49 The Payment of Wages Act 1936: Object, Constitutional Foundation, Coverage and Wage Ceiling, Responsibility for Payment, Time of Payment (Section 5), Authorised Deductions (Sections 7-13), Deduction Limits (50% / 75%), Claims, Penalties and the Code on Wages 2019
49.1 A Statute About When Wages are Paid
The Minimum Wages Act 1948 tells the employer how much must be paid. The Payment of Wages Act 1936 tells the employer how and when it must be paid — and what may be deducted before it reaches the worker. Two abuses had become common in pre-Independence Indian industry. First, wages were paid late, intermittently or partly in kind, leaving workers without cash to buy food. Second, employers deducted heavily for fines, accommodation, debt and even abstract “discipline” — sometimes leaving little or nothing in the worker’s hand. The 1936 Act regulated both — fixing wage periods, requiring payment in current coin or notes, listing the only deductions permitted, and capping the total deduction. This chapter pulls together the framework and notes how the Code on Wages 2019 carries it forward.
49.2 1 · Object, Extent and Commencement
| Aspect | Detail |
|---|---|
| Year | 1936 (Act 4 of 1936) |
| Commencement | 28 March 1937 |
| Object | To regulate the payment of wages to certain classes of persons employed in industry — fixing the time of payment, the medium and the permissible deductions |
| Extent | The whole of India |
| Successor | Code on Wages 2019 |
The Act was based on the recommendations of the Royal Commission on Labour in India (1929-31) — chaired by J. H. Whitley — which had documented widespread abuses in the payment of wages in Indian industry.
49.3 2 · Applicability and Wage Ceiling — Section 1
The Payment of Wages Act applies to:
- Persons employed in any factory (as defined under the Factories Act).
- Persons employed in any railway (by a railway administration or contractor).
- Persons employed in an industrial or other establishment specified under Section 2(ii).
49.3.1 Wage Ceiling — Section 1(6)
The Act has historically applied only to employees drawing wages below a prescribed ceiling. The ceiling has been revised many times:
| Year | Ceiling |
|---|---|
| 1936 (original) | Rs 200 per month |
| 1957 amendment | Rs 400 per month |
| 1976 | Rs 1,000 per month |
| 1982 | Rs 1,600 per month |
| 2005 | Rs 6,500 per month |
| 2012 (last revision) | Rs 24,000 per month |
The current wage ceiling under the original Payment of Wages Act 1936 is Rs 24,000 per month (revised in 2012). Employees drawing wages above this ceiling fall outside the Act’s protection — although the Code on Wages 2019 removes the ceiling and applies universally to all employees.
49.4 3 · Key Definitions — Section 2
| Term | Section | Substance |
|---|---|---|
| Wages | 2(vi) | All remuneration capable of being expressed in money payable under contract — includes dearness allowance, OT, sums payable under settlement or award; excludes bonus not forming part of remuneration, value of accommodation, contributions to PF / pension by employer, travel allowance, gratuity |
| Employer | 2(ia) | Person responsible for payment of wages |
| Industrial or other establishment | 2(ii) | Tramway, motor transport, dock, mine, plantation, workshop, building / construction, oilfield, agricultural / forestry / horticulture establishment |
| Factory | 2(ic) | As defined in the Factories Act 1948 |
| Wage period | 2(viii) | The period fixed by the employer for the payment of wages |
49.5 4 · Responsibility for Payment of Wages — Section 3
The Act fixes responsibility on the employer for payment of wages. Where the worker is employed by a contractor, the direct contractor is the primary employer for the purpose of the Act; but where the contractor defaults, the principal employer is liable.
| Situation | Person responsible |
|---|---|
| Factory | The manager named under the Factories Act |
| Industrial / other establishment | The owner / chief executive |
| Railways | Person nominated by the railway administration |
| Contractor’s employees | The contractor — or, on default, the person who employed the contractor |
49.6 5 · Fixation of Wage Period — Section 4
Every person responsible for payment of wages must fix a wage period. The wage period shall not exceed one month.
The wage period under Section 4 cannot exceed one month. NTA stems frequently test this maximum. Daily, weekly, fortnightly or monthly wage periods are all valid.
49.7 6 · Time of Payment of Wages — Section 5
This is the heart of the Act.
| Establishment | Time-limit |
|---|---|
| Employing less than 1,000 persons | Wages payable before the expiry of the 7th day after the last day of the wage period |
| Employing 1,000 or more persons | Wages payable before the expiry of the 10th day after the last day of the wage period |
| Termination of employment | Wages payable before the expiry of the 2nd working day from the day of termination |
| Payment day | Must be a working day |
| Payment medium | Until 2017, only in current coin or currency notes; since then, cheque or direct bank credit also allowed |
Section 5’s three deadlines — 7th day (<1,000 workers), 10th day (1,000+ workers), 2nd working day (termination) — are among the most-tested provisions of the Payment of Wages Act. NTA stems often pair the threshold size with the wrong deadline.
49.8 7 · Wages to Be Paid in Current Coin or Currency Notes — Section 6
Section 6 originally required wages to be paid in current coin or currency notes only. The 2017 amendment added that wages may also be paid:
- By cheque.
- By crediting the wages to the bank account of the employee.
The amendment was a response to the move toward financial inclusion and digital wages, particularly during demonetisation (November 2016).
49.9 8 · Deductions — Sections 7 to 13
The Act lists the only deductions an employer may make from wages. Any deduction not in this list is unauthorised and amounts to a withholding of wages.
49.9.1 Section 7 — Permissible Deductions
| # | Deduction | Section |
|---|---|---|
| 1 | Fines | 8 |
| 2 | Absence from duty | 9 |
| 3 | Damage or loss of goods entrusted to the employee | 10 |
| 4 | House accommodation supplied by the employer | 11 |
| 5 | Amenities and services supplied | 11 |
| 6 | Recoveries of advances | 12 |
| 7 | Income tax | — |
| 8 | Provident-fund contribution | — |
| 9 | Co-operative society dues | 13 |
| 10 | Approved insurance scheme premium | — |
| 11 | Court / authority deductions | — |
| 12 | Recovery of overpayment of wages | — |
| 13 | Specific welfare contributions | — |
49.9.2 Section 8 — Fines
A fine can be imposed only:
- For an act or omission specified in a list approved by the appropriate government.
- After show-cause notice to the worker.
- Up to a maximum of 3 % of monthly wages.
- Not on a child below 15 years.
- Not for an offence that occurred more than 60 days ago.
- Recorded in a register of fines and credited to a fund for worker welfare.
49.9.3 Section 9 — Deduction for Absence from Duty
A deduction may be made only proportionate to the period of absence.
49.9.4 Section 10 — Deduction for Damage or Loss
- Cannot exceed the actual damage caused.
- Only after show-cause notice.
- Recorded in a register.
49.9.5 Section 11 — Deduction for House Accommodation, Amenities and Services
Only where the worker has accepted the accommodation or service.
49.9.6 Section 12 — Recovery of Advances
Permissible only for advances given before employment commenced or, during employment, with restrictions on the maximum installment.
49.10 9 · Overall Limits on Deductions — Section 7(3)
This is the single most-tested provision after Section 5.
| Worker category | Maximum aggregate deduction |
|---|---|
| Worker whose deductions include payments to cooperative societies | 75 % of the wage |
| Other workers | 50 % of the wage |
The aggregate of all permissible deductions cannot exceed 50 % of the wage in any wage period — raised to 75 % where deductions include cooperative-society dues. NTA stems test the 75 % cooperative-society ceiling against the general 50 % cap.
49.12 11 · Penalties — Sections 20 to 25
| Section | Offence | Punishment (original) |
|---|---|---|
| 20(1) | Failure to pay wages within the prescribed time | Fine up to Rs 7,500 |
| 20(2) | Making unauthorised deductions | Fine up to Rs 7,500 |
| 20(3) | Wage period exceeding one month / payment not in current coin / non-display of notices | Fine up to Rs 3,750 |
| 20(4) | Wilful obstruction of inspector | Up to 6 months imprisonment or fine up to Rs 22,500 |
| 20(5) | Continuing offences | Additional daily fine |
| 20(6) | Continued failure to comply | Up to 3 months imprisonment |
| 22 | Bar of suits where Section 15 applies | Civil court barred |
The Code on Wages 2019 enhances these penalties substantially.
49.13 12 · Modes of Payment — The 2017 Amendment
The Payment of Wages (Amendment) Act 2017 added that wages may be paid not only in current coin or currency notes but also by:
- Cheque drawn in favour of the employee.
- Credit to the bank account of the employee.
The appropriate government may, by notification, specify industrial or other establishments where the employer must pay wages only by cheque or bank credit — promoting digital payment and reducing leakage. Most state governments have notified this.
49.14 13 · Important Distinctions
| Dimension | Payment of Wages Act 1936 | Minimum Wages Act 1948 |
|---|---|---|
| Concern | When and how wages are paid; what deductions are permitted | How much must be paid |
| Wage ceiling | Yes — Rs 24,000 (now removed under Code) | None |
| Universe | Factories, railways, certain industrial establishments | Scheduled employments |
| Time-limit on payment | 7th / 10th / 2nd day | Not regulated |
| Deduction cap | 50 % / 75 % | Not addressed |
| Code on Wages 2019 | Subsumed | Subsumed |
49.15 14 · Position under the Code on Wages 2019
The Code on Wages 2019 subsumes the Payment of Wages Act 1936 with significant modernisation.
| Provision | 1936 Act | Code on Wages 2019 |
|---|---|---|
| Coverage | Subject to wage ceiling | No wage ceiling — universal |
| Wage period | Maximum 1 month | Continued |
| Time of payment | 7th / 10th / 2nd day | Continued, with broader applicability |
| Mode of payment | Cash; cheque / bank credit added in 2017 | All modes — including digital wallets and electronic transfer |
| Authorised deductions | Section 7 list | Continued |
| Aggregate deduction cap | 50 % / 75 % | Continued |
| Claim authority | Section 15 authority | Continued — Inspector-cum-Facilitator |
| Time-limit for claim | 12 months | Continued |
| Penalties | Modest | Substantially enhanced (up to Rs 1 lakh and imprisonment) |
49.16 15 · Significance and Critique
- First Indian statute to regulate the timing and manner of wage payment.
- Created the conceptual basis for the principal employer’s secondary liability later carried into the Contract Labour Act 1970 and the IR Code 2020.
- The 50 % / 75 % deduction cap has been one of the Act’s most enduring protections.
-
Critique:
- The wage ceiling left many higher-paid employees outside the Act.
- Enforcement has been uneven, particularly in the unorganised sector.
- Penalties were too low to deter persistent violators.
- The Code on Wages 2019 addresses these by removing the wage ceiling, enabling digital wages and enhancing penalties.
49.17 Practice Questions
The Payment of Wages Act was enacted in:
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Under Section 4, the wage period cannot exceed:
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Wages must be paid before the expiry of the 7th day after the wage period in establishments employing:
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On termination of employment, wages must be paid within:
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Under Section 7(3), the aggregate of permissible deductions cannot ordinarily exceed:
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The aggregate deduction cap may rise to 75 % where deductions include payments to:
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Under Section 8, the total amount of fines in a month cannot exceed:
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The current wage ceiling for applicability of the Payment of Wages Act (last revised 2012) is:
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Under Section 15, a claim must be made within:
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Match the section with its content:
| (i) | Section 4 | (a) | Claims |
| (ii) | Section 5 | (b) | Wage period (max 1 month) |
| (iii) | Section 7 | (c) | Time of payment |
| (iv) | Section 15 | (d) | Authorised deductions |
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The Section 15 Authority can award compensation up to:
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After the 2017 amendment, Section 6 permits payment of wages by:
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The recommendations leading to the Payment of Wages Act 1936 came primarily from the:
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A deduction for absence from duty under Section 9:
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An appeal against the Section 15 Authority's order lies within:
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Which is not an authorised deduction under Section 7?
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Under the Code on Wages 2019, the wage ceiling for applicability of the timely-payment regime is:
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Wages must be paid before the 10th day of the next wage period in establishments employing:
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A fine under Section 8 cannot be imposed on a person below:
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The Payment of Wages Act 1936 has been subsumed under:
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49.18 Quick Recall
- Payment of Wages Act 1936 — based on recommendations of the Royal Commission on Labour (Whitley Commission, 1929-31); in force 28 March 1937.
- Original applicability: factories, railways, certain industrial establishments — subject to wage ceiling (currently Rs 24,000/month); universal under Code on Wages 2019.
- Section 4 — Wage period maximum one month.
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Section 5 — Time of payment:
- < 1,000 workers — before 7th day after wage period.
- 1,000+ workers — before 10th day.
- On termination — before 2nd working day.
- Payment on a working day; cash, cheque or bank credit (post-2017 amendment).
- Section 7 — Authorised deductions — exhaustive list including fines, absence, damage, accommodation, advances, IT, PF, co-operative-society dues, insurance, court deductions, overpayment recovery.
- Section 7(3) — Aggregate deduction cap: 50 % generally; 75 % where cooperative-society dues are included.
- Section 8 — Fines: max 3 % of monthly wages; show-cause notice; not on persons below 15; recorded in register; credited to a worker-welfare fund.
- Section 14 — Inspectors; Section 15 — Claims within 12 months; compensation up to 10 times the unpaid amount.
- Section 17 — Appeal within 30 days to District Court (where Rs 300+).
- Section 20 — Penalties for delay / unauthorised deductions / non-display — modest under original Act; substantially enhanced under Code on Wages 2019.
- Code on Wages 2019 — subsumes the Act; universal applicability — no wage ceiling; all modes of payment including digital; framework otherwise carried forward.