Deductions From Wages

In one line

Nothing may be taken out of an employee's wages except for the fifteen purposes the Code lists, everything taken out together may not exceed half his wages in a wage period, and fines alone may not exceed three per cent.

In exam wording: section 18(1) of the Code on Wages 2019 provides that notwithstanding anything contained in any other law, there shall be no deductions from the wages of an employee except those authorised under the Code; section 18(2) lists the fifteen purposes for which deductions may be made; section 18(3) caps the total deductions in any wage period at fifty per cent. of the wages; section 19 governs fines, capping them at three per cent. of the wages payable in a wage period, forbidding them on an employee under fifteen, and requiring a prior notice of the acts and omissions and an opportunity of showing cause; and sections 20 to 23 govern deductions for absence, for damage or loss, for services rendered and for the recovery of advances.

Why the law has this at all

A minimum wage is a rate. A time limit says when it is paid. Neither is worth anything if the employer may take it back out again, and the history of Indian factory employment is largely a history of exactly that.

The devices were simple and they all reduced the wage without reducing the rate. A fine for lateness, for talking, for a spoiled piece, imposed by the supervisor and deducted at the end of the month. A charge for the tools the worker used. A charge for the accommodation he had not asked for. A deduction for damage assessed by the employer, with no inquiry and no appeal. And, most effectively, an advance in the first week that was never quite repaid, so the worker began every month in debt to the man he worked for.

So the Code does four things, and every question on this topic is answered by one of them.

It closes the list. Section 18(1) is a prohibition: no deductions except those authorised. Section 18(2) then lists fifteen purposes, and there is no residual category.

It caps the total. Section 18(3): not more than fifty per cent. of wages in any wage period, however many authorised heads apply.

It caps and regulates fines separately. Section 19: three per cent., only for acts specified in advance, only after a hearing, never on a child, and the money must go back to the workers.

And it requires procedure for the contentious heads. Fines and deductions for damage both require an opportunity of showing cause and a register.

Some words this chapter uses

Deduction is anything taken out of the wages. Section 18(1)'s Explanation extends the word to a payment made by the employee to the employer or his agent, so an employer cannot avoid the Chapter by taking the money as a payment rather than as a deduction.