Realigning 'Wages' as Defined Across Acts

During a recently concluded meeting, the differing nature of definition of ‘wages’ was brought to light, with a proposal to standardise the same. While worker representatives of the board pushed for an immediate review, the ASSOCHAM showed concern. Here is what was proposed as a possible amendment. A ten-day window has been granted before its possible effect.

We bring you the context and coverage.

Definition of wages across Acts:

-          Of the 40 Central Acts, the term ‘wages’ has been defined in 19 Acts

-          Separate definitions have been provided in 12 of the 19 mentioned Acts

-          Each of these definitions mandate certain inclusions and exclusions that bear impact on the respective Act

Intent of review

-          To attempt to standardize the definition of wages as far as possible so as to make it uniform

-          Ensure implication of each definition is understood and objectives are not hampered in standardizing the definition

-          The unified definition be able to create a balance between needs of employers and employees alike, and maintain objectives of legislation simultaneously

Observations Across Acts:

Based on a study of wages across Acts, it has been observed that:

-          All Acts use Basic and DA as components

-          Implications of components is critical in certain Acts like Payment of Bonus where wage ceiling would increase to Rs. 21,000 per month owing to inclusions as a result of standardization. This would make employees not eligible for bonus. In such cases, a separate definition is warranted.

-          Inclusions and exclusions also have repercussions on EPF, ESIC, Maternity, Workmen’s Compensation and Gratuity Acts.

Common Inclusions in most Acts:

-          Basic

-          DA

-          HRA

-          Any additional remuneration by any name

Common exclusions:

-          Bonus as per Payment of Bonus Act

-          Any social security payments

-          TA

-          Special expenses

-          Gratuity

-          Termination benefit and retrenchment compensation

-          Value of house accommodation and other facilities like light, water etc.

Considerations:

Based on various observations and implications, there are certain recommendations proposed to standardising the definition of wages, which are:

-          Providing 2 sets of definitions. One would cover Payment of Gratuity, Employees’ Provident Fund and Employees State Insurance Acts, and one that covers the rest. The definition in Gratuity, EPF and ESIC would have just 2 or 3 inclusions and the other would have a larger number of inclusions and common exclusions

-          A cap of 50 percent to be provided in both definitions to avoid diversion of proportion of wages towards allowances

-          Providing a ceiling for ‘kind payments’, to ensure employees are not underpaid as a result, and that mandatory obligations like EPF contributions are met.

 The revised definition of wages (excluding Payment of Gratuity Act, EPF Act, Miscellaneous Provisions Act, and ESIC Act)

(a)    “wages” means all remuneration, whether by way of salary, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of employment or work done in such employment, and includes any, -

(i)                  Dearness allowances;

(ii)                House rent allowance;

(iii)               Remuneration payable under any award or settlement between the parties or order of court; and

(iv)               Additional remuneration payable under the terms of employment, with whatsoever name it is called,

But does not include –

(a)    Any bonus payable under this code, which does not form part of the remuneration payable under the terms of employment or which is not payable under any award or settlement between the parties or order of a court or Tribunal;

(b)    The value of any house accommodation or of the supply of light, water, medicinal attendance or other amenity or of any service excluded from the computation of wages by general or special order of the appropriate government;

(c)     Any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;

(d)    Any traveling allowance or the value of any traveling concession;

(e)    Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or

(f)      Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex-gratia payment made to him on the termination of employment;

(g)    Any overtime allowance; and

(h)    Any commission payable to the employee:

Provided that for calculating the wage under this clause, if any payments made by the employer to the employee under clauses (a) to (h) exceeds one half of all remuneration calculated under this clause, the amount which exceeds such one-half shall be deemed as remuneration and shall be accordingly added in all remuneration under this clause.

Explanation: Where an employee is given the lieu of the whole or part of the wages, payable to him, any remuneration in kind which does not exceed 15 percent of the total wages payable to him, shall be deemed to form part of the wages of such employee.

The revised definition of wages (for Payment of Gratuity Act, EPF Act, Miscellaneous Provisions Act, and ESIC Act)

“wages” means all remuneration paid or payable in cash to employee, if the terms of employment, express or implied, were fulfilled, be capable to a person employed in respect of his employment or of work done in such employment, and includes any:

(a)    Basic wages;

(b)    Dearness allowances; and

(c)     Retaining allowance (if any);

But does not include:

(a)    Any bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;

(b)    House rent allowance;

(c)     The value of any house-accommodation, or of the supply of water, light, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate government;

(d)    Any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon;

(e)    Any traveling allowance or the value of any traveling concession;

(f)      Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment; or

(g)    Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or any ex-gratia payment made to him on the termination of employment;

(h)    Any overtime allowance; and

(i)      Cash value of any food grains;

Provided that for calculating the wage under this clause, if any payments made by the employer to the employee under clauses (a) to (i) exceeds one half of all remuneration calculated under this clause, the amount which exceeds such one half shall be deemed as remuneration and shall be accordingly added in all remuneration under this clause.

Explanation: Where an employee is given in lieu of the whole part of the wages payable to him, any remuneration in kind by this employer, the value of such remuneration in kind which does not exceed 15 percent of the total wages payable to him, shall be deemed to form part of the wages of such employee.