Payment of Wages: Mode, Period and Time Limit

Current coin or currency notes means cash.

Electronic mode covers transfers other than by cheque or ordinary bank credit.

Working day, in section 17(2), means a day on which the establishment works, so intervening holidays do not count.

Section 15: how wages are paid

All wages shall be paid in current coin or currency notes or by cheque or by crediting the wages in the bank account of the employee or by the electronic mode.

Proviso: the appropriate Government may, by notification, specify the industrial or other establishment whose employer shall pay every person employed there only by cheque or by crediting the wages in his bank account.

Three points.

The list is exhaustive. Cash, cheque, bank credit, electronic mode. Anything else is not payment of wages, which is the answer to payment in vouchers, in kind or in credit at a company store.

Payment in kind is not abolished, but it is capped elsewhere. The Explanation to section 2(y), worked in ['Wages', and the Definitions That Decide Every Calculation], deems remuneration in kind given in lieu of wages to form part of wages only up to fifteen per cent. of the total wages payable. Read the two together: fifteen per cent. may be in kind and the rest must be in one of section 15's four forms.

And the proviso allows compulsory banking. The appropriate Government may take cash away entirely for a specified establishment or class. The purpose is obvious: a bank record is evidence of what was paid, which is exactly what a worker lacks when he is paid in cash from a tin.

Section 16: the wage period

The employer shall fix the wage period for employees either as daily or weekly or fortnightly or monthly subject to the condition that no wage period in respect of any employee shall be more than a month.

Proviso: different wage periods may be fixed for different establishments.

Two rules in one sentence. The employer fixes the period, so he has the choice; and it may never exceed a month, so the choice is bounded.

The one-month cap is the protection. A wage period of a quarter, or of a season, would mean a worker who left early had accrued nothing and could be told so. Capping it at a month means that at most a month's earnings are ever outstanding.

And the proviso is about establishments, not employees. Different wage periods may be fixed for different establishments, which lets a group with a factory and an office run them differently; it does not license different periods for different individuals in one establishment.

Section 17: when wages must be paid

17(1): the four ordinary limits

The employer shall pay or cause to be paid wages to employees engaged on:

• (i) daily basis: at the end of the shift;
• (ii) weekly basis: on the last working day of the week, that is to say, before the weekly holiday;
• (iii) fortnightly basis: before the end of the second day after the end of the fortnight;
• (iv) monthly basis: before the expiry of the seventh day of the succeeding month.

Learn them as a table, because they are the commonest short question in the Module.

Notice how the tolerance grows with the period, and the logic is administrative: a daily wage needs no computation and is paid at once; a month's wages require a payroll run, and seven days is the allowance for it.

And notice the wording of the weekly limit, because it is more protective than "within seven days". Payment must be on the last working day of the week, before the weekly holiday, so the worker has his wages before the day he does not work.

17(2): the departing employee

Where an employee has been:

• (i) removed or dismissed from service; or
• (ii) retrenched, or has resigned from service, or became unemployed due to the closure of the establishment,

the wages payable to him shall be paid within two working days of his removal, dismissal, retrenchment or resignation.

This is the provision to remember and the number is two.

Its purpose should be stated in any answer. A worker who has just lost his job has no income and, very often, a claim he is thinking of bringing. An employer who holds the final wages holds the strongest possible lever: settle, or wait. Two working days removes it.

Note the breadth of the list. It covers dismissal and removal, which are the employer's acts; retrenchment, which is also his; resignation, which is the worker's own act; and unemployment due to closure. So it is not confined to terminations the employer initiated.

17(3) and (4): flexibility and other laws

17(3): notwithstanding sub-sections (1) and (2), the appropriate Government may provide any other time limit for payment of wages where it considers it reasonable having regard to the circumstances under which the wages are to be paid.

17(4): nothing in sub-sections (1) or (2) shall affect any time limit for payment of wages provided in any other law for the time being in force.

Sub-section (4) preserves shorter or different limits elsewhere, so the Code's limits are not a ceiling on protection found in another statute.

Section 25: the Chapter does not apply to Government establishments

Chapter III shall not apply to the Government establishments unless the appropriate Government, by notification, applies it to them.

Two things follow, and the second is the qualification. The timing and deduction rules of Chapter III do not automatically bind a Government establishment, because such establishments have their own service rules governing pay and its recovery, in the same way that section 28(2) of the Industrial Relations Code disapplies standing orders to persons governed by the civil service rules. But the disapplication is not permanent: the appropriate Government may by notification apply the Chapter to them.

Note the limit of section 25. It disapplies Chapter III. It does not touch Chapter II, minimum wages, or section 3, equal pay, which continue to apply.

What "wages" means for this Chapter

This is the point at which the second proviso to section 2(y) does its work, and it must be brought in.

For most purposes, section 2(y) excludes conveyance allowance (d), house rent allowance (f), remuneration under an award or settlement (g), and overtime allowance (h). But the second proviso provides that for the purpose of payment of wages, those four shall be taken for computation of wage.

So the time limits in section 17 apply to a wider figure than the minimum-wage calculation does. An employer who pays basic pay and dearness allowance on the seventh of the month, and the house rent allowance and overtime a fortnight later, has not complied with section 17: for the purposes of this Chapter those items are wages.

That is the single most useful cross-reference in Module IV, and a student who makes it in a problem answer will be doing something most will not.

A worked example

The facts. A packaging establishment in Wada, not a Government establishment. It employs Meera on a monthly wage period, Rakesh on a weekly one and Sunita on a daily one.

By when must each be paid? Meera, before the expiry of the seventh day of the succeeding month. Rakesh, on the last working day of the week, before the weekly holiday. Sunita, at the end of the shift.

The employer proposes a wage period of two months for Meera, to reduce his payroll runs. Section 16 forbids it: no wage period in respect of any employee shall be more than a month.

He proposes to pay part of Sunita's daily wage in grain from the company store. Section 15 requires wages to be paid in current coin or currency notes, by cheque, by bank credit or electronically. By the Explanation to section 2(y), remuneration in kind given in lieu of wages counts as wages only up to fifteen per cent. of total wages payable, so at most that fraction may be in kind and the rest must be in one of section 15's four forms.

He pays Meera her basic pay and dearness allowance on the fifth, and her house rent allowance and overtime on the twentieth. He has breached section 17(1)(iv). By the second proviso to section 2(y), for the purpose of payment of wages the emoluments in clauses (d), (f), (g) and (h) are taken for computation, so the house rent allowance and the overtime allowance are wages for this Chapter and were due before the expiry of the seventh.

Rakesh is dismissed on a Tuesday. Section 17(2): the wages payable to him must be paid within two working days of his dismissal, so by Thursday if both are working days.

Sunita resigns on a Friday. The same two working days apply: section 17(2)(ii) covers a worker who has resigned, not only one the employer has removed.

The establishment closes and everybody loses their job. Again section 17(2)(ii): a person who became unemployed due to closure of the establishment is within it, and the two working days run.

The appropriate Government notifies that establishments of this class must pay only by cheque or bank credit. Under the proviso to section 15 it may, and cash payment then ceases to be an option for that establishment.

Finally, a Government establishment. A State department employs clerks under its own service rules. Section 25: Chapter III does not apply to Government establishments unless the appropriate Government by notification applies it. But sections 5 and 3 continue to apply, so the minimum wage and the prohibition of discrimination on the ground of gender are unaffected.

What this does NOT mean

It does not mean there is a wage ceiling. The Payment of Wages Act 1936 applied only below a notified ceiling; Chapter III applies to every employee within section 2(k), subject to section 25.

It does not mean wages may be paid in kind. Section 15 lists four modes, all of them money or its transfer, and the Explanation to section 2(y) recognises payment in kind only up to fifteen per cent. of total wages payable.

It does not mean the wage period is the employer's free choice. He fixes it, but it may never exceed a month.

It does not mean seven days applies to everybody. Seven days is for a monthly wage period only; daily, weekly and fortnightly have their own limits.

It does not mean the two-day rule applies only to dismissal. It covers removal, dismissal, retrenchment, resignation and unemployment due to closure.

It does not mean the limits are fixed. Section 17(3) lets the appropriate Government provide another time limit where reasonable, and section 17(4) preserves limits in other laws.

It does not mean allowances fall outside the time limits. The second proviso to section 2(y) brings conveyance allowance, house rent allowance, award money and overtime into the computation for the purpose of payment of wages.

Limits, criticism and amendments

Removing the wage ceiling is the largest gain in this Chapter, and it is not controversial: there was never a good reason why a better-paid employee should have no statutory right to be paid on time.

Section 17(3) is criticised as an open-ended relaxation. The appropriate Government may provide "any other time limit" where it considers it reasonable having regard to the circumstances, and the section prescribes no outer bound and no procedure.

Section 25's disapplication to Government establishments is defended on the ground that service rules already govern, and criticised because those rules bind the Government to itself, and because the Chapter contains the deduction protections in sections 18 to 24 as well as the timing rules.

And the Chapter still depends on an employee being willing to complain. The time limits are precise, but the remedy for their breach is a claim under section 45 or a prosecution under section 54, and a worker still in employment rarely brings either.

Against that, section 17(2)'s two working days is a genuine and well-aimed protection, because it removes the employer's best lever at exactly the moment he is most tempted to use it.

Quick revision

• Section 15: wages in current coin or currency notes, by cheque, by bank credit, or by electronic mode. Proviso: the appropriate Government may require only cheque or bank credit for a specified establishment.
• Section 16: the employer fixes the wage period as daily, weekly, fortnightly or monthly, and it may never exceed a month. Different periods for different establishments.
• Section 17(1): daily, end of the shift; weekly, last working day of the week before the weekly holiday; fortnightly, before the end of the second day after the fortnight; monthly, before the expiry of the seventh day of the succeeding month.
• Section 17(2): on removal, dismissal, retrenchment, resignation, or unemployment due to closure, wages within two working days.
• 17(3): the appropriate Government may provide another time limit where reasonable. 17(4): other laws' limits are unaffected.
• Section 25: Chapter III does not apply to Government establishments unless the appropriate Government applies it by notification. Chapter II and section 3 are unaffected.
• Second proviso to section 2(y): for payment of wages, clauses (d) conveyance, (f) house rent allowance, (g) award or settlement money and (h) overtime are taken into the computation, so they must be paid within these limits.
• No wage ceiling, unlike the Payment of Wages Act 1936.

Test yourself

1. In what forms may wages be paid? Under section 15, in current coin or currency notes, or by cheque, or by crediting the wages in the bank account of the employee, or by the electronic mode. The proviso permits the appropriate Government, by notification, to specify an industrial or other establishment whose employer shall pay every person employed there only by cheque or by crediting the wages in his bank account. Payment in kind is recognised only to the limited extent allowed by the Explanation to section 2(y), which deems remuneration in kind given in lieu of wages to form part of wages up to fifteen per cent. of the total wages payable.

2. State the time limits for payment of wages. Under section 17(1), for an employee engaged on a daily basis, at the end of the shift; on a weekly basis, on the last working day of the week, that is before the weekly holiday; on a fortnightly basis, before the end of the second day after the end of the fortnight; and on a monthly basis, before the expiry of the seventh day of the succeeding month. Under section 17(2), where an employee has been removed or dismissed from service, or retrenched, or has resigned, or became unemployed due to closure of the establishment, the wages payable to him shall be paid within two working days.

3. What is the maximum wage period, and who fixes it? Section 16 requires the employer to fix the wage period as daily, weekly, fortnightly or monthly, subject to the condition that no wage period in respect of any employee shall be more than a month. The choice is the employer's, bounded by that one-month cap, and the proviso permits different wage periods to be fixed for different establishments.

4. An employer pays basic pay and dearness allowance on the fifth of the month and the house rent allowance and overtime on the twentieth. Has he complied with section 17? No. Although house rent allowance and overtime allowance are excluded from wages by clauses (f) and (h) of section 2(y), the second proviso to that clause provides that for the purpose of payment of wages the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage. Those items are therefore wages for the purposes of Chapter III and were due, with the rest, before the expiry of the seventh day of the succeeding month under section 17(1)(iv).

5. Does Chapter III apply to a Government establishment? Not automatically. Section 25 provides that Chapter III shall not apply to Government establishments unless the appropriate Government, by notification, applies it to them, the rationale being that such establishments have their own service rules governing pay and its recovery. The disapplication is confined to Chapter III: Chapter II on minimum wages and section 3 on discrimination on the ground of gender continue to apply.

6. How does the Code differ from the Payment of Wages Act 1936 in its coverage? The 1936 Act applied only to employed persons whose wages fell below a notified ceiling, so better-paid employees had no statutory right to be paid on time or protection against unauthorised deductions and were left to their contract. Chapter III of the Code contains no wage ceiling. It applies to every employee within section 2(k), which covers skilled, semi-skilled and unskilled, manual, operational, supervisory, managerial, administrative, technical and clerical work, excluding only apprentices and members of the Armed Forces, subject to the disapplication to Government establishments in section 25.