Methods to Regulate Wages in India | Labour | Economics

The various methods which the government has adopted to regulate wages in India are the following: 1. Prescribing Minimum Rates of Wages 2. Preventing Discrimination in Remuneration on the Ground of Sex 3. Regulating Payment of Wages 4. Compulsory Conciliation and Arbitration of Wage Disputes 5. Setting up Wage Boards 6. Pay Commissions.

Method # 1. Prescribing Minimum Rates of Wages:

The Minimum Wages Act, 1948, is a direct State measure for the regulation of wages in the country. The Act empowers the Central and State Governments to fix minimum rates of wages in respect of certain sweated and unorganised employments specified in Part 1 or Part II of the schedule appended to it.

Over the years, minimum wages have been fixed for an increasing number of these employments both at the Central and State Government levels.

It is open to the appropriate government to refrain from fixing minimum rates of wages in any scheduled employment wherein the whole State there are less than one thousand employees engaged in such employment.

Minimum wages payable under this Act are to be paid in cash only. But where it has been the custom to pay wages wholly or partly in kind the appropriate Government may, by notification in the Gazette, authorise the payment of minimum wages either wholly or partly in kind. It may also provide for the supply of essential commodities at concessional rates.

The Act also provides for the review and revision of minimum wages at intervals not exceeding 5 years.

Procedurally, rates can be fixed in one of the two ways. The appropriate government can fix such rates either on the recommendations of Advisory Committees appointed under Sec. 5(1) (a) of the Act, or by directly publishing the proposed minimum rates of wages in the Gazette under Sec. 5(1) (b) of the Act. Both the procedures are currently being used.

The operation of the Act suffers from several weaknesses. First of all, the provisions of the Act are not properly implemented. A study of the working of the Act conduct by the Government of India in 1965 through a one-man committee, known as the Vidyasagar Committee, concluded that the desired objective of the Act could not be fully achieved due to the inadequate and improper organisation of the administrative machinery.

Inadequate inspectorate and administrative machinery make the enforcement of the Act extremely difficult. Second, criticism of the Act relates to the review of minimum wages. Even though the Act provides for at least five-yearly review, the minimum wages are actually reviewed only at much longer intervals.

Based on the evidence submitted to it, the National Commission on Labour (1966) concluded, we have come across several instances where the rates have not been revised even once after they were initially fixed. In view of the persistent inflationary trend in the Indian economy, the recommendation of the NCL that the minimum wages should be revised at least every three years merits a serious consideration.

Central and State Governments have not yet acted on this recommendation. Finally, the Act does not define minimum wages in precise terms nor does it lay down any norms for their determination. The question is whether it should. Trade union organisations have argued that the ‘minimum wage’ should be spelled out in precise terms to avoid differences in interpretation by the wage-fixing authorities.

But, India is a large country with substantial regional variations in industrial development, and wide differences in prices of essential goods between regions. The minimum wages will necessarily vary from industry to industry and region to region and even within one region and industry from time to time. To prescribe any rigid across-the-board money figure of the minimum wage would, therefore, be unwise and undesirable.

Method # 2. Preventing Discrimination in Remuneration on the Ground of Sex:

Discrimination in remuneration on the ground of sex is prevented by the Equal Remuneration Act, 1976. Under this Act it is the duty of the employer to pay equal remuneration to men and women workers for the same work or work of a similar nature.

Further, no discrimination is to be made against women in recruitment and in conditions of service subsequent to recruitment such as promotion, training etc. unless it is so provided for under any law for the time being in force.

Method # 3. Regulating Payment of Wages:

Payment of wages is regulated by the Payment of Wages Act, 1936. The object of this Act is to provide for regular payment of wages without any unauthorised deductions to persons who are employed in any industrial establishment or factory or by a railway contractor and whose monthly wages are less than Rs. 1,600. Following are the important provisions of this Act.

(I) The Act lays down the time of payment of wages as under:

(a) In case of railway, factory, or industrial establishment where the number of persons employed is more than 1,600 wages must be paid before the expiry of the tenth day after the last day of the wage period in respect of which the wages are payable.

(b) In case of railway, factory or industrial establishment where the number of persons employed is less than 1,600 wages must be paid before the expiry of the seventh day after the last day of the wage period in respect of which the wages are payable.

(c) In case of termination of employment of any person, the wage earned by him must be paid before the expiry of the second working day from the day on which his employment is terminated.

(d) In case of persons employed on a dock, wharf, or jetty or a mine, the balance of wages found due on completion of the final tonnage account of the ship or wagons loaded or unloaded, as the case may be, must be paid before the expiry of the seventh day from the day of such completion.

(II) The Act says that the wages shall be paid in cash but the employer may, after obtaining the written consent of the concerned employee, pay him wages either by cheque or by crediting the same in his bank account.

(III) The Act gives an exhaustive list of permissible deductions which can be made from the wages of a worker. The employer cannot make any deductions other than those mentioned in this list.

These permissible deductions are as follows:

(i) Fines;

(ii) Deductions for absence from duty;

(iii) Deductions for damage to or loss of goods entrusted to the worker for custody or for loss of money for which he is required to account where such damage or loss is directly attributable to his neglect or default;

(iv) Deductions for recovery of losses sustained by a railway administration on account of (a) acceptance by the employed person of counterfeit or base coins or mutilated or forged currency notes, (b) failure of the employee to invoice, bill, collect or account for appropriate changes due to that administrator, (c) any rebates or refunds incorrectly granted by the employed person where such loss is directly attributable to his neglect or default;

(v) Deductions for payment of insurance premium on Fidelity Guarantee Bonds;

(vi) Deductions made with the written authorisation of the employed person for contributions to the Prime Minister’s National Relief Fund or to such other fund as the Central Government may, by notification in the Official Gazette, specify;

(vii) Deductions made under orders of courts of any other competent authority;

(viii) Deductions made, with the written authorisation of the employed person, for payment of the fees payable by him for the membership of any trade union, registered under the Trade Unions Act, 1926;

(ix) Deductions for contributions to and repayment of advance from any provident fund;

(x) Deductions for payment to co-operative societies or to a scheme of insurance maintained by the Indian Post Office;

(xi) Deductions made with the written authorisation of the person employed for payment of any premium on his life insurance policy, or for the purchase of securities of the Government of India or of any State Government;

(xii) Deductions for such amenities and services supplied by the employer as the State Government may authorize;

(xiii) Deductions for house accommodation supplied by the employer;

(xiv) Deductions for recovery of advances or overpayment of wages;

(xv) Deductions for recovery of loans made from any fund constituted for the welfare of labour;

(xvi) Deductions for recovery of loans granted for house building or other purposes approved by the State Government;

(xvii) Deductions for income-tax payable by the employed person;

(xviii) Deductions made with the written authorisation of the employed person, for the payment of his contribution to any fund constituted by the employer or a trade union registered under the Trade Unions Act, 1926, for the welfare of the employed persons or the members of their families, or both, and approved by the State Government, during the continuance of such approval.

(IV) The total amount of deductions in any wage period from the wages of any employed person shall not exceed:

(i) In cases where such deductions are wholly or partly made for payment to co-operative societies, 75% of such wages; and

(ii) In any other case, 50% of such wages.

(V) Any loss of wages resulting from the imposition upon an employee, for good and sufficient cause, any of the following penalties shall not be deemed to be a deduction from wages, if imposition of any such penalty is in conformity with Rules/Standing Orders applicable to the concerned employee.

(i) Withholding of increment or promotion (including stoppage of increment at efficiency bar);

(ii) Suspension, and

(iii) Reduction to a lower post or time scale or to a lower stage in a time scale.

Method # 4. Compulsory Conciliation and Arbitration of Wage Disputes:

The Industrial Disputes Act, 1947 provides for the constitution of various authorities for the purpose of prevention and settlement of industrial disputes connected with the terms of employment or with the conditions of labour of any person.

The Act makes conciliation compulsory in all disputes in all public utility services and optional in other industrial establishments. Conciliation or mediation is a procedure which endeavours to settle a controversy by assisting parties to reach a voluntary agreement and the ultimate decision is made by the parties themselves.

Article 136 of the Constitution gives the Supreme Court power to entertain appeals from the decisions of any court or tribunal in India. This has resulted in the creation of a vast volume of case law on wage fixation binding on all tribunals and subordinate courts.

The Act empowers the appropriate Government to constitute one or more Industrial Tribunals or national Tribunals and to refer to these Tribunals a wage dispute for adjudication.

A National Tribunal can be constituted only for the adjudication of industrial disputes involving questions of national importance or industrial disputes affecting industrial establishments situated in more than one State. The reference to a National Tribunal can be made only by the Central Government.

We give below a brief summary of some important rulings on the subject:

1. While the financial position of the employer and the State of the national economy have their say in the matter of wage fixation, the requirements of a workman living in a civilized and progressive society also come to be recognised (Standard Vacuum Refining Co. of India Ltd. vs. Its Workmen, 1961).

2. While fair wages should be given to labour, the inroads made on the profits should not be as unreasonable as to drive capital away from fruitful employment or to affect prejudicial capital formation itself.

3. The capacity of the industry to pay is one of the essential ingredients in the fixation of wages except in cases of bare subsistence or minimum wage where the employer is bound to pay the same irrespective of such capacity (Express Newspapers Pvt. Ltd. vs. Union of India).

4. A fair wage is a wages above the minimum and limited by the capacity of industry to pay, the actual level being determined by- (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 the national income and its distribution, and (iv) The place of the industry in the economy of the country.

5. Comparisons should be both intra-industry, i.e. among units in the same industry or line of business and inter-industry, i.e., among units in other industry or line of business. When units in the same industry are of distinctly unequal size, profitability, standing, etc., they must be divided into appropriate classes, so that comparison is made as between “comparable” concerns, a small unit being compared only with other small units (French Motor Car Co. Ltd. vs. Their Workmen).

Method # 5. Setting up Wage Boards:

Prior to the advent of Wage Boards, the Tribunals set up under the Industrial Disputes Act played a significant role in the resolution of wage disputes. But it was soon realised that in the organised industries, the number of frequency of wage disputes could not be reduced unless the parties themselves had the ultimate say in reaching decisions. The desire for enabling the parties to resolve disputes on wages themselves found its first positive expression in the Second Five-Year Plan which recommended the establishment of wage boards on an industry-wide basis.

In pursuance of the recommendations of the Second Plan which were further reiterated by the Third Plan, a large number of tripartite Wage Boards have come to be established in different industries during the past 20 years. It should be noted that there is no law in India providing for the establishment of these Boards.

These are appointed by the Government of India purely on an adhoc basis on the demand of trade unions and employers. A Wage Board consists of an impartial chairman, 2 other independent members and 2 or 3 representatives of workers and employers each.

The board is required to take into account the following points in determining the wage structure of an industry:

(i) Need-based minimum wages,

(ii) Industry’s capacity to pay,

(iii) Productivity of labour,

(iv) Prevailing rates of wages.

(v) Level of national income and its distribution,

(vi) Place of industry in the economy of the country,

(vii) Needs of industry in developing economy,

(viii) Requirement of social justice, and

(ix) Adjustment of wage differentials in such a manner as to provide incentives for skill formation.

The efforts of Wage Boards in fixing wage differentials have primarily remained limited to:

(a) Standardisation of occupational nomenclature, and

(b) Classification of various occupations into different types and prescribing wage rates for each of the broader classes or occupations.

The wage boards, in general, have not found it possible to adopt job evaluation for the refixation of differentials or for removing anomalies from the existing wage structure.

The relevant observations of the wage board for cement industry regarding the feasibility of adopting job evaluation are given below as instance:

“Now in the cement industry, if differentials have to be fixed by job analysis and evaluation, it would have to be done factory-wise. There are wide variations in factories in the layout, capacity of mills, types of machinery installed, process of manufacture—dry or wet, etc. Moreover, the same designations do not have the same job content in all factories. Practical considerations do not call for such a detailed and minute analysis. If the board were to attempt to do this, it would take a very long time; a large number of experts would be needed to go round every factory in India to finish the work in any reasonable time. The board which has to make its recommendations about the wage structure in a reasonable time cannot do this. Even if such a scientific analysis were possible changes in the rating of jobs would have to be done gradually. For all these reasons, this board has not considered it expedient to embark on job analysis and evaluation for the refixation of differentials.”

Finding it impractical to determine wage structure on the basis of job evaluation, the Wage Boards have looked into other possible alternatives as justification for existing differentials.

Thus, the Cement Wage Board presumed existing differentials, “which were determined by custom and usage, local circumstances, experience in working over a number of years, awards and agreements” to present ‘a rough job evaluation and preferred to disturb them as little as possible.’

The recommendations of the Jute Wage Board were based primarily on what was established by the awards of Tribunals. The Iron and Steel Wage Boards also decided to base its recommendations on the existing differentials which are the product of hard collective bargaining in some of the plants and which have stood the test of time.

In consequent, there has been a heterogeneous growth of wages in different industries for same skills. But there are some notable exceptions. Thus for example, point rating method of job evaluation is used by aluminum manufacturers in India. A job is analysed into 11 factors (viz., experienced responsibility, intelligence, mechanical ability process knowledge, motor accuracy and dexterity, education, social physical effort, hazard and working high and maximum).

Similarly, factor comparison method is used by tobacco manufacturers and manufacturers of industrial chemicals. The former rank job under the following five factors are mental requirements, skill, physical requirements, responsibility and working conditions. The latter rank jobs under four factors only, i.e., mental requirements; Physical requirements acquire skills and knowledge (education, training, and experience) and working conditions.

In a study of 30 companies in India (of which 15 were American subsidiaries) carried out by Anant R. Negandhi and Y. Krishna Shetty in 1970 it was found that in 53% of the companies (60% of the American subsidiaries and 46% of the local firms) compensation and employee benefits are based on job evaluation and wage surveys, in 36% they are based on wage surveys only and in 11 % there is no identifiable basis.

The Committee set up by the National Commission on Labour identifies three major problems from which the Wage Boards suffer:

(1) Majority of the recommendations of the wage boards are not unanimous;

(2) Implementation of the recommendations of the wage boards has been difficult as they are non-statutory; and

(3) The time taken by the wage boards to complete their task has been rather unduly long. It has been varied from 3 to 5-1/2 years.

The NCL therefore recommended that:

(i) The wage boards should normally be required to submit their recommendations within one year of their appointment;

(ii) The recommendations of a wage board should remain in force for a period of 5 years

(iii) Unanimous recommendations of a wage board should be made statutorily binding; and

(iv) A manual of procedure for Wage Boards should be prepared.

Method # 6. Pay Commissions:

Wages of Central and State Government employees are determined through the mechanism of Pay Commissions. The Fourth Central Pay Commission gave its report in 1986. The interval between the third and the fourth commissions was 13 years. In between Pay Commissions, government employees are granted dearness allowance towards neutralisation or cost of living increases.

National Wage Policy:

At present no national wage policy exists in India.

However, the efforts made in this direction are worth consideration:

1. National Commission on Labour (1969):

The commission did not go beyond recognizing the need for a national wage policy in these words. “The wage policy has to be framed taking into account such factors as the price level which can be sustained, the employment level to be aimed at, requirement of social justice, and capital formation need for growth.”

2. Chakraborty Committee (1974):

Recognising the need for uniformity in wage payments across regions, industries, and occupations the committee suggested that a National Wage Commission and a National Wage Board be set up to evaluate all jobs, work out a grade structure based on skill differentials and fix wages for each grade.

3. Bhoothalingam Study Group (1978):

This Group opined that the determination of a homogeneous national wage structure is very difficult. We are not beginning with a clean slate and the burden of history is with us. Disparities, anomalies and irrationalities exist and have come to be regarded as rights.

Further, there is no reasonable method of determining what should be the absolute level of wage for each category of workers and what is a right differential between one category of workers and another. Even if a national wage structure is determined, which is doubtful, or the historically determined structure accepted, which is improbable, several adjustments in wages or are required from time to time.

(a) A periodic increment in earnings which is merely related to time, and which has become part of our culture so today.

(b) Some protection of earnings against changes in the value of money.

(c) A correction in the relative wages of one set of workers with a certain degree of skill and onerousness of work relative to the much higher wage of another set of dissimilar workers with different degree of skill and onerousness of work.

(d) A correction for changes in the productivity of workers which may take various shapes.

(e) A correction in the relative wages of one set of workers, with a certain degree of skill and certain onerousness of work, relative to the much higher wage of another set of similar workers with the same degree of skill and onerousness of work.

(f) A set of corrections to reduce the disparities across industries/sectors and within industries/sectors.

The Group tried to provide appropriate guidelines and principles:

(a) To get such corrections and adjustments within the framework of collective bargaining,

(b) To reduce disparities, and

(c) To raise gradually the areas of unduly depressed wages.

The Group recommended that future dearness allowance should be linked to the cost of living on a uniform basis. It further said that the present system of bonus payment in the country which was related to profit is not suitable for organisations which do not have the profit motive, e.g. government, railways, posts and telegraphs, etc.

But these views were opposed by trade unions. They argued that the D.A. payment linked to wage slabs and bonus payment linked to allocable surplus had been customarily accepted and legally sanctified and any change in these methods would be disadvantageous to the workers. The report was therefore shelved by the government.

In the ultimate analysis it may be said that despite a number of practical difficulties there is need for a rational wage policy in the country which may:

i. Link reared to effort;

ii. Encourage need-based educational system and skill- formation;

iii. Promote modern managerial practices to improve productivity;

iv. Apportion the gains of improved productivity between management, workers and consumers, and

v. Develop an inbuilt mechanism to control wages, incomes and prices.