Offences and Penalties Under the Code on Wages

In one line

Underpaying a worker costs up to fifty thousand rupees the first time and up to a lakh with three months' imprisonment the second, most other breaches must first be met with a written direction to comply rather than a prosecution, and almost everything can be bought off at half the maximum fine.

In exam wording: Chapter VIII of the Code on Wages 2019 provides that section 54(1)(a) punishes an employer who pays an employee less than the amount due with a fine up to fifty thousand rupees, and section 54(1)(b) punishes a repetition within five years with imprisonment up to three months or a fine up to one lakh rupees, or both; section 54(1)(c) punishes any other contravention with a fine up to twenty thousand rupees and 54(1)(d) a repetition with one month or forty thousand rupees, or both; section 54(2) punishes non-maintenance or improper maintenance of records with a fine up to ten thousand rupees; and section 54(3) requires the Inspector-cum-Facilitator, before prosecuting for a section 54(1)(c) or 54(2) offence, to give the employer a written direction fixing a time for compliance, and forbids prosecution if he complies.

Why the law has this at all

The four repealed Acts each had a penal section, and each was criticised for the same two failings: the fines were trivial, and prosecution was the only tool.

On the first, the numbers had not moved with prices. A penalty fixed in 1936 or 1948 and never revised became, by the twenty-first century, less than the sum withheld. An employer who kept a month's wages from a hundred workers stood to gain far more than the fine risked. The Code's answer is section 54(1)(a)'s fifty thousand rupees, and, more importantly, section 45(2)'s power to award compensation of up to ten times the claim. The two work together: the criminal fine punishes, the civil multiplier removes the profit.

On the second, prosecution was a blunt instrument used against the wrong breach. Most contraventions found on inspection were paperwork: a register not in the prescribed form, a notice not displayed, a wage slip not issued. Prosecuting them clogged the magistracy, achieved nothing for any worker, and made the inspector a figure to be bought off rather than answered.

The Code separates the two kinds of breach and treats them differently.

Not paying the worker is punished at once. Section 54(1)(a) needs no warning.

Everything else gets a written direction first. Section 54(3) is the operative change from the repealed Acts: for a section 54(1)(c) contravention or a section 54(2) records offence, the Inspector-cum-Facilitator shall, before initiating prosecution, give the employer an opportunity to comply by a written direction laying down a time period, and if the employer complies within that period, no prosecution is initiated.