In general, the term “salary” is used in India to denote compensation to white-collar employees, while the term “wage” is used to denote the payment made to blue-collar workers.
a. Minimum Wages
The Minimum Wages Act, 1948, envisages securing the welfare of workers in a competitive market by fixing the minimum rates of wages. This Act applies to all of India. The term “minimum wages” is not defined in the Act, because it is literally impossible to pay uniform wages for all the industries throughout the country given the varying conditions of industry in different parts of the country.
The term “wages” as used in the Minimum Wages Act means all remuneration capable of being expressed in terms of money that would, under the terms of the contract of employment, express or implied, be payable to a person employed with respect to his or her employment or with respect to work performed in that employment. Wages include a housing rental allowance, but do not include the following:
- the value of
- any provision of housing, electricity, water, or medical care, or
- any other amenity or any service excluded by general or special order of the appropriate government;
- any contribution paid by the employer to any pension fund or provident fund or under any program of social insurance;
- any travelling allowance or the value of any travelling concession;
- any sum paid to the employee to defray special expenses entailed by the nature of his or her employment; or
- any gratuity payable on discharge.
b. Overtime Pay
i. Overtime pay under the Minimum Wages Act, 1948
According to the provisions of Section 14 of the Minimum Wages Act, if an employee whose minimum rate of wages is fixed under the Act, works in excess of the number of hours constituting a normal working day, the employer must pay the employee for every hour or part of an hour so worked at the overtime rate fixed either under the Act or under any other law of the appropriate government, whichever is higher.
The Minimum Wages (Central) Rules, 1950, provide that, when a worker works for more than nine hours on a single day or for more than 48 hours in a single week, the worker is entitled to overtime pay as follows:
- in case of employment in agriculture, at one and one-half times the ordinary rate of wages, and
- in the case of any other employment, at double the ordinary rate of wages.
For purposes of the Minimum Wages Rules, the term “ordinary wages” means the basic wage plus allowances of food grains and other articles to which the worker is entitled, including cash equivalents of the advantages accruing through the concessional sale of such food grains and other articles to the worker, but does not include any bonus.
ii. Overtime pay under the Factories Act, 1948
If employees are covered under the provisions of the Factories Act, 1948, those provisions apply instead of the provisions of the Minimum Wages Act.
If a worker works in a factory for more than nine hours in a single day or for more than 48 hours in a single week, the worker is entitled to wages at twice the ordinary rate of wages.
For purposes of the Factories Act, “ordinary wages” means the basic wages plus such allowances, including the cash equivalent of any advantage accruing through the concessional sale to workers of food grains and other articles, as the worker is entitled to, but does not include a bonus and wages for overtime work.
The Payment of Bonus Act, 1965, provides for payment of bonuses linked with profits or productivity to employees of certain establishments and related matters. Specifically, the Payment of Bonus Act does the following:
- imposes statutory liability on employers of the establishments covered by the Act to pay bonuses to its employees;
- defines the principles for payment of bonuses according to the prescribed formula;
- provides for payment of minimum and maximum bonuses and links payment with the systems of set-off and set-on; and
- provides machinery for enforcement of bonus payments with a view to minimizing disputes.
Following are obligations of an employer under the Payment of Bonus Act:
- to calculate and pay the annual bonus as required under the Act;
- to maintain the necessary registers and records;
- to file an annual return of bonuses paid to employees within the prescribed time; and
- to have the accounts audited.
Employers also have rights under the Payment of Bonus Act. These are as follows:
- to forfeit the bonus of an employee who has been dismissed from service for fraud, or for riotous or violent behavior;
- to make permissible deductions from the bonus payable to an employee; and
- to refer any dispute to the labour court or industrial tribunal.
Following are the rights of an employee under the Payment of Bonus Act:
- to claim the bonus payable under the Act;
- to refer any dispute to the labour court or industrial tribunal; and
- to seek clarification and information on any item in the accounts.
The Payment of Bonus Act applies to every factory, every other establishment employing 20 or more persons (including part-time) during an accounting year, and any establishment specified by the central government which employs 10–19 persons.
During the first five accounting years following the first accounting year of a new business, an employer may pay bonuses only for an accounting year in that the employer derives a profit from the establishment.
Every employee drawing salary or wages up to 21,000 rupees per month and engaged in any kind of work (skilled, unskilled, managerial, supervisory, manual) is entitled to a bonus for every accounting year, provided the employee worked at least 30 working days in that year.
The minimum bonus payable under the Payment of Bonus Act is 8.33 percent of salary or wages during an accounting year or 100 rupees for employees above 15 years of age and 60 rupees for employees below 15 years of age, whichever is higher. If an employee has not worked for the entire accounting year, the minimum bonus payable is proportionately reduced.
If, in any accounting year, the allocable surplus (calculated after taking into account set-on or set-off amounts) exceeds the minimum bonus, the employer must pay bonuses in proportion to the salary or wages earned by the employee during that accounting year. A bonus should not exceed 20 percent of an employee’s annual salary or wages.
The bonus is to be paid to the employee in cash and within a period of eight months from the close of the accounting year. The government may extend this period upon application by the employer for sufficient reasons; however, the total period, including any extension, may not exceed two years.
Bonuses are paid entirely by the employer, without any contribution from the employee.