Minimum wages and the floor wage

1. Minimum, fair and living wage

The Fair Wages Committee (1948) described three levels. A minimum wage provides for bare subsistence and also for the efficiency of the worker, with some measure of education, medical care and amenities. A fair wage lies above it and depends on the industry’s capacity to pay and prevailing rates. A living wage, the goal of Article 43, allows a life of dignity, comfort and social participation.

The minimum wage does not depend on capacity to pay. In Crown Aluminium Works v. Workmen, 1957 INSC 86, AIR 1958 SC 30, the Court said an employer who cannot pay the minimum wage has no right to engage labour. Bijay Cotton Mills v. State of Ajmer, 1954 INSC 92, AIR 1955 SC 33, upheld the 1948 Act as a reasonable restriction under Article 19(6), even if some employers had to close. U. Unichoyi v. State of Kerala, 1961 INSC 149, AIR 1962 SC 12, confirmed that the minimum wage must be paid whatever the employer’s position. In Workmen v. Reptakos Brett & Co., 1991 INSC 281, (1992) 1 SCC 290, the Court added children’s education, medical needs, recreation, festivals and provision for old age and marriage, at 25 per cent of the total, to the food, clothing and housing norms of the 15th Indian Labour Conference (1957).

2. “Wages” and the 50 per cent rule

Section 2(y) [MW Act s.2(h)] defines wages as all remuneration, in money or capable of being expressed in money, payable for employment, and includes basic pay, dearness allowance and retaining allowance. It excludes (a) statutory bonus not part of the contract, (b) value of housing, light, water, medical attendance and excluded amenities, (c) employer’s PF and pension contributions, (d) conveyance allowance, (e) special expenses of the job, (f) house rent allowance, (g) amounts under an award or settlement, (h) overtime, (i) commission, (j) gratuity, and (k) retrenchment compensation and retirement benefits.

The 50 per cent rule (first proviso): if the excluded payments under clauses (a) to (i) exceed one-half of total remuneration (or another notified percentage), the excess is added back to wages. Employers can no longer keep basic pay artificially low and pay most of the salary as allowances. Two further points:

• For equal pay and for payment of wages, conveyance, HRA, award or settlement amounts and overtime count as wages (second proviso).
• Remuneration in kind counts as wages up to 15 per cent of total wages (Explanation).

Example. Total pay ₹40,000: basic and DA ₹15,000, allowances ₹25,000. Half of ₹40,000 is ₹20,000, so ₹5,000 of the allowances is added back. Wages are ₹20,000.

3. Fixing minimum wages: sections 6 and 7

• The appropriate Government fixes the minimum rate for time work or piece work, and for piece workers a guaranteed time rate (section 6(1)–(3)) [s.3].
• Time rates may be by the hour, day or month (section 6(4)).
• Fixation looks primarily at skill (unskilled, semi-skilled, skilled, highly skilled) or geographical area or both, and may add for arduous conditions such as heat, hazardous processes or underground work (section 6(6)). The number of rates should be kept to a minimum (section 6(7)).
• Components (section 7) [s.4]: a basic rate plus a cost of living allowance adjusted to the price index; or a basic rate with or without that allowance plus the cash value of concessional supplies; or an all-inclusive rate.

4. Procedure: section 8

For fixing or revising, the Government uses one of two methods (section 8(1)) [s.5]:

• Committee method: committees of employer and employee representatives in equal numbers, plus independent persons not exceeding one-third, hold inquiries and recommend (section 8(2)) [s.9].
• Notification method: proposals are published, and are considered on a date at least two months later. For a revision by this method, the Advisory Board must also be consulted.

After considering the recommendations or representations the Government notifies the rates, which take effect three months after issue unless the notification says otherwise (section 8(3)). Rates must be reviewed ordinarily at intervals of not more than five years (section 8(4)) [s.3(1)(b)].

5. The floor wage: section 9

The Central Government fixes a floor wage taking into account the minimum living standards of a worker, and may fix different floor wages for different geographical areas (section 9(1)). It may take the advice of the Central Advisory Board and consult the States first (section 9(3)). State minimum wages cannot be lower than the floor wage, and a State whose existing minimum is above the floor wage cannot reduce it (section 9(2)). The 1948 Act had nothing like this; there was only a non-statutory national floor level.

6. The duty to pay and related rules

• No employer shall pay any employee less than the notified minimum rate (section 5) [s.12].
• A daily-rated employee who works less than a full day is paid for the full day, unless he was unwilling to work (section 10) [s.15].
• Two classes of work: each paid at its own minimum rate (section 11) [s.16]. Piece work with only a time rate fixed: at least the time rate (section 12) [s.17].
• The Government may fix normal working hours, a weekly day of rest and pay for work on a rest day (section 13) [s.13].
• Overtime at not less than twice the normal rate (section 14) [s.14].
• Any agreement to accept less is void (section 60) [s.25], and the Code overrides contrary agreements and awards (section 61).

7. Authorities, claims and penalties

• Advisory Boards, Central and State, with equal employer and employee members, independent members up to one-third, and one-third women (section 42) [ss.7–9].
• Inspector-cum-Facilitator to advise and inspect (section 51) [s.19].
• Claims: an authority not below a Gazetted Officer hears claims, may award compensation up to ten times, and should decide within three months; claims by the employee, a registered union or the Inspector within three years, delay condonable; recovery as arrears of land revenue (section 45) [s.20]. Appeal within ninety days to an appellate authority (section 49). The employer bears the burden of proving payment (section 59).
• Penalty for paying less than due: fine up to ₹50,000; repeat within five years, imprisonment up to three months or fine up to ₹1 lakh or both (section 54(1)) [s.22].

8. Below-minimum wages as forced labour

In People’s Union for Democratic Rights v. Union of India, 1982 INSC 67, (1982) 3 SCC 235 (the Asiad case), workers building the Asian Games projects in Delhi were paid less than the minimum wage through contractors. The Court held that a person who works for less than the minimum wage, under the pressure of poverty and hunger, provides “forced labour” within Article 23. Compulsion includes economic compulsion. Article 23 binds private persons as well as the State, and the State must enforce labour laws against its contractors.

In Sanjit Roy v. State of Rajasthan, 1983 INSC 5, (1983) 1 SCC 525, a Rajasthan law exempted famine relief works from the Minimum Wages Act. The Court struck down the exemption: the State cannot take advantage of the helplessness of drought-hit people to extract labour at less than the minimum wage, and doing so violates Article 23.

9. Problem

During a drought a State runs relief works and pays labourers less than the notified minimum wage, saying it is giving them help, not employment. Advise the labourers.

Issue. Whether relief workers can be paid below the minimum wage.

Law. Section 5 forbids paying any employee less than the minimum rate; the Code covers Government establishments. Paying below the minimum is forced labour under Article 23 (PUDR), and an exemption for famine relief work was struck down in Sanjit Roy.

Application. The labourers do real work on public projects in return for payment. Calling it relief does not change that. Their acceptance is driven by hunger, which is the compulsion PUDR recognised.

Conclusion. They are entitled to the full minimum wage with arrears, by a claim under section 45 or by a writ petition under Article 32 or 226 for violation of Article 23.

How this is examined

A regular essay: “What is minimum wage? How is it fixed?” (June 2011, January 2012), “components of minimum wage” (June 2012, December 2015), “object of the Minimum Wages Act” (June 2013, December 2014). Answer under the Code: concept and the three wage levels, Crown Aluminium and Reptakos, the definition of wages with the 50 per cent rule, sections 6 to 9, duty to pay, claims, and close with PUDR and Sanjit Roy.