UNDERSTANDING MINIMUM WAGES AND BONUS
Press Information Bureau
Government of India
Ministry of Labour & Employment
24-September-2016 10:35 IST
Understanding Minimum Wages and Bonus
A
minimum wage is the lowest remuneration that employers may legally pay
to workers or it is the price floor below which workers may not sell
their labour.
 |
*Bandaru Dattatreya |
The
concept of minimum wages first evolved with reference to remuneration
of workers in those industries where the level of wages was
substantially low as compared to the wages for similar types of labour
in other industries. As far back as 1928, the International Labour
Conference of International Labour Organization, at Geneva, adopted a
draft convention on minimum wages requiring the member countries to
create and maintain a machinery whereby minimum rates of wages can be
fixed for workers employed in industries in which no arrangements exist
for the effective regulation of wages and where wages are exceptionally
low. Also, at the Preparatory Asian Regional Labour Conference of
International Labour Organisation held at New Delhi in 1947 and then at
the 3rd session of the Asian Regional Labour Conference, it was approved
that every effort should be made to improve wage standards in
industries and occupations in Asian Countries, where they are still low.
Thus, the need of a legislation for fixation of minimum wages in India
received an impetus after World War II, on account of the necessity of
protecting the interest of demobilized personnel seeking employment in
industries.
The
justification for statutory fixation of minimum wage is obvious. Such
provisions which exist in more advanced countries are even necessary in
India, where workers’ organizations are yet poorly developed and the
workers’ bargaining power is consequently poor.
To
provide for machinery for fixing and revision of minimum wages a draft
Bill was prepared and discussed at the 7th session of the Indian Labour
Conference in November, 1945. Thereupon the Minimum Wages Bill was
introduced in the Central Legislative Assembly. The Minimum Wages Bill
having been passed by the Legislature received the assent on 15th March,
1948. It came on the Statute Book as the Minimum Wages Act, 1948.
The
Act provides for fixation by the appropriate Governments of minimum
wages for employments covered by Schedule to the Act. The Central
Government is the appropriate Government in respect of 45 scheduled
employments in the Central Sphere. The minimum wages fixed for Central
sphere are applicable to the scheduled employments in the establishments
under the authority of Central Government, railway administrations,
mines, oil-fields, major ports or any corporation established by a
Central Act. Employments other than the scheduled employment for Central
Sphere come under the purview of the State Government and accordingly
State Government wages are applicable in such employments. The minimum
wages for Central Sphere are revised from time to time based on the
increase in Consumer Price Index effective from April and October.
According
to Section 3(1)(b) of the Minimum Wages Act, 1948, “the appropriate
government shall review at such intervals, as it may think fit, such
intervals not exceeding five years, the minimum rates of wages so fixed
and revise the minimum rates if necessary.
The
norms recommended by the Indian Labour Conference, in 1957, fox fixing
the minimum wages are: (a) consumption units for one wage earner; (b)
minimum food requirements of 2700 calories per average Indian adult; (c)
clothing requirements of 72 yards per annum per family; (d) rent
corresponding to the minimum area provided for under Government’s
Industrial Housing Scheme; and (e) fuel, lighting and other
miscellaneous items of expenditure to constitute 20% of the total
minimum wage.
In
1991, the Hon’ble Supreme Court delivered a historic judgement and
directed that children’s education, medical requirement, minimum
recreation including festivals/ceremonies, provision for old age,
marriage etc. should further constitute 25% of the minimum wage and be used as a guide in fixation of minimum wage.
The
Act envisages appointment of an Advisory Board, by the appropriate
Government, for the purpose of advising the appropriate Government in
the matter of fixing and revising minimum rates of wages.
The
Central Government revises the wages in the scheduled employments from
time to time in accordance with the provisions of the Minimum Wages Act,
1948. Draft Notifications for all the Scheduled Employments in the
Central Sphere were issued on 1st September, 2016 simultaneously, in
fact for the first time. The basic rate of minimum wages for an
unskilled worker in the scheduled employment other than agriculture has
been proposed at Rs.350 in Area ‘C’ from the current minimum wage (basic
wage + variable dearness allowance) of Rs.246 resulting in an increase
of about 42%. The basic rate of minimum wages for an unskilled worker in
the scheduled employment “agriculture” has been proposed at Rs.300 in
Area ‘C’ from the current minimum wage (basic wage + variable dearness
allowance) of Rs.211 resulting in an increase of about 42%.
The proposed revision in the rates of basic minimum wages would indeed provide much needed solace to the labour fraternity.
Bonus
payment is an extra payment given for doing one's job well also known
as performance-related pay or pay for performance.
The
practice of paying bonus in India appears to have originated during
First World War when certain textile mills granted 10% of wages as war
bonus to their workers in 1917. In certain cases of industrial disputes
demand for payment of bonus was also included. In 1950, the Full Bench
of the Labour Appellate Tribunal evolved a formula for determination of
bonus. A plea was made to raise that formula in 1959. At the second
and third meetings of the eighteenth Session of Standing Labour
Committee (G.O.I) held in New Delhi in March/ April 1960, it was agreed
that a Commission be appointed to go into the question of bonus and
evolve suitable norms. A Tripartite Commission was set up by the
Government of India to consider in a comprehensive manner, the question
of payment of bonus based on profits to employees employed in
establishments and to make recommendations to the Government. The
Government of India accepted the recommendations of the Commission
subject to certain modifications. To implement these recommendations
the Payment of Bonus Act, 1965 was enacted, which came into force on
25-9-1965.
The
objective of the Payment of Bonus Act, 1965 is to provide for the
payment of bonus to the persons employed in certain establishments on
the basis of profits or on the basis of production or productivity and
for matter connected therewith.
It
applies to (i) Every Factory; and (ii) Every other establishment in
which 20 or more persons are employed on any day during an accounting
year subject to the exemptions under section 32. Every employee shall be
entitled to be paid by his employer in an accounting year, bonus, in
accordance with the provisions of this Act, provided he has worked in
the establishment for not less than thirty working days in that year.
While the minimum bonus is 8.33% of the salary or wage earned by the
employee during the accounting year, the maximum bonus is 20% of such
salary or wage.
Two
ceilings are available under the said Act generally known as
eligibility limit and calculation ceiling respectively. Clause 13 of
Section 2 of Payment of Bonus Act, 1965 defines an employee based on
salary or wage per mensem. This is usually taken as the “eligibility
limit” for computation of bonus. Similarly, Section 12 of the Payment of
Bonus Act, 1965 provides for calculation of bonus of an employee based
on salary or wage per mensem. This is known as “calculation ceiling”.
The
two ceilings are revised from time to time to keep pace with the price
rise and increase in the salary structure. At present, the calculation
ceiling has been enhanced to Rs.7000 or the minimum wage for the
scheduled employment, as fixed by the appropriate Government, whichever
is higher and the eligibility limit has been enhanced to Rs.21,000/-.
Due
to this revision, additional 55 lakh workers would be benefited. This
would indeed, be a good gesture on the part of the Government towards
the labour fraternity.
