Press Information Bureau
Government of India
Ministry of Labour & Employment
Government of India
Ministry of Labour & Employment
24-September-2016 10:35 IST
Understanding
Minimum Wages and Bonus
*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
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.
*****
*Author is Minister of
State (Independent Charge) Labour and Employment, Government of India
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