25,000 for the
construction of building, it will be termed as contract wages.
 Minimum Wages Act, 1948
• The main objectives of the Minimum Wages Act, 1948 is fixing a
minimum rate of wages in number of industries where the labours are
not organized and sweated labours are most dominant.
• The Act aims at preventing the exploitation of workers or labours in
some industries, for which, the appropriate govt is empowered to
take steps to prescribe minimum rates of wages in certain
employment.
 Historical developments
• The Minimum Wages Fixing Machinery convention was held at Geneva in
the year 1928 by ILO with reference to remuneration of workers in those
industries where the, level of wages was substantially low and the labour
was vulnerable to exploitation, being not well organised and having less
effective bargaining power.
• Subsequently, in Preparatory Asian Regional Labour Conference of ILO
held at New Delhi in 1947, it was unanimously approved that every effort
should be made to improve wage standards in industries and occupations
in Asian Countries, where they are still low.
• Hence, there was a need for enhancing labour conditions in India and also
to provide for minimum wages for labourers in India which ultimately
resulted in the Indian Labour Conference to formulate the Minimum
Wages Bill and in 1948, the Minimum Wages Act was enacted.
• The Minimum Wages Act, 1948 enables the Central and state govt to
fix minimum rates of wages payable to employees in selected number
of ‘sweated’ industries.
 Mohiuddin Khan v. State of Jharkhand
• it has been held that, Right to Life enshrined in Article 21 of the
constitution includes the right to get minimum wages and therefore,
its non payment results in breach of Article 21 of the Constitution.
 Living and fair wages
• The Indian Constitution has defined a ‘living wage’ that is the level of
income for a worker which will ensure a basic standard of living
including good health, dignity, comfort, education and provide for any
contingency.
• However, to keep in mind an industry’s capacity to pay the
constitution has defined a ‘fair wage’.
• ‘Fair wage’ is that level of wage that not just maintains a level of
employment, but seeks to increase it keeping in perspective the
industry’s capacity to pay.
• Fair wage depends on the present economic position as well as on its
future prospects.
• Fair wages depends upon the following factors:
a. Minimum wages
b. Capacity of the industry to pay
c. Prevailing rates of wages in the same or similar occupations in the
same or neighbouring localities
d. Productivity of labour
e. Level of national income and its distribution
f. The place of the industry in the economy of the country
 Salient features of the Act

Students to note: Explain all these points in the light of provisions of the Act

1. The Act provides for the fixing of minimum rate of wages in certain
types of employment as notified in Part I and II of the Schedule.
2. Act also provides for the payment of minimum wages as
determined under the provisions of the Act.
3. According to the provisions of the Act, the minimum wages shall be
paid in cash and where appropriate, it may also be paid in kind.
4. The Act u/s5 also provides for revising of minimum wages by the
Appropriate Govt and appoint committees for the purpose.
5. Act provides for the establishment of Advisory boards to advice the
Appropriate Govt in fixing or revising the rates of minimum wages.
6. Sec 13 of the Act provides for fixing of the number of hours of work on
working days by the appropriate govt with respect to employments for
which minimum rates of wages have been fixed. The Appropriate Govt may
also make provisions for a day of rest in a period of 7 days.
7. Sec 14 of the Act provides for overtime wages to be paid by the employer
to the employee for overtime work.
8. The Act makes it mandatory for the employers to make, keep and
maintain record and registers containing information about the wages paid
to the employees.
9. Act further provides for Inspectors and Appropriate authorities for the
enforcement of the Act and benefit of the employees
10. Any contract or agreement 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.
 Unichoyi v. State of Kerala
• it was held that, the minimum Wages Act purports to prevent
exploitation of labour and for that purpose empowers the appropriate
govt 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
agree to work even on starvation wages.
• The policy of the Act is to prevent the unemployment of such sweated
labour labour in the interest of general public and so in prescribing the
minimum rates, the capacity of the employer need not be considered.
• What is being prescribed is minimum wage rates which a welfare state
assumes every employer must pay before he employs.
 Definitions
 Sec 2(a): Adolescent
• means a person who has completed his 14th year of age but has not
yet completed his 18th year.
 Sec 2(aa): Adult
• means a person who has completed his 18th year of age.
 Sec 2(b): Appropriate Govt
i) In relation to any scheduled employment carried on by or under
the authority of the Central Govt or a railway administration, or in
relation to a mine, oilfield or major port, or any corporation
established by a central Act, the Central Govt.
ii) In relation to any other scheduled employment, the State Govt.
Sec 2(bb): Child
• means a person who has not completed his 14th year of age.
  Sec 2(h)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 any house accommodation, supply of light, water, medical
attendance or any other amenity or any service excluded by general or special
order of the appropriate govt.
ii.) Any contribution paid by the employer to any Pension Fund or Provident Fund
or under any scheme of social insurance.
iii.) Any travelling allowance or the value of any travelling concession
iv.)Any sum paid to the person employed to defray special expenses entailed on
him by the nature of his employment
v) Any gratuity payable on discharge.
  Sec 2(c): ‘’Competent authority
• means the authority appointed by the appropriate Govt 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 notifications.
 Sec 2(d): ‘’Cost of living index number’’
• in relation to employees in any scheduled employment in respect of
which minimum rates of wages have been fixed, means the index
number ascertained and declared by the competent authority by
notification in the Official Gazette to be the Cost of living index
number applicable to employees in such employment.
 Sec 2(e): ‘’Employer’’
• means any person who employs, directly or through another person,
or 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:
i. In a factory where a scheduled employment is carried on in respect
of which minimum rates of wages have been fixed under this Act.
ii. In any scheduled employment under the control of any govt in
India in respect of which minimum rates of wages have been fixed
under this Act, the person or authority appointed by such govt for
the supervision and control of employees or where no person or
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 for the supervision and control
of the employees or for the payment of wages.
 Krishna Iyer v. Superintending Engineer, PWD
• Madras High Court held that a Private Engineering Contractor
(managing agent) engaged in Government contract work is an employer
of the drivers of the trucks which are hired out to him drivers at agreed
rates.
  Sec 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.
 It includes an out-worker to whom any articles or materials are given
out by another person to be made up, cleaned, washed, atered,
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.
 Boknath Nathulal v. State of Madhya Pradesh
• held that, where an out-worker prepares goods at his own residence
and then supplies them to the employer, such a worker will be
considered to be an employee under this Act.
Sec 3: Fixing of minimum rates of wages
• Sec 3 provides for the Appropriate govt to determine the minimum rates of
wages payable to employees who are employed in any employment specified
in the schedule.
• Sec 3 lays down that:
1. The Appropriate Govt shall:
a.) Fix the minimum rates of wages payable to employees employed in an
employment specified in Part I or Part II of the schedule.
b.) revise the minimum rate of wages so fixed and revise the minimum rates, if
necessary at such intervals as it deems fit.
However such intervals shall not exceed 5 years.
• Appropriate govt may refrain from fixing and revise the minimum rates of
wages in respect of any scheduled employment in which there are in whole
state less than one thousand employees.
2. The appropriate govt may fix:
a.) A minimum rate of wages for time work, hereinafter referred to as
‘’a minimum time rate’’.
b.) A minimum rate of wages for the 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’’.
 Airfreight Ltd v. State of Karnataka
• If the employer is paying a total sum which is higher than the
minimum rates of wages fixed under the Act, then it is not required to
pay variable dearness allowance separately.
3. 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
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:
v. By the hour
vi. By the day
vii. By the month
viii. By such other larger wage-period as may be prescribed.
• 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, indicated.
Sec 4: Minimum rate of wages
• Appropriate Govt while determining the min rate of wages shall
consider:
1. Any min rate of wages fixed or revised by the AG in respect of
scheduled employments u/s3 may consists of:
i. A basic rate of wages & a special allowance at a rate to be adjusted,
at such intervals & manner as the AG may direct- to accord as
nearly as practicable with the variation in the cost of living index
number applicable to such workers-”Cost of living allowances”.
ii. Basic rate of wages with or without the cost of living allowance,
and the cash value concessions in respect of supplies of essential
commodities at concession rates, where ever authorized.
iii. An all- inclusive rate of allowing for the basic rate, the cost of living allowance
and the cash value of the concessions, if any.

 Hydro Engineers Pvt. Ltd v. Workmen

• Supreme Court held that, while fixing the minimum wages, it should also
factor in the prevailing cost of essential commodities.

2. The cost of living allowance and the cash value of the concessions in respect of
supplies of essential commodities at concession rates 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 govt.
• It is difficult to give definite expression or definition of Minimum rates of
wages, since it is not possible to lay down a uniform rate of minimum wages
for all industries as the conditions and circumstances may vary from industry to
industry.
Sec 5: Procedure for fixing and revising minimum wages
1. In fixing min rates of wages in respect of any scheduled
employment for the first time under this Act OR revising minimum
rates of wages so fixed, the AG shall either:
a) Appoint as many committees and sub committees as it considers
necessary to hold inquiries and advise it in respect of such fixation
or revision, as the case may be.
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 2 months from the date of notification, on which
the proposal will be taken into consideration
 State of Andhra Pradesh v. N.V.B. Manufacturing Factory
• Supreme Court held that, any committee appointed u/s 5 of the Act shall be
advisory bodies and the govt is not bound to accept any of its
recommendations.

2. After considering the advice of the committee or committees appointed

under sec 5(1)(a) or as the case may be, all representations received by it
before the date specified in the notification u/s 5(1)(b), the AG 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 3
months from the date of its issue.
• Provided that, where the AG proposes to revise the minimum rates of wages
by the mode specified in sec 5(1)(b), the AG shall consult the Advisory Board
as well.
• Sec 7: Advisory Board
• For the purpose of co-ordinating the work of committes and sub-
committees appointed u/s 5 and advising AG in the matters of fixing
and revising minimum rates of wages, the AG shall appoint advisory
board.
Sec 8: Central Advisory Board
1. Central Govt shall appoint a Central Advisory Board for advising the Central
and State Govts in fixing and revision of min rates of wages and other
matters under this Act and for co-ordinating the work of the Advisory Boards.
2. Central Advisory Boards shall consist of:
i. Persons to be nominated by the Central Govt representing employers and
employees in the scheduled employments. The number of employers and
employees nominated shall be equal in number.
ii. Independent persons not exceeding one-third of its total number of
members.
iii. One of such independent persons shall be appointed as the chairman of the
Board by the Central Govt.
• The recommendations of the Advisory Board shall not be binding on the State
Govt.
Sec 9: Composition of committees, etc
• Each committees, sub committees and Advisory Boards shall consists
of:
i. Persons to be nominated by the Central Government representing
employers and employees in the scheduled employments. The
number of employers and employees nominated shall be equal in
number.
ii. Independent persons not exceeding one-third of its total number of
members
iii. One of such independent persons shall be appointed the Chairman
of the Board by the Central Govt.
Sec 10: Correction of errors:
• provides for correction in fixing and revising the minimum wages.
• Appropriate Govt at any time, correct clerical or arithmetical
mistakes in any order fixing or revising minimum rates of wages OR
error arising therein from any accidental slip or omission.
• Every such notification shall be place before the Advisory Board for
information, as soon as it is issued.
Sec 11: Wages in kind
Provides for payment of min wages in kind wholly or partly.
1. Minimum wages payable under this Act shall be paid in cash. Where it
has been the custom to pay wages wholly or partly in kind, the AG, by
notification in the official gazette, may authorise the payment of
minimum wages either wholly or partly in kind where ever deemed
necessary.
2. If the AG is of opinion that provision should be made for the supply of
essential commodities at concession rates, the AG may, by notification in
the Official Gazette, authorise the provision of such supplies at
concession rates.
3. The cash value of wages in kind and of concessions in respect of
supplies of essential commodities at concession rates authorised under
sub sec 2 & 3 shall be estimated in the prescribed manner.
Sec 12: Payment of minimum rates of wages
• employer shall mandatorily pay the minimum rates of wages to the
employees according to the provisions of this Act.
• With respect to any scheduled employment, where a notification
u/s5 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.
• The employer shall not make any deductions except as may be
authorised within such time and subject to such conditions as may be
prescribed.
 Union for Democratic Rights v. Union of India
• It has been held that, where any person provides labour or service to
another for remuneration which is less than minimum wages, such
wages shall be considered to be forced labour.
Sec 13: Fixing hours for a normal working day, etc.
• AG to make provisions for working hours for such employment where
the minimum rates of wages have been fixed.
• AG may fix the number of hours of work which shall constitute a
normal working day, inclusive of one or more specified intervals.
• Provide for day of rest.
• Provide for payment for work on a day of rest at a rate not less than
the over time rate.
Sec 14: Overtime
• Provides for over time wages to be paid by the employer to employee
where the employee works for more than the normal working hours.
• Where an employee, whose min rate of wages is fixed under this Act by
the hour, by the day or by a longer wage-period as may be prescribed,
works on any day more than 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 AG for the time being in force, whichever is higher.
 Municipal Council, Hatta v. Bhagat Singh
• It was held that, overtime wages u/s 14 of the Act is only applicable to
those employees who are getting min rate of wages under this Act and
not to those getting better wages under any other statutory rules.
Sec 15: Wages of worker who works for less than normal working day
• This sec deals with the wages to be paid to a worker where the minimum
wages are fixed but works for less than the normal working hours.
• If an employee whose min rate of wages has been fixed under this Act by
the day, and he works on any day on which he was employed for a period
of less than the requisite number of hours constituting a normal working
day, he shall be entitled to receive wage in respect of work done by him
on that day as if he worked for a full normal working day.
• However, he shall not be entitled to receive wages for a full normal
working day:
 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.
 In such other cases and circumstances as may be prescribed.
Sec 16: Wages for two or more classes of work
• Where an employee does two or more classes of work to each of
which a different min rate of wages is applicable, the employer shall
pay to such employee, wages at not less than the min rate in force in
respect of each such class of proportionate to the amount of time
spent working in each class of work.
Sec 17: Min time rate wages for piece work
• Where an employee is employed on piece work for which min time
rate and not a min piece rate has been fixed under this Act, the
employer shall pay to such employee wages at not less than the min
time rate.
Sec 18: Maintenance of register and records
• This sec makes mandatory on employers to maintain registers and records containing
information about the employees employed by them, the kind of work performed by
them and the wages paid to them according to the provisions of the Act.
• 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.
• The AG 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 min
rates of wages have been fixed and prescribe the manner in which entries shall be
made and authenticated in such wage books or wage slips by the employer or his agent.
 V.V. Surya Rau v. S.R. Tendulkar
• it has been held that, every employer including a contractor who engages labourers, is
required to maintain registers according to the provisions of this Act.
Sec 19: Inspectors
• Appropriate govt-appoint such person as Inspector as it deems fit
• define the local limits
• Inspector shall within the local limits:
a. Enter the premises- for examining register/records/notice required to
be kept/exhibited.
b. Examine any person whom he has reasonable cause to believe him as
employee
c. Seize/ take copies of such register/record of wages or notices or
portions he considers relevant
d. Require any person giving out-work and any out-workers, to give any
information.
e. Every inspector shall be deemed to be a public servant
Sec 20: Claims
• provides Appropriate Govt to appoint authorities to settle and decide
claims that arises based on the provisions of this Act.
1. AG may appoint such persons as authority:
i. Any commissioner for Workmen’s Compensation
ii. Any officer of the Central Government exercising functions as a
Labour Commissioner for any region.
iii. Any officer of the state govt not below the rank of labour
commissioner.
iv. Any other officer with experience as a Judge of a Civil Court or as a
Magistrate.
• The appointed authority shall hear and decide for any specified area:
i. All claims arising out of payment of less than the minimum rates of wages.
ii. All claims regarding the payment of remuneration for days of rest.
iii. All Claims regarding the payment for work done on such days under Clause
(b) or Clause (c) of sec 13.
iv. Any claims of wages at the overtime rate under sec 14, to employees employed
or paid in that area.
2. Application shall be made by:
iv. The employee himself
v. Any legal practitioner
vi. Any official of a registered trade union authorised in writing to act on his
behalf
vii. Any inspector or any person acting with the permission of the authority
appointed under sub sec 1.
• Every such application shall be made within 6 months from the date
on which the minimum wages became payable.
• However, an application may be admitted after the said period of 6
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 sec 2 is admitted, 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
difference amt between the min wages payable to him and the amt
actually paid, together with the payment of such compensation as the
Authority may think fit, not exceeding 10 times the amt of such excess.
• 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 10 rupees.
• 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.

• If the authority hearing any application under this sec is satisfied that
it was either malicious or vexatious, it may direct that a penalty not
exceeding 50 rupees be paid to the employer by the person
presenting the application.
• Any amount directed to be paid under this section may be recovered:
-> If the Authority is a Magistrate, by the Authority as if it were a fine
imposed by the Authority as a Magistrate.
-> 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.
• Every direction of the Authority under this Section shall be final.
• Every Authority appointed under this section shall have all the
powers of a Civil Court under the Code of Civil Procedure, 1908 for
the purpose of taking evidence and of enforcing the attendance of
witnesses and compelling the production of documents.
Sec 21: Single application in respect of a number of employees.
• provides for a single application to be made in respect of number of
employees employed in a scheduled employment:
1. A single application may be presented on behalf or in respect of any
number of employees employed in the scheduled employment in
respect of which min rates of wages have been fixed & in such cases
the maximum compensation which may be awarded, shall not exceed
10 times the aggregate amt of such excess or 10 rupees per head, as
the case may be.
2. The authority may deal with any number of separate pending
applications presented u/s 20 in respect of employees in the scheduled
employments in respect of which min rates of wages have been fixed,
as a single application under sub sec 1 of this section.
 Sec 22: Penalties for certain offences
• Any employer who:
a. Pays to any employee less than the min rates of wages fixed for the
employee’s class of work, or less than the amt due to him under the
provisions of this Act.
b. Contravenes any rule or order u/s 13,
• shall be punishable with imprisonment for a term which may extend to
six months, or with fine which may extend to 500 rupees or with both.
• However, 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 u/s 20.
Sec 23: 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.
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.
• Provided that in seeking to prove, 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.
Sec 24: 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 u/s 20 which has been
presented by or on behalf of the plaintiff
b) Has formed the subject of a direction u/s 20 in favour of the
plaintiff
c) Has been adjudged in any proceeding u/s 20 not to be due to the
plaintiff
d) Could have been recovered by an application under that section.
Sec 25: 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.
Sec 26: Exemptions and exceptions-
• AG may subject to certain conditions, direct that the provisions of
this Act shall not apply to the wages payable to disabled employees.
• AG may by notification direct that subjected to certain conditions and
for such period, shall not apply to all or any class of employees
employed in any scheduled employment
Sec 27: Power of state govt to add to schedule
• AG after giving 3 months notice of its intention to do so, shall add to either
Part of the schedule any employment in respect of which it is of opinion
that min rates should be fixed.
Sec 28: Power of central govt to give directions
• Central govt has power to give directions to state govt for the execution of
this Act in the state.
Term of office of the members
 Procedures to be followed in the conduct of Business
 The method of voting
 manner of filling the vacancies in membership
 quorum necessary for the transaction of business of the central Advisory
Board
Sec 29: Power of the Appropriate Govt to make rules
 Prsecribe term of office of the members, the procedure to be followed in
the conduct of business, the method of voting, etc.
Prescribe method of summoning witnesses, production of documents,
subject matter of inquiry before the committees, sub-committees and the
Advisory Boards.
 Provide for a day of rest in every period of 7 days
 number of hours of work which shall constitute a normal working day.
 prescribe the form of registers and records to be maintained and the
particulars to be entered in such registers and records.
 Provide for the issue of wage books and wage slips and prescribe the
manner of making and authenticating entries in wage books and wage slips
 Prescribe the powers of Inspectors for the purposes of this Act.
The Payment of
Bonus Act, 1965
 Historical Background
• The practice of paying bonus in India appears to have originated
during First world war when certain textile mills granted 10% of wages
as war bonus to their workers in 1917.
• In certain cases of ID demand for payment of bonus was included.
• In 1950, the Full bench of the Labour Appellate evolved a formula for
determination of bonus.
• A plea was made to raise that formula in 1959.
• At the second and third meetings of the 18th session of standing
labour committee held in New Delhi in March/April 1960, it was
agreed that a commission be appointed to go into the question of
bonus and evolve suitable norms.
• A tripartite Commission was set up by the Govt of India to consider in a
comprehensive manner, the question of payment of bonus based on
profits to employees employed in establishments and to make
recommendations to the Govt.
• The Govt of India accepted the recommendations of the commission
subject to certain modifications.
• To implement these recommendations the Payment of Bonus
Ordinance, 1965 was promulgated on 29th May, 1965.
• To replace the said ordinance the Payment of Bonus bill was introduced
in the Parliament.
• The Payment of Bonus Act, 1965 is an Act to provide for the payment of
Bonus to persons employed in certain establishments on the basis of
profits or on the basis of production or productivity and for matters
connected therewith.
• The word ‘ Bonus’ is not defined in the Act.
• In, Sree Meenakshi Mills Ltd v. Their workmen, the Supreme Court
held that, bonus is not a mere matter of bounty gratuitously made by
the employer to its employees nor it is a matter of deferred wages.
• rather, bonus refers to a cash payment made in addition to wages as
an incentive given conditionally on certain standards of attendance
and efficiency being attained.
• Bonus is actually given when:
i. The wages fall short of living wages.
ii. The establishment has made profits partly due to the contribution
of the workmen through increased production.
 Salient features of the Act
students to note: explain the features with the provisions of
the Act

• This Act aims to regulate the amount of bonus paid to the persons
employed in certain establishments based on their profits and
productivity.
1. The payment of Bonus Act has 4 dimensions:
a) To impose statutory liability upon an employer of every establishment
covered by this Act to pay bonus to employees in the establishment
b) To define the principle of Bonus payment according to prescribed
formula.
c) To provide for payment of maximum and minimum bonus as well as
the scheme for set-on and set-off.
d) To provide machinery for enforcement of liability for payment.
2. Apart from this, the Act also provides for recovery of bonus due from
the employer.
3. The Act makes it mandatory for the employer to make, keep and
maintain record and registers containing information about the wages
paid to the employees.
4. Act contains provisions for Inspectors and Appropriate authorities for
the enforcement of the Act and benefit of the employees.
5. The Act also lays down provisions for exemption from bonus
payment by the employer under certain conditions.
6. The Act u/s 28, provides for penalty for non-compliance with the
provisions of the Act.
Object of the Payment of Bonus
Act, 1965
• To maintain peace and harmony between labour and capital
• by allowing the employees to share the prosperity of the
establishment
• reflected by the profits earned by the contributions made by capital,
management and labour.
 Application of the Act
• The Act is extended to whole of India.
• It applies to-
 every factory
 Every other establishment in which 20 or more persons are
employed on any day during an accounting year.
 However, The Appropriate Govt may extend its provisions to any
establishment employing less than 20 but in no case less than 10
persons.
Employees entitled for Bonus-
sec 2(13)
• Every employee receiving salary or wages upto Rs. 21,000 per month (as per 2015 amendment)
and engaged in any kind of work whether:
 Skilled, unskilled or manual
 Managerial staff
 Supervisory staff
 Administrative staff
 Technical staff
 Clerical staff
• are entitled to bonus for every accounting year, if he worked for at least 30 days working days in
that year.
• Person must not have been disqualified under any provisions of the Act or any law.
• Thus a probationer and daily wage workers are also eligible for bonus.
• But an apprentice is not eligible for bonus.
Voltas Ltd v. Its workmen
• SC held that, apprentices are not eligible for bonus as they will be
learning the job, the employer incurs expenditure on their training
and they hardly contribute to the profits.
 Employer-Sec 2(14)
 Factory:
• Employer include-
• owner or occupier of the factory OR
• the agent of such owner or occupier OR
• the legal representative of a deceased owner or occupier in the
factory.
 In relation to any other establishment-
• the person who has the ultimate control over the affairs of the
establishment will be the employer.
 Allocable surplus- Sec 2(4)
• Means, in relation to an employer, being a company (other than
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 percent of the
available surplus in an accounting year.
• In any other case, sixty percent of such available surplus.
Sec 3: Establishments to include departments undertakings and branches
• The word ‘department’ consists of –
 different departments or undertakings or branches
 situated in different places and
• all such departments or undertakings or branches shall be treated as parts of
the same establishments for the computation of bonus under this Act.
• However, if in any Accounting year, a separate balance sheet and profit & loss
account are prepared and maintained in respect of any such department or
undertaking or branch, then such dept or undertaking or branch shall be treated
a separate establishment for the purpose of computation of bonus under this
Act for that year.
• This is unless such dept or undertaking or branch, immediately before the
commencement of that accounting year, was treated as part of the
establishment for the purpose of computation of bonus.
 Calculation of amount payable
as Bonus
Sec 4: Computation of Gross Profit
• Sales minus all cost directly related to those sales
• These costs can include manufacturing expenses, raw materials,
labour, selling, marketing and other expenses.
• gross profit derived by an employer from an establishment with
respect to an accounting year shall:
i. In the case of a banking company, be calculated in the manner
specified in the first schedule
ii. In any other case, be calculated in the manner specified in the
second schedule
Sec 5: Computation of available surplus
• The available surplus with respect to any accounting year shall be
Gross profits for that year after deducting from it the sums referred to
in sec 6 of the Act.
• Available surplus=Gross Profits (sec 4)– sums referred in sec 6
(Depreciation, tax, allowances)
Sec 6: Sum deductible from gross profits
 Section 6 provides for the determination of the sums deductible from gross
profits.
 The following sums shall be deducted from the gross profits as prior charges:
1. Any amount by way of depreciation u/s 32(1) of the income tax Act, or in
accordance with the provisions of the agricultural income-tax, as the case
may be.
2. Any amount by way of development rebate or investment allowance or
development allowance which the employer is entitled to deduct from his
income under the income tax Act.
3. Any direct tax which the employer is liable to pay for the accounting year in
respect of his income, profits and gain, subject to sec 7 of the Act.
4. Any further sums as specified with respect to the employer in the third
schedule.
 Therefore, the general principles of Profit adjustment are:
i. Prior charges like depreciation, development rebate, direct taxes,
special reserves created under law, salaries to partners etc. charged
to profit and loss account to be added back to net profits
ii. Items of capital receipts and capital expenditure are to be
excluded.
iii. Profits and losses from any business situated outside India should
be excluded.
iv. Cash benefits received from the Govt to be excluded from profits
v. Receipts and expenses of previous years to be excluded such as
refund of excess direct tax for the direct tax.
Sec 7: Calculation of direct tax payable by the employer
• Any direct tax payable by the employer for any accounting year shall
be calculated at the rates applicable to the income of the employer,
subject to the following provisions:
1. While calculating such tax no account shall be taken of:
 Any loss incurred by the employer with respect to any previous
accounting years and carried forward under any law for the time
being in force.
 Any arrears of depreciation which the employer is entitled to add to
the amount of the allowance for depreciation for any following
accounting years u/s 32(2) of the IT Act
 Any exemption conferred on the employer u/s 84 or of any
deduction to which he is entitled u/s 101 (1) of the IT Act.
2. Where the employer is a religious or a charitable institution to which
the provisions of sec 32 of the IT Act do not apply and the whole or any
part of its income is exempt from tax, 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.
3. Where the employer is individual or HUF, the tax payable by such
employer under IT Act shall be calculated on the basis that the income
derived by him from the establishment is his only income.
4. 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, then, no account
shall be taken of such rebate.
Sec 8: Eligibility of bonus
• every employee who has worked for not less than 30 days in the
establishment in any accounting year shall be entitled to be paid
bonus, by the employer according to the provisions of this Act.
Sec 9: Disqualification for bonus
 An employee shall be disqualified from receiving bonus under this
Act , if he is dismissed from service for:
• Fraud
• Riotous or Violent behaviour while on the premises of the
establishment
• Theft, misappropriation of any property of the establishment
 Pandian Roadways Corp. Ltd v. presiding Officer, principal Labour
Court
• it was held that, if an employee, is dismissed from service for any act
of misconduct u/s 9, the employee shall be disqualified from receiving
any bonus under this Act and not just the Accounting year in which
the dismissal took place but to bonus with respect to earlier years.
Sec 10:Payment of minimum bonus
• The minimum bonus which an employer is required to pay even if
there is no allocable surplus (except in case of new establishments)
• Minimum bonus which shall be 8.33% of the salary or wage earned
by the employee during the accounting year or one hundred rupees,
whichever is higher, whether or not employer has allocable surplus in
that accounting year.
• Provided, where the employee has not completed 15 years of age at
the beginning of the accounting year, the employer is bound to pay, a
minimum bonus which shall be 8.33% of the salary earned by the
employee during the accounting year or 60 rupees, whichever is
higher, whether or not the employer has any allocable surplus in the
accounting year.
Sec 11: Payment of maximum bonus
• Where in respect of any accounting year, 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 proportionate to
the salary or wage earned by the employee during the accounting
year subject to a maximum of 20% of such salary or wages.
• In computing the allocable surplus under this section, the amount set
on or the amount set off under the provisions of sec 15 shall be taken
into account in accordance with the provisions of that section.
Sec 12: Calculation of Bonus with respect to certain employees
• Where the salary or wage of an employee [exceeds 7000 rupees or the
min wage for the scheduled employment, as fixed by the AG, whichever
is higher] per mensum, the bonus payable to such employee u/s 10 or,
as the case may be, u/s11, shall be calculated as if his salary or wage
were [7000 rupees or the min wage for the scheduled employment, as
fixed by the AG, whichever is higher] per mensum.
 Bonus salary
• Salary= Basic + DA(Dearness Allowance)
• If salary is more than Rs.7000 then bonus will be calculated on Rs. 7000
only
• If salary is less than Rs. 7000 then bonus will be calculated on actual
amount.
Allocable surplus
• A percentage of the available surplus calculated in accordance with
the provisions of sub-sec 4 of sec 2 is called ‘’allocable surplus’’.
a) 60% of available surplus(banking companies)
b) 67% of available surplus (other establishments)
• Allocable surplus is the amount available for payment of bonus to the
employees.
Rate of Bonus to be paid:
• Bonus is to be paid out from the allocable surplus
• Which is 60% of available surplus (in case of banking company)67% of
available surplus (in other establishments)
• Now we have to see this allocable surplus is what percentage of
employees salary
• After it is more than 20% of employees salary, then Max rate of
bonus to be paid is 20% only.
• If allocable surplus is below 8.33% , then min rate of bonus shall be
paid- 8.33%
• If the allocable surplus is below 8.33% to 20%, then bonus will be
paid according to that rate.
 example: Company XYZ- Assume it as Non-banking co
• Gross Profit (sec 4) – Deductions (sec 6)= Available surplus 10,00,000
• Salary of all employees (Basic +DA) who are eligible= Rs. 25,00,000
• Allocable surplus= 67% of Available surplus
10,00,000x 67/100
= 6,70,000
• Out of these allocable surplus, we have to pay to our employees max or min
bonus- 8.33% or 20%
• So see allocable surplus is how much percentage of employees salary
• 6,70,000 x100 =26.8%
25,000
• Allocable surplus exceeds 20 % of employees salary so rate of bonus is 20%
Sec 13: proportionate reduction in bonus in certain cases
• Where an employee has not worked for all the working days in an
accounting year, the minimum bonus of 100 rupees or 60 rupees as
the case may be, if such bonus is higher than 8.33%, of his salary or
wage for the days he has worked in that accounting year, shall be
proportionately reduced.
Sec 14: Computation of number of working days
• sec 14 provides that, for the purpose of sec 13, an employee shall be
deemed to have worked in an establishment in any accounting year
on the following days as well:
1. The employee has been laid off under an agreement or as
permitted by standing orders under the ID Act, 1947 or under any
other law applicable to the establishment
2. The employee has been on leave with salary or wage
3. the employee has been absent due to temporary disablement
caused by an accident in the course of his employment
4. The employee has been on maternity leave with salary or wage,
during the accounting year.
Sec 15: Set on and set off
 Set On:
• will be used when a company makes a significant profit and the allocable
surplus exceeds the max rate of bonus. That is, 20%.
• Then surplus beyond 20 % is carried forward to the next financial year.

Set Off:
• will be used when a company does not make enough profit in a financial
year and does not have sufficient surplus to pay the minimum bonus.
• Even in this case company must pay the minimum bonus
• The shortfall is then carried forward to the next financial years and is
adjusted while calculating the next years available surplus/ net profit.
• Sec 16: Special provisions with respect to certain establishment
• In any establishment newly set up, the employees of such
establishment shall be entitled to be paid bonus in accordance with
the provisions of sub sec 1A, 1B and 1C.
• 1A: In the first five accounting year- bonus shall be payable in the
accounting year in which employer derives profit & bonus shall be
calculated in accordance with the provisions of this Act in relation to
that year. But without applying the provisions of sec 15- set on and
set off.
• 1B: For sixth and seventh accounting year, sec 15 shall apply subject
to the following modifications:
 For the sixth accounting year:
 Set on or set off, as the case may be, shall be made in the manner
illustrated in the 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.
For the seventh accounting year:
 Set on or set off, as the case may be, shall be made in the manner
illustrated in the 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 year.
• 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 sec 15 shall apply in relation to such establishment as
they apply in relation to any other establishment.
• Sec 17: Adjustment of customary or interim bonus against bonus
payable under the Act
• If in any accounting year:
1. An employer has paid any pooja bonus or other customary bonus to
an employee
2. 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.
• Sec 18: Deduction of certain amounts from bonus payable under
the Act
• If an employee is found guilty of misconduct causing financial loss to
the employer, then the employer may deduct the amount of loss from
the amount of bonus payable to the employee under this Act.
• Sec 19: Time-limit for payment of bonus
• In case of a dispute regarding payment of bonus pending before any
authority, all the amounts payable to the employee as bonus shall be
paid in cash by the employer within a month from the date on which
the award becomes enforceable or the settlement comes into
operation
• In any other case, the bonus shall be paid within a period of 8
months from the close of the accounting year.
• However, the appropriate govt may, upon an application made to it
by the employer with sufficient reasons, by order, extended the said
period of 8 months to such further period as it deems fit.
• The total period so extended shall not in any case exceed 2 years.
 Kharim Bidi factory v. Their workmen
• it was held that, bonus made after lapse of 2 years and 3 months
after the close of the accounting year is a belated claim in the
absence of circumstances justifying the delay.
• Sec 20: Application of the Act to establishments in public sector in certain cases
• Sec 21: Recovery of bonus due from an employer
1. If the amount of bonus payable under this Act is not paid by the employer, within
the prescribed time, aggrieved person shall make application to the controlling
authority and he shall issue certificate to that amount to the collector.
2. Collector shall recover the same along with compound interest at such rates as the
central govt may, specify and pay the same to the person entitled thereto.
3. Controlling authority before issuing a certificate, shall give the employer a
reasonable opportunity of being heard.
4. Application shall be made within 1 year from the date on which the money
became due to the employee from the employer. However, application may be
entertained after the expiry of 1 year, if the appropriate govt is satisfied that the
applicant had sufficient cause for not making the application within the said period.
 Baidyanath Ayurvedic Bhawan Mazdoor union v. Management of
baidyanath Ayurvedic Bhawan
• the payment of bonus was delayed due to delaying tactics of the
employer.
• in this case, it was the payment of attendance bonus (outside the
purview of the Act) which was delayed by over a decade.
• the SC awarded interest at 9% per annum from the due date till the
date of disbursement.
• Sec22: Reference of disputes under the Act
• Sec 23: Presumption about accuracy of balance sheet and profit and
loss account of corporation and companies
• Sec 24: Audited accounts of banking companies not to be
questioned
• Sec 25: Audited of accounts of employers, not being corporations or
companies
 Sec 26: Maintenance of register, 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.
Sec 27: Inspectors
• AG shall appoint and specify the limits within which they shall exercise jurisdiction.
• An inspector shall:
a. Require an employer to furnish such information as he may consider necessary
b. At any reasonable time, enter any establishment or any and examine any accounts, books,
registers and other documents relating to the employment of persons or payment of salary or
wage or bonus in the establishment.
c. 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
d. Make copies of or take extracts from, any book, register or other document maintained in
relation to the establishment.
e. exercise such other powers as may be prescribed.
• every inspector shall be deemed to be a public servant
• Any person required to produce any accounts, books, register or
other documents or to give information to the Inspector, shall be
legally bound to do so.
Sec 28: Penalty
• If any person:
1. Contravenes any of the provision of this Act or any rule made
thereunder
2. To whom a direction is given or a requisition is made under this Act
fails to comply with the direction or requisition ,
 Shall be punished with imprisonment for a term which may extend to
6 months or with fine which may extend to 1000 rupees, or with both.
Payment of Gratuity Act, 1972
 Gratuity
• Gratuity is the retirement benefit like the Provident Fund.
• But unlike pension, but like provident fund, it is a lump sum payment
to which the employee becomes entitled after rendering long and
meritorious service to the employer.
• But unlike Provident Fund where a worker has also to contribute a
part of his wages, gratuity is non-contributory, and all the financial
burden falls on the employer.
• It is paid on his superannuation, death, disablement due to accident
or disease, retirement or resignation after rendering service for a
specified period.
• Originally, it meant gratuitous payment, made by the employer to his
workmen at his pleasure to keep the workers contented.
• But with the efflux of time the judiciary has transformed it into a legitimate
claim which worker could demand after rendering meritorious service to the
employer for a certain period.
• After the enactment of the Payment of Gratuity Act, 1972, it has now
become a statutory right.
• The Payment of Gratuity (Amendment) Act, 2018 received the Presidential
assent on 28th March, 2018 and has been notified on 29th March, 2018.
• According to the notification, the Central Govt has specified that the amount
of gratuity payable to an employee shall not exceed INR 2,000,000.
• Further, for the purpose of calculation of continuous service for the payment
of gratuity to employees who are on maternity leave, the Central Govt has
specified that the total period of maternity leave shall not exceed 26 weeks.
 Applicability of the Act
• Act applies to-
a. Every factory, mine, oilfield, plantation, port and railway company
b. every shops or establishment within the meaning of any law for the
time being in force in relation to shops & establishments in a state,
in which 10 or more persons are employed, or were employed, on
any day of the preceding 12 months;
c. such other establishments or class of establishments, in which 10
or more employees are employed, or were employed, on any day of
the preceding 12 months, as the central govt may, by notification,
specify in this behalf
 Definitions
 Sec 2(a): ‘’Appropriate Government’’ means,
• In relation to an establishment:
i. Belonging to or under the control of the Central Govt
ii. Having branches in more than one state
iii. Of a factory belonging to, or under the control of, the Central
Government
iv. Of a major port, mine, oil field or railway company,
 then, the Central Govt is the Appropriate Govt.
• In any other case, the State Govt.
 Sec 2(b): ‘’Completed year of service’’ means –
• continuous service for one year.

 Sec 2(c): ‘’Continuous service’’ means-

• continuous service as defined under sec 2-A.
  Sec 2A: ‘’Continuous service’’
1. An employee is said to be in continuous service for a period if for that period, he
has been uninterrupted service.
• Uninterrupted service include- which may be interrupted on account of :
• sickness,
• accident,
• leave,
• absence from duty without leave (not being absence in respect of which an order
treating the absence as break in service has been passed in accordance with the
standing order, rules or regulations governing the employees of the establishment)
• lay off, strike or a lock out or cessation of work not due to any fault of the
employee
whether such uninterrupted or interrupted service was rendered before or after
the commencement of this Act.
2. Where an employee (not being an employee employed in a seasonal
establishment) is not in continuous service within the meaning of
clause 1, for any period of one year or six months, he shall be deemed
to be in continuous under the employer:
a. Where an employee is not in continuous service for a period of 1
year- if the employee during the period of 12 calendar months
preceding the date with reference to which calculations is to be
made, has actually worked under the employer for not less than-
i. 190 days, in the case of an employee employed below the ground
in a mine or in an establishment which works for less than 6 days in
a week
ii. 240 days in any other case.
b. Where an employee is not in continuous service for a period of six
months-
• has actually worked under the employer for not less than:
i. 95 days, in the case of an employee employed below the ground in
a mine or in an establishment which works for less than 6 days in a
week.
ii. 120 days, in any other case.
 For the purpose of clause 2, the number of days on which an
employee has actually worked under an employer shall include the
days on which:
i. He has been laid off under an agreement/ as permitted by standing
orders made under any law applicable to the establishment.
ii. He has been on leave with full wages, earned in the previous year.
iii. he has been absent due to temporary disablement caused by
accident arising out of and in the course of his employment.
iv. In case of a female employee, she has been on maternity leave not
exceeding 26 weeks- as per 2018 amendment Act
  Sec 2(e): ‘’Employee’’ means-
 any person (other than an apprentice) :
who is employed for wages
 terms of service- express or implied
 Employed in:
i. Any establishment
ii. Factory
iii. Mine
iv. Oilfield
v. Plantation
vi. Port
vii. railway company
viii. Shop
Employed to do work which may be:
i. Skilled
ii. Semi-skilled
iii. Unskilled
iv. Manual
v. Supervisory
vi. Technical
vii. Clerical
 Employee under this Act does not include:
i. An apprentice
ii. An employee holding a civil post under the Central or State govt,
and governed by some other Act or rules providing for the payment
of gratuity.
 Sec 2(q): “Retirement’’ means-
• termination of the service of an employee otherwise than on
superannuation.

 Sec 2(s):”Superannuation” in relation to an employee means-

• the attainment of the age as is fixed in the contract or conditions of
service after which the employee has to vacate the employment.
 Employer-Sec 2(f)
• means, in relation to any establishment, factory, mine, oilfield,
plantation, port, railway company or shop:
i. Belonging to, or under the control of, the Central Govt or a State
Govt, a person or authority appointed by the Appropriate Govt for
the supervision and control of employees, or where no person or
authority has been so appointed, the head of the Ministry or the
Department concerned.
ii. Belonging to, or under the control of, any local authority, the
person appointed by such authority for the supervision and control
of employees or where no person has been so appointed, the chief
executive officer of the local authority.
iii. In any other case, the person, who, or the authority which, has the
ultimate control over the affairs of the establishment, factory, mine,
oilfield, plantation, port, railway company or shop and where the said
affairs are entrusted to any other person, whether called a manager, or
managing director or by any other name, such person.
 Sec 2(s): wages
• Means all emoluments which are earned by an employee while on
duty or on leave in accordance with the terms and conditions of his
employment and which are paid or are payable to him in cash and
includes dearness allowance but does not include any bonus,
commission, house rent allowance, overtime wages and any other
allowance.
 Salient features of the Act
students to note: explain the features with the provisions
of the Act
• applicability of the Act
• The Act is a self –contained and an exhaustive Act and the provisions of this Act and rules
made under it have an overriding effect on all other Acts or instruments or contracts so far
as they are inconsistent with this Act.
• statutory right of gratuity
• provides for executive and quasi-judicial machinery for the matters pertaining to
nomination, determination and recovery of gratuity.
• Executive machinery pertains to maintenance of records regarding opening, change or
closure of establishments, display of notices and maintenance of records by the controlling
authority
• The quasi-judicial functions have been divided between the employers and the controlling
Authority in as much as for payment of gratuity, the first forum provided is an application
to the employer. When the employer has declined or avoided payment of gratuity, then an
application is required to be made to the controlling authority.
• Machinery provided for recovery rests with the controlling authority.
• Orders of the controlling authority for payment or determination of
gratuity are applicable before the appropriate govt or the appellate
authority.
 Sec 3: Controlling authority
• The Appropriate Govt may appoint any officer to be a controlling
authority.
• he shall be responsible for the administration of this Act
• Different controlling authorities may be appointed for different areas.
 Payment of Gratuity- Sec 4
• According to sec 4(1) of the Payment of Gratuity Act, gratuity is paid
after termination of employee after rendering continuous service of
not less than 5 years:
a) On his retirement
b) on superannuation
c) on his death or disablement due to accident or disease.

However, the competition of continuous service of five years shall not

be necessary where the termination of the employment of any
employee is due to death or disablement.
• Sec 4(2)- for every year of completed service or part thereof in excess
of 6 months, the employer shall pay gratuity to an employee at the
rate of fifteen days wages based on the rate of wages last drawn by
the employee concerned.
• In the case of piece-rated employee, daily wages shall be computed
on the average of the total wages received by him for a period of
three months immediately preceding the termination of his
employment and for this purpose, the wages paid for any overtime
work shall not be taken into account.
 Amount of gratuity payable

a) Quantum of gratuity for the monthly rated

employee:
• gratuity shall be calculated at the rate of 15 days which is based on
the rate of wages last drawn by the employees concerned for every
completed year of service or any part thereof exceeding 6 months.
• Last drawn wages x 15 x No. of years of completed service
26
b) Quantum of gratuity in case of piece rated
employee:
• Daily wages shall be computed on the average of the total wages
received by the employee for a period of 3 months immediately
preceding the termination of his employment .
• for this purpose, wages paid for any overtime work shall not be taken
into account.
• Average wages x 15x No. of years of completed service
26
c) Quantum of gratuity in seasonal establishment:
• In the case of an employee who is employed in a seasonal
establishment and who is not so employed throughout the year, the
employer shall pay the gratuity at the rate of 7 days wages for each
season.
3. Sec 4 of the Act provides that, the amount of gratuity payable to an
employee shall not exceed 20,00,000 rupees.(earlier it was 10,00,000)
4. For the purpose of computing the gratuity payable to an employee
who is employed, after his disablement, on reduced wages, his wages
for the period preceding his disablement shall be taken to be the wages
received by him during that period, and his wages for the period
subsequent to his disablement shall be taken to be the wages as so
reduced.
5. Sec 4 provides that, nothing in this section shall affect the right of an
employee to receive better terms of gratuity under any reward or
agreement or contract with the employer.
 Forfeiture of Gratuity
• Gratuity of an employee who has been terminated.
• The Act deals with this issues in 2 parts:
 Sec 4(6)(a):
• Employee whose service have been terminated for act of wilful omission or
negligence causing any damage or loss or destruction of property belonging to
employer, gratuity shall be forfeited is limited to the extent of damage.
• In absence of proof of the extent of damage, the right of forfeiture is not available.
 Sec 4(6)(b):
• Employee has been terminated-
a. For riotous and disorderly conduct or any other act of violence.
b. For act which constitutes an offence involving moral turpitude provided that such
offence is committed by him in the course of employment.
Compulsory Insurance- sec 4A
• It is compulsory for an employer to obtain an insurance for payment
towards gratuity under this Act from LIC.
1. Every employer, other than an employer or an establishment
belonging to, or under the control of, the CG or SG, shall obtain an
insurance for his liability for payment towards the gratuity under
this Act, from Life Insurance corporation of India or other
prescribed insurer.
2. AG may, exempt an employer who had already established an
approved gratuity fund in respect of his employees and who desires
to continue such arrangement, and every employer employing 500
or more persons who establishes an approved gratuity fund
3. For the purpose of effectively implementing the provisions of this
section, every employer shall within such time as may be prescribed get
his establishment registered with the controlling authority in the
prescribed manner and no employer shall be registered under the
provisions of this section unless he has taken an insurance referred to
in sub sec 1 or has established an approved gratuity fund referred in
sub sec 2.
4. AG may make rules
5. Where an employer fails to make any payment by way of premium to
the insurance referred in sub sec 1 or by way of contribution to an
approved gratuity fund referred to in sub-sec 2, he shall be liable to pay
the amount of gratuity due under this Act (including interest, if any, for
delayed payments) forthwith to the controlling authority.
6. Whoever contravenes the provisions of sub sec 5 shall be punishable
with fine which may extend to 10,000 rupees and in the case of a
continuing offence with a further fine which may extend to 1000
rupees for each day during which the offence continues.

Section 5: Power to Exempt

 Sec 6: Nomination
• Normally paid to the employee
• In case of death to nominee
• In case of no nominee, then to the heirs
• In case the nominee or heir is the minor, then the gratuity shall be
deposited with the controlling authority appointed u/s3.
• And the controlling authority shall deposit the same for the benefit of
the minor in such bank/ financial institution as may be prescribed,
until nominee or heir attains the age of majority.
Sec 7: Determination of amount
of gratuity
• A person who is eligible for the payment of gratuity under this Act or
any person shall send a written application to the employer, within
such time for the payment of gratuity
• As soon as gratuity becomes payable-employer : whether application
received or not-
 determine the amt of gratuity
 give notice in writing to such person and controlling authority-
specifying the amt so specified.
• employer- arrange to pay within 30 days from the date it becomes
payable.
• If employer has not paid the gratuity within specified time:
 employer shall pay it with interest at such rate- not exceeding the
rate notified by CG for repayment of long term deposits.
• No interest payable-
 default by employee
 employer taken permission from controlling authority.
• If there is any disputes as to the amount of gratuity or admissibility of
any claim or as to persons entitled to receive it-
 employer shall deposit the amt determined as payable by him as
gratuity before the controlling authority.
 In this case, employer or employee or any other person raising the
dispute may make an application to the controlling Authority for
deciding the dispute.
 Then controlling authority will make an enquiry after giving an
opportunity of being heard to the parties and pass the order- either
direct employer to pay the amount or reduced the amt already
deposited.
• While conducting enquiry controlling-same power of civil court.
• Any person aggrieved by an order of controlling authority-
 appeal to the appropriate Govt or such authority specified by AG.
 AG or appellate authority is satisfied that the appellant was
prevented by sufficient cause- extend a further period of 60 days.
 AG or appellate authority- give reasonable opportunity of being
heard- confirm/modify/reverse the decision of the controlling
authority.
 Sec 7A: Inspectors
• Appropriate Govt appoints
• define the area, extend distribution/ allocation of work, if 2 or more
inspectors are appointed for same area.
• deemed to be the public servants
 Sec 7B: Powers of Inspectors
• require an employer to furnish such information as he may consider necessary
• Enter and inspect, at all reasonable hours, with such assistants, any premises of
a factory, mine, oilfield, plantation, port, railway company, shop or other
establishment to which this Act applies, for the purpose of examining any
register, record or notice or other document required to be kept or exhibited
under this Act.
• Examine with respect to any matter under this Act, the employer or any person
whom he finds in such premises.
• Make copies of, or take extracts from any register, record, notice or other
document, as he may consider relevant, where he has reason to believe that
any offence under this Act has been committed by an employer
• Exercise such other powers as may be prescribed.
 Sec 8:Recovery of Gratuity
• If the amount of gratuity payable under this Act is not paid by the employer, within
the prescribed time, to the person entitled thereto, the controlling authority shall,
on an application made to it in this behalf by the aggrieved person, issue a
certificate for that amount to the collector.
• The Collector shall recover the same along with compound interest at such rate as
the central Govt may, specify and pay the same to the person entitled thereto.
• The controlling Authority before issuing a certificate under this section, shall give
the employer a reasonable opportunity of being heard.
• Also, the amount of interest payable under this section shall, in no case, exceed
the amount of gratuity payable under this Act.
 Nagar Palika v. Controlling Authority
• it was held that, if gratuity is not paid, it must be paid with compound interest,
calculated till the date of payment, at the rate prescribed u/s 8 of the Act.
• Sec 9: Penalty
• Whoever, for the purpose of avoiding any payment to be made by
himself under this Act or of enabling any other person to avoid such
payment, knowingly makes any false statement or causes false
representation, shall be punishable with imprisonment for a term
which may extend to 6 months, or with fine which may extend to
10,000 rupees or both.
• An employer who contravenes, any provisions of this Act shall be
punishable with imprisonment for a term which shall not be less than
3 months but which may extend to 1 year, or with fine which shall not
be less than 10,000 rupees but which extend to 20,000 rupees, or
both.
• Sec 10: Exemption of employer from liability in certain cases
• If an employer is charged with an offence punishable under this Act,
and where the employer proves to the satisfaction of the court:
1. That he has used due diligence to enforce the execution of this Act
AND
2. That the said other person committed the offence in question
without his knowledge, consent or connivance,
• The other person shall be convicted of the offence and shall be liable
for the punishment as if he were the employer and the employer shall
be discharged from any liability under this Act in respect of such
offence.
• Sec 11: Cognizance of offence
• Sec 12: Protection of action taken in good faith
• Sec 13: Protection of gratuity
• Sec 14:Act to override other enactments, etc.
• Sec 15: Power to make rules