48 The Payment of Wages Act, 1936
This chapter studies the Payment of Wages Act, 1936 — the statute that regulates the time of payment, the form of payment, and the deductions permissible from the wages of certain employees. The Act focuses on procedural protection: how and when wages must be paid, not what amount must be paid (which is the Minimum Wages Act’s domain).
48.1 Background and Object
Pre-1936 industrial wages were often paid irregularly, in kind, or with arbitrary deductions for fines, damages and contributions. The Royal Commission on Labour (1931) recommended a statute regulating wage payment. The Payment of Wages Act, 1936 — passed on 23 April 1936 — gave effect.
| Object | What it does |
|---|---|
| Regular and timely payment | Fix wage period and pay date |
| Cash payment | Mandates payment in current coin or currency notes (now also bank transfer) |
| Authorise deductions | Lists permissible deductions (and prohibits all others) |
| Provide a remedy for delayed or short payment | Statutory authority to entertain claims |
48.2 Coverage and Definitions
| Element | Position |
|---|---|
| Application | Persons employed in any factory, in any railway, and in industrial / other establishments specified by the appropriate government |
| Wage ceiling for individual coverage | The Act applies to employees drawing wages up to a prescribed monthly amount (currently ₹24,000) |
| Code on Wages, 2019 | Universal coverage — all employees |
The Act covers more than just factory workers but, until the Code on Wages, was capped by a wage ceiling.
48.2.1 Definition of Wages — Section 2(vi)
Wages include all remuneration capable of being expressed in monetary terms — basic, DA, retaining allowance, awards, bonuses payable under settlement, sums payable on termination of service. Excludes: bonus that does not form part of wages, value of housing, employer’s contribution to PF, travelling allowance, gratuity (except as included by definition).
48.3 Time of Payment of Wages — Sections 4 and 5
| Provision | Rule |
|---|---|
| §4 Wage period | Must not exceed one month |
| §5(1)(a) Establishments < 1,000 workers | Wage payable before expiry of 7th day after the end of the wage period |
| §5(1)(b) Establishments ≥ 1,000 workers | Wage payable before expiry of 10th day after the end of the wage period |
| §5(2) Daily-rated workers in railways, etc. | Special provisions |
| §5(4) Termination | Wages of a discharged person to be paid before the end of the 2nd working day after termination |
| §5(3) Working day | Payment to be made on a working day |
These deadlines are the most-tested numerical provisions of the Act.
48.4 Form of Payment — Section 6
Wages must be paid in current coin or currency notes. The 2017 amendment additionally allowed payment by cheque or by credit to the bank account of the employee, subject to written authorisation.
The shift to cashless wage payment (UPI / bank transfer) was particularly important during the COVID-19 lockdown for migrant workers.
48.5 Deductions from Wages — Sections 7 to 13
Section 7 lists the only permissible deductions. Anything not in the list is illegal.
| Deduction | Statutory anchor |
|---|---|
| Fines | §8 — only after employee is heard |
| Absence from duty | §9 |
| Damage or loss of goods | §10 |
| House accommodation | §11 |
| Amenities and services | §12 |
| Recovery of advances | §13 |
| Recovery of loans | §13A |
| Income tax | §13B |
| By order of court or other authority | — |
| Provident Fund / ESI / membership of cooperative society | — |
| Insurance premium and PM Relief Fund / National Defence Fund — with employee’s authorisation | — |
| Trade union subscription with consent | — |
| Contribution to any fund constituted by the employer or trade union | — |
48.5.1 Total Deduction Cap — Section 7(3)
Total deductions in any wage period must not exceed:
- 75% of wages where deductions are wholly or partly for cooperative payments;
- 50% of wages in any other case.
The cap protects the worker from leaving with no take-home pay.
48.5.2 Specific Deduction Rules
| Rule | Provision |
|---|---|
| Fines (§8) | Total fine in any wage period must not exceed 3% of wages; only for acts and omissions specified in advance with prior approval; recovered only within 90 days; person under 15 cannot be fined |
| Damage or loss (§10) | Only after enquiry; cannot exceed loss caused; only for damage or loss directly attributable to neglect or default |
| Absence (§9) | Only for the period of absence; cannot exceed proportionate to wage |
48.7 Penalties — Sections 20 and 21
| Section | Offence | Penalty |
|---|---|---|
| 20(1) | Contravention of provisions | Imprisonment up to 1 month or fine up to ₹3,750 |
| 20(2) | Continuing offence | Additional fine up to ₹750 per day |
| 20(3) | Repeat offence | Imprisonment 1-6 months or fine ₹3,750-22,500 |
| 21 | Procedure in trials | Through prescribed forum |
The Code on Wages, 2019 has revised these penalties substantially upward.
48.8 Position under the Code on Wages, 2019
The Code on Wages, 2019 has subsumed the Payment of Wages Act and expanded its protection.
| Element | Payment of Wages Act, 1936 | Code on Wages, 2019 |
|---|---|---|
| Coverage | Wage ceiling (₹24,000 in 2017) | Universal — all employees |
| Wage period | Up to 1 month | Retained |
| Time of payment | 7 / 10 days from period end | Continued; specific timelines preserved |
| Mode of payment | Cash / cheque / bank | Bank account / electronic mode preferred |
| Deductions | Listed under §7 | Largely retained |
| Total deduction cap | 50% / 75% | Retained |
| Compensation for delay | Up to 10× | Retained |
| Penalties | Modest | Substantially raised |
The shift to universal coverage (no wage ceiling) is the most significant change.
48.9 Practice Questions
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- Payment of Wages Act, 1936 — based on Royal Commission on Labour recommendation.
- Wage period ≤ 1 month.
- Payment by 7th day (<1,000 workers) / 10th day (≥1,000 workers); 2nd working day on termination.
- Section 6 — payment in cash; bank/cheque allowed since 2017.
- §7 lists permissible deductions; anything else illegal.
- Total deductions: 50% (general) / 75% (with cooperative payments).
- §8 fines: ≤ 3% of wages; not on persons under 15; only for prescribed acts with prior approval.
- §15 — Authority hears claims; compensation up to 10× the amount.
- Code on Wages, 2019 — universal coverage; bank/electronic payment preferred; revised penalties.