Payment of wages: deductions and fines - Labour and Industrial Law I

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1. Who is responsible
2. Mode of payment: section 15
3. Wage period: section 16
4. Time limits: section 17
5. Permitted deductions: section 18
6. Fines: section 19
7. Deductions for absence: section 20
8. Deductions for damage or loss, services, advances and loans
9. Records, claims and penalties
10. Problem
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The mischief. Before 1936 employers paid late, paid in kind, and cut wages for every real or imagined fault. The Payment of Wages Act, 1936 fixed when and how wages must be paid and allowed only listed deductions. Chapter III of the Code on Wages, 2019 (sections 15 to 25) keeps that scheme and extends it to all employees, without the old wage ceiling. The 1936 Act sections are given in brackets.

1. Who is responsible

Every employer must pay all amounts due under the Code to every employee he employs. If he fails, the company, firm, association or other proprietor of the establishment is responsible (section 43) [s.3]. “Employer” includes a contractor and, in a factory, the occupier and manager (section 2(l)). Chapter III does not apply to Government establishments unless the appropriate Government applies it by notification (section 25).

2. Mode of payment: section 15

Wages must be paid in current coin or currency notes, by cheque, by crediting the employee’s bank account, or by electronic mode (section 15) [s.6]. The Government may notify establishments that must pay only by cheque or bank credit. Payment in kind is not a mode of paying wages; the 15 per cent rule in section 2(y) only values kind remuneration for computing wages.

3. Wage period: section 16

The employer fixes the wage period as daily, weekly, fortnightly or monthly, but no wage period may exceed one month (section 16) [s.4].

4. Time limits: section 17

Daily: at the end of the shift.
Weekly: on the last working day of the week, before the weekly holiday.
Fortnightly: before the end of the second day after the fortnight.
Monthly: before the expiry of the seventh day of the next month.
On removal, dismissal, retrenchment, resignation or unemployment due to closure: within two working days (section 17(2)).

The Government may fix other time limits where reasonable, and time limits in other laws are not affected (section 17(3), (4)). Under the 1936 Act [s.5] the monthly deadline was the 7th day for establishments with fewer than 1,000 persons and the 10th day for others; the Code uses the 7th day for all.

5. Permitted deductions: section 18

No deduction may be made except those authorised by the Code, notwithstanding any other law (section 18(1)) [s.7(1)]. Any payment by the employee to the employer or his agent is deemed a deduction. Withholding an increment or promotion, reduction in rank and suspension, for good and sufficient cause, are not deductions if the employer’s provisions meet the notified requirements.

The closed list in section 18(2) [s.7(2)]:

(a) fines;
(b) absence from duty;
(c) damage to or loss of goods expressly entrusted to the employee, or loss of money he must account for, directly attributable to his neglect or default;
(d) house accommodation supplied by the employer, Government or a housing board;
(e) authorised amenities and services, up to their value (tools and raw materials are not “services”);
(f) recovery of advances, with interest, or adjustment of overpayment, and loans from labour welfare funds;
(g) recovery of approved house-building and other loans;
(h) income tax, other statutory levies, and deductions ordered by a court or competent authority;
(i) contributions to social security funds and schemes (PF, pension, health insurance);
(j) payments to a co-operative society;
(k) trade union fees, with the employee’s written authorisation;
(l)–(n) specified railway losses (counterfeit coins, failure to collect fares or charges, wrong refunds);
(o) contributions to the Prime Minister’s National Relief Fund or a notified fund, with written authorisation.

Ceiling: total deductions in a wage period shall not exceed 50 per cent of the wages (section 18(3)) [s.7(3), which allowed 75 per cent where part went to co-operative societies]. Any excess is recovered as prescribed (section 18(4)). If the employer deducts but does not deposit the money with the fund or authority, the employee is not responsible (section 18(5)).

6. Fines: section 19

Only for acts and omissions specified in a notice approved by the Government or prescribed authority and exhibited on the premises (section 19(1), (2)) [s.8(1), (2)].
Only after the employee has had an opportunity to show cause (section 19(3)).
Total fines in a wage period: not more than 3 per cent of the wages for that period (section 19(4)).
No fine on an employee under fifteen (section 19(5)).
No recovery by instalments, or after ninety days from the date of imposition (section 19(6)) [s.8(6), sixty days].
A fine is deemed imposed on the day of the act or omission (section 19(7)).
Fines go into a register and may be spent only on purposes beneficial to the employees, as approved (section 19(8)).

7. Deductions for absence: section 20

A deduction may be made only for absence from the place where the employee must work, for the whole or part of the working period (section 20(1)) [s.9]. It must be proportionate: the deduction cannot bear a larger proportion to the period’s wages than the absence bears to the total working time in that period (section 20(2)).

Two special rules. If ten or more employees, acting in concert, absent themselves without due notice and without reasonable cause, the deduction may include up to eight days’ wages due to the employer in lieu of notice under their terms of employment. And an employee who is present but refuses to work, in a stay-in strike or for any other unreasonable cause, is deemed absent (Explanation).

In Bank of India v. T.S. Kelawala, 1990 INSC 192, (1990) 4 SCC 744, the Court held that an employer may deduct wages proportionately for the period employees were on strike, whether the strike is legal or illegal. The employee is not entitled to wages for work he did not do.

8. Deductions for damage or loss, services, advances and loans

Damage or loss (section 21) [s.10]: the deduction cannot exceed the amount of the damage or loss caused by the employee’s neglect or default; it can be made only after a show-cause opportunity; and it must be recorded in a register.
Housing, amenities, services (section 22) [s.11]: only if accepted by the employee as a term of employment or otherwise, and not more than their value.
Advances (section 23) [s.12]: an advance given before employment began is recovered from the first full wage payment, but travel advances are not recovered; other advances as prescribed.
Loans (section 24) [s.12A]: extent and interest as prescribed.

Trap. Two different ceilings. Fines: 3 per cent of the wage period’s wages. All deductions together: 50 per cent. A fine is itself a deduction, so it counts towards the 50 per cent as well.

9. Records, claims and penalties

The employer must keep registers, display an abstract of the Code with wage rates and pay dates, and issue wage slips (section 50) [s.13A]. Claims for unauthorised deductions or delayed wages go to the authority under section 45 [s.15], with compensation up to ten times and a three-year limitation. The employer bears the burden of proving payment (section 59). Penalties are under section 54.

10. Problem

Ravi earns ₹20,000 a month. In March his employer (i) fines him ₹1,000 for late attendance, without notice or hearing; (ii) deducts ₹12,000 for a machine part damaged by another worker; and (iii) pays the balance on 15 April. Advise Ravi.

Issue. Whether the fine, the deduction and the date of payment comply with the Code.

Law and application.

Fine: section 19(4) caps fines at 3 per cent, here ₹600, and section 19(1)–(3) requires an approved, displayed notice of fineable acts and a show-cause opportunity. The fine is unlawful on both counts.
Damage deduction: section 18(2)(c) allows deduction only for damage directly attributable to his neglect or default, and section 21 limits it to the loss and requires a hearing. Damage caused by another worker cannot be deducted from Ravi. In any case ₹13,000 of deductions in total would exceed the 50 per cent ceiling of ₹10,000 under section 18(3).
Delay: for a monthly wage period, payment is due before the expiry of the seventh day of the next month (section 17(1)(iv)). Paying on 15 April is late.

Conclusion. Ravi can file a claim under section 45 for the full ₹13,000, with compensation up to ten times. The employer is liable under section 54.

How this is examined

“Explain the deductions which may be made from wages” has been a full question (December 2017). Short notes on fines, wage period and time of payment, and deductions for absence are also common. List the deductions in section 18(2) in order, give the 50 per cent ceiling, then the conditions for fines (3 per cent, age fifteen, ninety days), for absence (proportion, eight days, stay-in strike, Kelawala) and for damage or loss (not more than the loss, hearing). A problem with arithmetic like the one above is a common way of testing it.