Deductions From Wages

Fine is a monetary penalty imposed for an act or omission of the employee.

Stay-in strike is a refusal to work while remaining at the workplace. The Explanation to section 20 deems it absence.

In concert means by agreement, acting together. The proviso to section 20(2) uses it.

Showing cause means being given the chance to answer before the deduction is made.

Section 18(1): the prohibition, and what counts as a deduction

Notwithstanding anything contained in any other law for the time being in force, there shall be no deductions from the wages of the employee, except those as are authorised under this Code.

The non obstante clause matters. It overrides any other law, so an authority to deduct found elsewhere does not help unless the Code authorises it.

The Explanation does two separate jobs and both are examinable.

Clause (a): a payment is a deduction. Any payment made by an employee to the employer or his agent shall be deemed to be a deduction from his wages. Without this, an employer could pay the full wage and require the worker to hand some of it back, and the Chapter would be a formality.

Clause (b): three things are NOT deductions. A loss of wages, for a good and sufficient cause, resulting from:

• (i) the withholding of increment or promotion, including the stoppage of an increment; or
• (ii) reduction to a lower post or time-scale; or
• (iii) suspension,

shall not be deemed a deduction, in a case where the employer's provisions for such purposes satisfy the requirements specified in a notification issued by the appropriate Government.

The logic is that those three are disciplinary or administrative decisions about the job, not raids on the pay packet. But note the condition: they escape only where the employer's own provisions meet the notified requirements. An employer with no such provisions cannot rely on clause (b).

Section 18(2): the fifteen permitted purposes

Deductions may be made only for the following purposes:

• (a) fines imposed on him;
• (b) deductions for his absence from duty;
• (c) deductions for damage to or loss of goods expressly entrusted to him for custody, or for loss of money for which he is required to account, where the damage or loss is directly attributable to his neglect or default;
• (d) deductions for house accommodation supplied by the employer or by Government or a housing board or other authority engaged in subsidising house accommodation;
• (e) deductions for such amenities and services supplied by the employer as the appropriate Government or a specified officer may authorise by general or special order, not exceeding the value of those amenities and services;
• (f) deductions for recovery of advances of whatever nature, including advances for travelling or conveyance allowance, and interest, or for adjustment of overpayment of wages; and of loans made from any welfare fund and interest;
• (g) deductions for recovery of loans granted for house-building or other approved purposes, and interest;
• (h) deductions of income-tax or any other statutory levy, or deductions required by order of a court or other competent authority;
• (i) deductions for subscription to, and repayment of advances from, any social security fund or scheme constituted by law, including a provident fund, pension fund or health insurance scheme;
• (j) deductions for payment to a co-operative society, subject to conditions the appropriate Government may impose;
• (k) deductions made with the written authorisation of the employee for trade union membership fees and contributions;
• (l), (m) and (n): three heads confined to railway administrations, for losses on counterfeit or mutilated currency, on the failure to invoice, bill, collect or account for charges, and on rebates or refunds incorrectly granted where the loss is directly attributable to the employee's neglect or default;
• (o) deductions made with the written authorisation of the employee for contribution to the Prime Minister's National Relief Fund or such other fund as the Central Government notifies.

An Explanation to clause (e) is worth remembering: for that clause, "services" does not include the supply of tools and raw materials required for the purposes of employment. So an employer may not charge a worker for the tools he needs to do the job.

Notice which heads require the employee's written authorisation: clause (k), trade union dues, and clause (o), relief-fund contributions. Those are the two where the money leaves for the employee's own chosen purpose, and his written consent is the safeguard.

Section 18(3) to (5): the cap, the excess, and the employer's default

18(3): notwithstanding anything in the Code, and subject to any other law, the total amount of deductions which may be made under sub-section (2) in any wage period shall not exceed fifty per cent. of such wages.

18(4): where the total authorised deductions exceed fifty per cent., the excess may be recovered in such manner as may be prescribed.

18(5): where a deduction is made by the employer but not deposited in the account of the trust or Government fund or any other account as required by law, the employee shall not be held responsible for that default of the employer.

Sub-section (3) is the headline number. However many heads apply, at most half the wages may go. A worker with an advance, a fine, a co-operative subscription and a provident fund deduction still takes home half.

Sub-section (4) is not an exception to it. The excess is not written off; it is recovered in the prescribed manner, that is spread over later wage periods. So the cap regulates the rate of recovery rather than forgiving the debt.

Sub-section (5) is a small provision that decides real cases. An employer deducts provident fund contributions and does not deposit them. Without this sub-section the worker's contribution record shows a gap and he bears the consequence. The sub-section puts the default where it belongs.

Section 19: fines

Fines are the most abused head, and the Code regulates them more tightly than any other.

19(1): no fine shall be imposed except in respect of those acts and omissions which the employer, with the previous approval of the appropriate Government or a prescribed authority, has specified by notice under sub-section (2).

19(2): the notice specifying the acts and omissions shall be exhibited, in the prescribed manner, on the premises where the employment is carried on.

19(3): no fine shall be imposed until the employee has been given an opportunity of showing cause against it, or otherwise than in accordance with the prescribed procedure.

19(4): the total fine imposed in any one wage period shall not exceed three per cent. of the wages payable to him in respect of that wage period.

19(5): no fine shall be imposed on any employee under the age of fifteen years.

19(6): no fine shall be recovered by instalments, or after the expiry of ninety days from the day on which it was imposed.

19(7): every fine is deemed to have been imposed on the day of the act or omission in respect of which it was imposed.

19(8): all fines and realisations shall be recorded in a register in the prescribed form; and all realisations shall be applied only to such purposes beneficial to the persons employed in the establishment as are approved by the prescribed authority.

Take the safeguards in order and the design is clear.

Nothing is finable unless it was published in advance, with the Government's previous approval, and exhibited on the premises. So a worker knows before he acts what will cost him money, which is the same principle as item 9 of the First Schedule to the Industrial Relations Code, requiring standing orders to specify what constitutes misconduct.

Nothing is fined without a hearing, sub-section (3).

Three per cent. is the ceiling, and it is per wage period, not per offence.

Children are exempt entirely, sub-section (5).

And the money does not go to the employer. Sub-section (8) requires realisations to be applied only to purposes beneficial to the persons employed, approved by the prescribed authority. That removes the employer's financial incentive to fine, which is the root of the abuse.

Sub-sections (6) and (7) close two evasions. No recovery by instalments, so a fine cannot be spread to escape the three per cent. cap in a single period; and no recovery after ninety days, so a fine cannot be held over the worker indefinitely. Deeming the fine imposed on the day of the act or omission fixes when those ninety days start.

Section 20: deductions for absence from duty

20(1): a deduction under section 18(2)(b) may be made only on account of the absence of an employee from the place or places where, by the terms of his employment, he is required to work, the absence being for the whole or any part of the period during which he is so required to work.

20(2): the amount deducted shall in no case bear to the wages payable for the wage period a larger proportion than the period of absence bears to the total period during which, by the terms of his employment, he was required to work.

That is a rule of strict proportionality. Absent for one day in twenty-six, at most one twenty-sixth of the wages. An employer may not deduct three days' wages for one day's absence.

Proviso: subject to rules, if ten or more employed persons acting in concert absent themselves without due notice, that is without the notice required under their contracts, and without reasonable cause, the deduction from any such person may include an amount not exceeding his wages for eight days as may be due to the employer in lieu of notice.

This is a collective-action provision and it is worth flagging. Three conditions: ten or more, acting in concert, and without due notice and without reasonable cause. Where all three are met the deduction may include up to eight days' wages in lieu of notice. It is the wages-side counterpart of the strike-notice provisions in section 62 of the Industrial Relations Code.

Explanation: an employee is deemed to be absent from the place where he is required to work if, although present in such place, he refuses, in pursuance of a stay-in strike or for any other cause which is not reasonable in the circumstances, to carry out his work.

So a stay-in strike is absence for this purpose, even though the worker is physically present. Read it beside section 2(zk) of the Industrial Relations Code, where a go-slow is not a strike because there is no cessation of work: the two Codes treat presence-without-work differently because they are asking different questions.

Sections 21 to 23: damage, services and advances

Section 21: damage or loss.

• 21(1): a deduction under section 18(2)(c) or (n) shall not exceed the amount of the damage or loss caused to the employer by the negligence or default of the employee.
• 21(2): no such deduction until the employee has been given an opportunity of showing cause, or otherwise than in accordance with the prescribed procedure.
• 21(3): all such deductions and realisations shall be recorded in a register in the prescribed form.

Three safeguards. The deduction is capped at the actual loss, so it is compensatory and not penal. It requires negligence or default, so an accident without fault is not deductible. And it requires a hearing and a record.

Section 22: house accommodation, amenities and services. A deduction under section 18(2)(d) or (e) shall not be made unless the house accommodation, amenity or service has been accepted by the employee as a term of employment or otherwise, and shall not exceed an amount equivalent to the value of what was supplied, and is subject to such conditions as the appropriate Government may impose.

The word "accepted" is the protection. An employer cannot supply a benefit nobody asked for and charge for it. And the charge may not exceed its value, so it cannot be a profit centre. Remember also the Explanation to section 18(2)(e): "services" does not include tools and raw materials required for the employment.

Section 23: advances. Deductions under section 18(2)(f) for the recovery of advances are subject to conditions, of which the first is that the recovery of an advance of money given before the employment began shall be made from the first payment of wages in respect of a complete wage period, but no recovery shall be made of advances given for travelling expenses; and the section further regulates advances of unearned wages and the instalments by which they may be recovered.

The mischief section 23 addresses is debt bondage in miniature, the advance that keeps a worker tied to the employer who made it. Regulating when recovery starts, and by what instalments, is how the Code limits it, and section 18(3)'s fifty per cent. cap sits above the whole arrangement.

A worked example

The facts. A packaging establishment in Wada. Meera's wages for the month are 12,000 rupees. In one wage period the employer proposes seven deductions.

One: a fine of 500 rupees for arriving late three times. Check section 19. Was lateness among the acts and omissions specified by notice, approved in advance by the appropriate Government and exhibited on the premises? Was she given an opportunity of showing cause? And is the total within three per cent. of 12,000, that is 360 rupees? A fine of 500 exceeds the cap and is bad to that extent. The money realised must go into the register and be applied only to purposes beneficial to the persons employed, approved by the prescribed authority.

Two: a deduction for one day's absence in a twenty-six day month. Lawful under section 18(2)(b), but by section 20(2) it may not bear a larger proportion to the wages than the absence bears to the period she was required to work, so at most one twenty-sixth, about 462 rupees.

Three: 4,000 rupees for a machine she damaged. Lawful in principle under section 18(2)(c), but by section 21(1) it may not exceed the actual damage caused by her negligence or default, and by section 21(2) she must first be given an opportunity of showing cause. If the true loss was 1,500, that is the ceiling.

Four: 600 rupees for the gloves and cutting blades she uses. Not permitted. The Explanation to section 18(2)(e) provides that "services" does not include the supply of tools and raw materials required for the purposes of employment.

Five: 900 rupees for a room in the company hostel that she never asked for. Section 22: no deduction unless the house accommodation has been accepted by her as a term of employment or otherwise, and in any event not exceeding its value.

Six: 1,200 rupees towards an advance taken last year. Lawful under section 18(2)(f), subject to the conditions in section 23.

Seven: 300 rupees as union subscription. Lawful under section 18(2)(k) only with her written authorisation.

Now the cap. Whatever survives, section 18(3) limits the total of all deductions in the wage period to fifty per cent. of her wages, that is 6,000 rupees. If the lawful heads together exceed that, section 18(4) provides that the excess is recovered in the prescribed manner, so it is carried forward rather than written off.

A separate point. The employer deducts her provident fund contribution and does not deposit it. Section 18(5): she shall not be held responsible for that default.

And a collective variation. Twelve workers agree among themselves to stay away on the same day without the notice their contracts require and without reasonable cause. By the proviso to section 20(2), because ten or more acted in concert, the deduction from each may include an amount not exceeding eight days' wages in lieu of notice. Had eight workers done it, or had they had reasonable cause, the proviso would not apply.

Finally, a stay-in strike. The workers remain at their machines and refuse to work. By the Explanation to section 20, each is deemed absent although present, and the proportionate deduction under section 20(2) may be made.

What this does NOT mean

It does not mean an employer may deduct for any reason he thinks fair. Section 18(1) forbids all deductions except those authorised, and section 18(2) is a closed list of fifteen purposes.

It does not mean a payment by the employee escapes the Chapter. Explanation (a) to section 18(1) deems a payment made by the employee to the employer or his agent to be a deduction.

It does not mean a withheld increment or a suspension is a deduction. Explanation (b) excludes them where the employer's provisions satisfy the requirements notified by the appropriate Government.

It does not mean fines and deductions share a cap. Total deductions: fifty per cent. Total fines: three per cent., within that.

It does not mean a fine may be spread out. Section 19(6) forbids recovery by instalments and after ninety days.

It does not mean the employer keeps the fines. Section 19(8) requires realisations to be applied only to purposes beneficial to the persons employed, approved by the prescribed authority.

It does not mean an employer may charge for tools. The Explanation to section 18(2)(e) excludes tools and raw materials required for the employment.

It does not mean the excess over fifty per cent. is forgiven. Section 18(4) provides for its recovery in the prescribed manner.

Limits, criticism and amendments

The scheme is substantially the Payment of Wages Act 1936's, carried forward, and that is both its strength and the main criticism. Its strength is that the safeguards are tested and well understood. The criticism is that a Code presented as a modernisation reproduces a 1936 list, including three heads confined to railway administrations, clauses (l), (m) and (n), which sit oddly in a general statute.

Three per cent. is a low ceiling and that is deliberate, but section 19 still allows an employer to fine at all, and the safeguards depend on the notice having been approved and exhibited, which a worker is unlikely to be able to check.

The proviso to section 20(2) is criticised as a penalty on collective action. Ten or more workers absenting themselves in concert without due notice may lose up to eight days' wages, which is a substantial sum, and the provision sits uncomfortably beside the notice requirements already imposed by section 62 of the Industrial Relations Code.

And the fifty per cent. cap, though real, is high. A worker taking home half his wages for several months while an advance is recovered is in serious difficulty, and section 18(4) permits the balance to be carried into later periods.

Against that, section 18(5) is an unqualified gain, and section 19(8)'s requirement that fines be applied for the benefit of the employees removes the incentive that made fines an abuse in the first place.

Quick revision

• Section 18(1): no deductions except those authorised under the Code, notwithstanding any other law. Explanation (a): a payment by the employee to the employer is a deduction. Explanation (b): withholding an increment or promotion, reduction to a lower post, and suspension are not deductions where the employer's provisions satisfy the notified requirements.
• Section 18(2), fifteen purposes: fines; absence; damage or loss entrusted goods or money; house accommodation; authorised amenities and services, not exceeding their value, and "services" excludes tools and raw materials; advances and overpayment, and welfare-fund loans; house-building loans; income-tax, statutory levies and court orders; social security fund subscriptions; co-operative society payments; trade union dues with written authorisation; three railway heads; and relief-fund contributions with written authorisation.
• Section 18(3): total deductions in a wage period not more than fifty per cent. of wages. 18(4): the excess is recovered as prescribed. 18(5): deducted but not deposited, the employee is not responsible.
• Section 19: fines only for acts specified by notice with the previous approval of the appropriate Government and exhibited on the premises; only after an opportunity of showing cause; not more than three per cent. of the wage period's wages; none on an employee under fifteen; no instalments and none after ninety days; deemed imposed on the day of the act; register, and realisations applied only to purposes beneficial to the persons employed.
• Section 20: absence deductions strictly proportionate. Proviso: ten or more acting in concert without due notice and without reasonable cause, up to eight days' wages in lieu of notice. Explanation: a stay-in strike is absence though present.
• Section 21: damage deductions not exceeding the actual loss caused by negligence or default, after an opportunity of showing cause, and recorded.
• Section 22: accommodation, amenities and services only if accepted, and not exceeding their value.
• Section 23: advances, recovery conditions; no recovery of advances for travelling expenses.

Test yourself

1. For what purposes may deductions be made? Section 18(1) forbids all deductions except those authorised under the Code, and section 18(2) lists fifteen purposes: fines; absence from duty; damage to or loss of goods expressly entrusted to the employee or of money he must account for, where directly attributable to his neglect or default; house accommodation supplied by the employer, Government, a housing board or other authority subsidising accommodation; authorised amenities and services, not exceeding their value, "services" excluding tools and raw materials required for the employment; recovery of advances of whatever nature and interest, adjustment of overpaid wages, and welfare-fund loans; house-building and other approved loans; income-tax, other statutory levies and deductions required by a court or competent authority; subscriptions to and repayment of advances from any statutory social security fund; payments to a co-operative society; trade union fees and contributions with written authorisation; three heads confined to railway administrations; and contributions to the Prime Minister's National Relief Fund or a notified fund, with written authorisation.

2. What limits apply to the total of deductions and to fines? Section 18(3) provides that the total amount of deductions made under section 18(2) in any wage period shall not exceed fifty per cent. of the wages, and section 18(4) provides that any excess may be recovered in the prescribed manner rather than being written off. Section 19(4) separately provides that the total amount of fines imposed in any one wage period shall not exceed three per cent. of the wages payable in respect of that wage period.

3. State the safeguards governing fines. Under section 19(1) no fine may be imposed except for acts and omissions specified by notice, which the employer has issued with the previous approval of the appropriate Government or a prescribed authority; under section 19(2) that notice must be exhibited in the prescribed manner on the premises; under section 19(3) no fine may be imposed until the employee has been given an opportunity of showing cause; under section 19(4) the total in any wage period may not exceed three per cent. of the wages payable for it; under section 19(5) no fine may be imposed on an employee under fifteen; under section 19(6) no fine may be recovered by instalments or after ninety days from its imposition; under section 19(7) a fine is deemed imposed on the day of the act or omission; and under section 19(8) all fines and realisations must be recorded in a register and the realisations applied only to purposes beneficial to the persons employed, as approved by the prescribed authority.

4. May an employer deduct for the tools a worker uses? No. Deductions for amenities and services under section 18(2)(e) are permitted only for such amenities and services as the appropriate Government or a specified officer authorises, and may not exceed their value; and the Explanation to that clause provides expressly that the expression "services" does not include the supply of tools and raw materials required for the purposes of employment. Section 22 separately requires that any house accommodation, amenity or service have been accepted by the employee as a term of employment or otherwise.

5. Ten workers stay away on the same day by agreement, without the notice their contracts require. What may be deducted? Under section 20(2) the ordinary deduction for absence must be strictly proportionate, bearing no larger proportion to the wages for the wage period than the period of absence bears to the period the employee was required to work. But the proviso applies where ten or more employed persons, acting in concert, absent themselves without due notice and without reasonable cause: the deduction from any such person may then include an amount not exceeding his wages for eight days, as may be due to the employer in lieu of notice under the terms of the contract. All three conditions must be satisfied.

6. An employer deducts provident fund contributions and does not deposit them. Who bears the consequence? The employer. Section 18(5) provides that where any deduction is made by the employer from the wages of an employee under the section but is not deposited in the account of the trust or Government fund or any other account as required by the law in force, the employee shall not be held responsible for that default of the employer.