Law of Wages: formula sheet

Key formulas

Wages: inclusions

Wages = basic pay + dearness allowance + retaining allowance (if any)

These are the core components named in Section 2(y). Wages is all remuneration payable under terms of employment, with the listed exclusions.

The 50% add-back rule

If (excluded payments under clauses (a) to (i)) > 50% of total remuneration, then excess over 50% is added to wages

The Central Government may notify a different percentage. Clauses (j) and (k) (gratuity, retrenchment compensation and retirement benefits) are not part of this test. Total remuneration is calculated under the definition.

Wages in-kind rule

Remuneration in kind in lieu of wages counts as wages up to 15% of total wages payable

Applies where the employee is given remuneration in kind in lieu of the whole or part of the wages.

Equal wages and payment of wages exception

For equal wages to all genders and for payment of wages, include conveyance allowance, HRA, award/settlement remuneration and overtime

Second proviso: clauses (d), (f), (g) and (h) are taken into computation for these two purposes.

Worker versus employee

Worker excludes: managerial or administrative staff; supervisors drawing wages above ₹15,000 per month (or notified amount)

Employee covers managerial and administrative work too. Worker expressly includes working journalists and sales promotion employees, and, for industrial dispute proceedings, persons dismissed, discharged or retrenched in connection with the dispute. Apprentices are outside both definitions.

20-person test in Section 41(2)

The Chapter in which Section 41 appears applies to establishments with 20 or more persons employed on any day in an accounting year

Section 41(2) is subject to the exclusions in Section 41(1), such as LIC, RBI, universities, non-profit hospitals and Government establishments. It speaks of 'this Chapter', so confirm the Chapter in your bare Act before naming it.

Floor wage (section 9)

Minimum wage fixed under section 6 ≥ floor wage

The Central Government fixes the floor wage, and it can differ by geographical area. An earlier higher minimum wage must not be reduced.

Overtime rate (section 14)

Overtime rate ≥ 2 × normal rate of wages

Applies for every hour or part of an hour worked beyond a normal working day, where minimum wage is fixed by the hour, day or a longer prescribed period.

Fixation procedure (section 8)

Committee route OR notification of proposals with at least 2 months' notice

The notification comes into force after 3 months from issue unless it says otherwise. Review or revision is ordinarily at an interval not exceeding five years.

Committee composition (section 8(2))

Employer reps = Employee reps; independent persons ≤ 1/3 of total members

Employee representatives must equal employer representatives in number.

Components of minimum wage (section 7)

Basic + cost of living allowance (+ cash value of concessions), or an all-inclusive rate

Cost of living allowance is adjusted to the cost of living index number.

Piece work (sections 6(3) and 12)

Where only a minimum time rate is fixed, pay ≥ that minimum time rate

A minimum time rate must be fixed for piece workers so they secure a time-work minimum.

Less than a normal day (section 10)

Daily-rated employee working fewer hours is paid for a full normal day

Exceptions: failure to work is due to the employee's unwillingness, or other prescribed cases.

Wage period (Section 16)

Daily / weekly / fortnightly / monthly; never more than one month

Fixed by the employer. Different establishments may have different periods.

Daily-rated employees (Section 17(1)(i))

Pay at the end of the shift

Applies to employees engaged on a daily basis.

Weekly-rated employees (Section 17(1)(ii))

Pay on the last working day of the week, before the weekly holiday

Not on the holiday or after it.

Fortnightly-rated employees (Section 17(1)(iii))

Pay before the end of the second day after the end of the fortnight

Count from the end of the fortnight.

Monthly-rated employees (Section 17(1)(iv))

Pay before the expiry of the seventh day of the succeeding month

Salary for a month must be paid before the seventh day of the next month ends.

Exit payment (Section 17(2))

Within two working days of removal, dismissal, retrenchment or resignation

Also covers an employee who became unemployed due to closure of the establishment.

Mode of payment (Section 15)

Coin, currency notes, cheque, bank credit or electronic mode

Government may notify establishments that must pay only by cheque or bank credit.

Responsibility (Section 43)

Employer pays; if employer fails, proprietor company/firm/association/person is responsible

Firm has the meaning in the Indian Partnership Act, 1932.

General rule

No deduction from wages except those authorised under the Code (Section 18(1))

Any payment by an employee to the employer or agent is deemed a deduction.

Overall cap

Total deductions in a wage period ≤ 50% of wages (Section 18(3))

Subject to any other law in force. Excess over 50% may be recovered in the prescribed manner (Section 18(4)).

Absence deduction limit

Deduction ÷ Wages payable ≤ Period absent ÷ Total period required to work (Section 20(2))

Applies within the same wage period. Absence must be from the place where the employee is required to work.

Notice-in-lieu proviso

10 or more employees acting in concert, absent without due notice and without reasonable cause: extra deduction up to 8 days' wages (Section 20(2) proviso)

Only as due to the employer in lieu of notice under the contract, and subject to rules.

Damage or loss limit

Deduction ≤ Loss caused by employee's negligence or default (Section 21(1))

Show-cause opportunity is mandatory before deduction. Record it in the register (Section 21(2), (3)).

Written authorisation needed

Trade union fees (Section 18(2)(k)) and Prime Minister's National Relief Fund or notified fund (Section 18(2)(o))

Both require the employee's written authorisation.

Eligibility (s. 26(1))

Wages ≤ notified ceiling AND at least 30 days' work in the accounting year

The ceiling is set by notification of the appropriate Government. Do not quote a figure unless the question gives it.

Minimum bonus (s. 26(1))

Higher of (8⅓% × wages earned) and ₹100

Payable whether or not there is allocable surplus.

Maximum bonus (s. 26(3))

Proportionate to wages earned, not more than 20% × wages earned

Applies when allocable surplus exceeds the minimum bonus payable. It replaces the minimum bonus.

Wage ceiling for computation (s. 26(2))

Computation wage = higher of (notified amount) and (minimum wage fixed by the appropriate Government)

Used where actual wages exceed the notified amount.

Productivity bonus (s. 26(5))

Minimum bonus + productivity or production bonus ≤ 20% of wages earned

Excess over the minimum must come from an agreement or settlement.

Available surplus (s. 33)

Gross profits − sums under s. 34 (+ direct tax adjustment under the proviso)

The proviso adds the difference in direct tax on preceding year's gross profits, before and after deducting bonus paid or payable.

Set on and set off (s. 36)

Carry forward up to and including the fourth succeeding accounting year

Set on: excess surplus, limited to 20% of total wages of the establishment. Set off: shortfall in minimum bonus. The earliest year's carry forward is taken first.

Disqualification (s. 29)

Dismissal for fraud; riotous or violent behaviour on premises; theft, misappropriation or sabotage; conviction for sexual harassment

Dismissal for other reasons does not disqualify under this section.

Section 3(1): equal wages rule

No gender discrimination in wages + same employer + same work or work of a similar nature

Applies in an establishment or any unit of it, among employees.

Section 3(2)(i): no pay cut

Equality cannot be achieved by reducing any employee's wage rate

The employer must level up, not down.

Section 3(2)(ii): recruitment and conditions

No discrimination on ground of sex in recruitment for same or similar work and in conditions of employment

Exception: where employment of women in such work is prohibited or restricted by or under any law in force.

Section 2(v): same or similar work

Skill, effort, experience and responsibility are the same + similar working conditions + any gender-based difference not of practical importance

All elements must be tested on the facts.

Section 2(y) second proviso

For equal wages and payment of wages, count clauses (d), (f), (g), (h)

Conveyance allowance or travel concession, house rent allowance, award or settlement remuneration, overtime allowance.

Section 4: disputes

Dispute on same or similar nature of work decided by authority notified by the appropriate Government

Not decided by the employer.

Section 59: burden of proof

Burden to prove dues were paid lies on the employer

Applies to claims for non-payment or less payment of wages or unauthorised deductions.

Claims authority (S.45(1))

Appointed by appropriate Government by notification; rank not below Gazetted Officer

One or more authorities may be appointed.

Compensation (S.45(2))

Compensation may extend to 10 × claim determined, in addition to the claim

It is discretionary ('may'). The authority should endeavour to decide the claim within three months.

Who may apply (S.45(4))

Employee concerned OR registered Trade Union of which the employee is a member OR Inspector-cum-Facilitator

The union must be registered under the Trade Unions Act, 1926, and the employee must be its member.

Single application (S.45(5))

One application for any number of employees of an establishment, subject to rules

Saves multiple filings for a common default.

Limitation for claim (S.45(6))

3 years from the date the claim arises; later on sufficient cause

The authority may entertain a late application if sufficient cause is shown.

Recovery (S.45(3))

Certificate of recovery to Collector/District Magistrate; recovered as arrears of land revenue

Amount is remitted to the authority for payment to the employee.

Appeal (S.49)

Within 90 days of the order; later on sufficient cause; endeavour to dispose within 3 months

Appellate authority is at least one rank higher than the claims authority.

Cognizance of offences (S.52)

Complaint by or under authority of Government or authorised officer, or by employee, registered Trade Union or Inspector-cum-Facilitator; trial not below Metropolitan Magistrate or Judicial Magistrate of first class

Applies to offences, not wage claims.

Underpayment (s. 54(1)(a))

Employer pays less than due → fine up to ₹50,000

Applies to any amount due under the Code, including minimum wages.

Repeat underpayment (s. 54(1)(b))

Second or later offence within 5 years → imprisonment up to 3 months, or fine up to ₹1,00,000, or both

The employer must have been convicted earlier; the five years run from commission of the first or subsequent offence.

Other contravention (s. 54(1)(c))

Contravening any other provision, rule or order → fine up to ₹20,000

Residual clause.

Repeat other contravention (s. 54(1)(d))

Second or later within 5 years → imprisonment up to 1 month, or fine up to ₹40,000, or both

Again requires a prior conviction under clause (c).

Records offences (s. 54(2))

Non-maintenance or improper maintenance of records → fine up to ₹10,000

Overrides clause (c) for records.

Opportunity to comply (s. 54(3))

Written direction with time limit → if complied, no prosecution

Covers clause (c) and sub-section (2) offences only. Not available if the same violation is repeated within 5 years of the first.

Compounding amount (s. 56(1))

Sum = 50% of the maximum fine for the offence

Offences punishable with imprisonment only, or imprisonment and fine, cannot be compounded. Application is made to a notified Gazetted Officer, before or after prosecution.

Bar on compounding (s. 56(2))

No compounding for repeat offence within 5 years of an earlier compounded or convicted similar offence

Time runs from the date of commission of the earlier offence.

Default in compounding order (s. 56(7))

Additional sum = 20% of the maximum fine, in addition to such fine

Applies to a person who fails to comply with the compounding order.

Court and complaint (s. 52)

Complaint by Government or authorised officer, employee, registered trade union or Inspector-cum-Facilitator; trial by Metropolitan Magistrate or Judicial Magistrate of first class or higher

No court takes cognizance otherwise.

Quick revision

• Under Section 18, no deduction may be made from wages except those the Code authorises.
• Any payment made by an employee to the employer or his agent is deemed a deduction from wages.
• Total deductions in a wage period must not exceed 50% of wages; the excess may be recovered as prescribed.
• Deductions for trade union fees and for the Prime Minister's National Relief Fund need the employee's written authorisation.
• Deductions for damage or loss are allowed only for goods entrusted for custody, or money the employee must account for, and only if directly due to neglect or default.
• If an employer deducts but does not deposit the amount, the employee is not responsible for that default.
• A claim may be filed by the employee, a registered trade union of which the employee is a member, or the Inspector-cum-Facilitator.
• A claim is filed within three years of arising; later filing is allowed on sufficient cause.
• The authority may order compensation up to ten times the claim determined and should try to decide within three months.
• Unpaid claim and compensation are recovered through a certificate to the Collector or District Magistrate as arrears of land revenue.
• Paying less than due: fine up to ₹50,000; a repeat within five years can mean up to three months' imprisonment or fine up to ₹1 lakh, or both.
• Other contraventions: fine up to ₹20,000; improper records: fine up to ₹10,000; a first-time offender usually gets a written direction to comply before prosecution.

Common mistakes

• Treating all allowances as part of wages. Fix: Only basic pay, DA and retaining allowance are named inclusions. HRA, conveyance and overtime are excluded unless the 50% rule applies.
• Forgetting the 50% add-back rule. Fix: Always compare excluded payments (clauses (a) to (i)) with one-half of total remuneration and add back the excess.
• Saying the State Government fixes the floor wage. Fix: Remember that section 9 gives the floor wage power to the Central Government. The appropriate Government fixes minimum wages under section 6.
• Writing that a minimum wage can be reduced to match a lower floor wage change. Fix: Section 9(2) bars reducing an earlier minimum wage that is higher than the floor wage.
• Applying the monthly deadline to an employee who has resigned. Fix: Check first whether the employee has left. If yes, Section 17(2) applies: two working days.
• Saying the wage period can be up to a quarter or any period agreed in the contract. Fix: Remember: daily, weekly, fortnightly or monthly only, and never more than a month. A contract term cannot override this (Section 61).
• Saying total deductions can never exceed 50% of wages in any case. Fix: Add that Section 18(3) is subject to other laws and that the excess may be recovered in the prescribed manner under Section 18(4).
• Treating a cash payment by the employee to the employer as outside Section 18. Fix: Recall the Explanation: any payment by an employee to the employer or agent is deemed a deduction.
• Saying bonus is payable only if the employer made a profit. Fix: Minimum bonus under section 26(1) is payable whether or not there is allocable surplus. Only the amount above the minimum depends on surplus.
• Adding the 20% maximum on top of the minimum bonus. Fix: Under section 26(3) the proportionate bonus is paid in lieu of the minimum. The total never exceeds 20% of wages.

Exam tips

• Practise the wages computation with numbers. It is the most testable part of the definitions, and a clear table-free list of steps scores well.
• Always quote the 'one-half or such other per cent. as may be notified' wording. It shows you know the percentage can change.
• In case questions, tick off each limb of the definition against the facts before concluding. Examiners award marks for the analysis, not just the answer.
• For employer questions, mention the contractor limb and the occupier or manager limb separately. Open-book access does not help if you do not know where to look, so mark Sections 2 and 41 in your copy.
• Attach each rule to its section and recall the numbers exactly: two months, three months, five years, twice the normal rate.
• In a case question, say who the appropriate Government is and what it must do before reaching the conclusion.
• Draw a quick line of floor wage versus minimum wage when numbers are given. It makes the answer clear.
• For overtime sums, show the normal hourly rate, the doubled rate and the hours. Marks go for steps.