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Minimum Wage

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Minimum wage corresponds to the minimum cash payment to be paid to an individual working in certain notified jobs (mostly in the informal / unorganised sector), at a rate fixed by the central or state Governments, by taking into account the norms recommended by the 15th Indian Labour Conference, 1957 and the Supreme Court directive in 1992 in the case of Reptakos & Co. Vs. its workers. The minimum wage is generally exclusive of other allowances in kind, accommodation facilities, perks etc. The minimum wage is fixed uniformly for an individual irrespective of being a man or woman but differently for different types of jobs and duration of work.

Once the minimum rates of wages are fixed according to the procedure prescribed by law, it is the obligation of the employer to pay the said wages irrespective of his capacity to pay.

Administrative aspects of payment of minimum wages are detailed in the Minimum Wages Act, 1948 and the Rules issued in this regard. (Rules issued by the Central Government may be seen here.)

Determination of Minimum Wages
Contrary to popular perception, the Minimum Wages Act, 1948 has not laid down the criteria for fixing the minimum wages in the country though it specifies the procedure for doing so.

Instead, the norms recommended by the Indian Labour Conference, held in 1957, are taken into account while fixing the minimum wages. These are as follows:

In the year 1992, the Supreme Court delivered a judgment in the case of Reptakos & Co. Vs. its workers, pronouncing that the 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 appropriate Governments also keep this judicial pronouncement in view while fixing/revising the minimum wages in addition to local conditions in that region. Thus, minimum wages are fixed as per the above 6 criteria.

Under the Minimum Wages Act, Central and State Governments are the appropriate Governments to notify scheduled employment (those employments which are liable for payment of minimum wages) and fix/revise minimum wages. The Act/ relevant Notifications contain a list of all these employments for which minimum wages are to be fixed by the appropriate Governments. This Schedule has both agricultural and non-agricultural employments. List of 45 scheduled employments in central government under the Minimum Wages Act, 1948 may be seen here. The jobs are mostly in the mining, sanitation, agriculture, construction and infrastructure sectors.

Central / State Governments can notify any employment in the schedule where the number of employees is 1000 or more and fix the rates of minimum wages in respect of the employees employed therein. The Act provides for fixation of minimum rates of wages for different classes of work in the scheduled employment i.e. for adults, adolescents, children and apprentices and for different localities (The Child Labour (Prohibition & Regulation) Act enacted in 1986 in India only prohibits employment of children in certain specified hazardous occupations and processes and regulates the working conditions in others.) The Act also provides for grant of overtime for work over and above 9 hours a day at the rate of one and a half times the normal wage in agriculture and double the ordinary rate in other scheduled employments.

Generally, only cash payments are considered as minimum wages under the Act. However, if it has been the custom to pay wages wholly or partly in kind, the appropriate government may authorize the payment of minimum wages either wholly or partly in kind and the provision of supply of essential commodities at concessional rates. In such cases, the appropriate Government may prescribe the manner of determining the cash value of wages in kind and of concessions for supplies of essential commodities at concessional rates.

Periodic review and updation of Minimum Wages
The appropriate Governments review the minimum rates of wages so fixed and revise the minimum rates for different scheduled employments, whenever necessary on a continuous basis as per provision contained in Section 3 (1) (b) of the Minimum Wages Act, 1948. The maximum gap between two revisions cannot be more than 5 years. Presently, the minimum wages are revised every five years in the Central sphere. Further, Variable Dearness Allowance (normally called as DA: a percentage of the salary which is granted for adjusting to the increased cost of living on the basis of increase in Consumer Price Index Numbers for Industrial Workers) is revised twice a year (effective from 1st April and 1st October) to offset the impact of price rise / inflation as reflected in the Consumer Price Indices. This Dearness allowance is also a part of minimum wages though some states report it separately.  

Rationale for fixing the minimum wages
In India, where about 90% of the workers work in the informal sector, workers are devoid of collective bargaining power. This makes it difficult to leave the wages to be determined entirely by the interplay of market forces and intervention on the part of the government becomes essential. It is with the objective of protecting the vulnerable and less privileged strata of the society from exploitation in the work place that the Government of India enacted the Minimum Wages Act, 1948. The Act provides for fixation/ revision of minimum rates of wages in sweating employments through the authority of the state. Statutorily prescribing minimum wage rates also help in reducing the inequalities in the standard of living of different social groups of workers[1].

Enforcement of the provisions of Minimum Wages Act 1948
The minimum wages are fixed under the Minimum Wages Act, 1948 and hence have to be statutorily paid. The enforcement of the Act is done at two levels. At the central sphere, the enforcement is done by the Inspecting Officers of the Central Chief Labour Commissioner (commonly designated as Central Industrial Relations Machinery (CIRM)), while the compliance in the State sphere is ensured through the State labour commissioners. They conduct regular inspections and in the event of detection of any case of non-payment or under - payment of minimum wages, they advise the employers to make payment of the shortfall of wages. In case of non-compliance, penal provisions against the defaulting employers are invoked. Complaints regarding non-payment of minimum wages in private institutions mostly go to state government, which is the appropriate government.

Details of enforcement of Minimum Wages Act in the Central Sphere during past few years

Sl. No. Particulars 2011-12 2012-13 2013-14 2014-15 (upto Dec., 2014)
1 No. of inspections conducted 15272 15550 13099 4852
2 No. of Prosecution Launched 6937 5307 5167 1790
3 No. of Irregularities detected 291032 291148 270273 179958
4 No. of Convictions 6816 4954 5074 1041
Source: PIB release of Ministry of Labour & Employment dated 18 March 2015

Data on Minimum wages
The Labour Bureau brings out an annual Report on the Working of the Minimum Wages Act, 1948. It presents information on employments added, employments in which the Minimum Wages were fixed for the first time, the Minimum Wages in different scheduled employments prevalent during the year, the range of Minimum Wages, comparative Minimum Wage Rates prevailing in scheduled employments and number of Inspections etc. A brief history of the concept of Minimum Wages as taken up by the various International Labour Organisation (ILO) Conferences and Indian authorities from time to time is also traced in the Report on the Working of the Minimum Wages Act, 1948.

Information contained in this volume is based on the annual reports received from the Chief Labour Commissioner (Central) as well as the authorities of the State Governments and Union Territories.

As per the 2013 Report on the Working of the Minimum Wages Act, 1948, amongst the States, Assam has notified the maximum numbers of scheduled employments (105) while the minimum number (1) was reported from Mizoram.

Amongst the states, the average highest minimum wage reported is Rs. 382.50 in Kerala. The scheduled employment of River Sand Collection, its loading and unloading in the state of Kerala fetches the highest minimum wages @ Rs. 532.50 and the lowest minimum wage of Rs. 55.00 are being paid in the scheduled employment of Agriculture (Yanam region) in Puducherry.

There are 45 scheduled employments in the Central sphere while in the State sphere the number of such employments is as many as 1596. A total of 376 different types of scheduled employments were reported in the year 2013 where the minimum wage rates have been fixed by the States/Union Territories/Central Labour Commissioners.

National Floor Level Minimum Wage
There are vast differences in the minimum wages paid by various states. Hence, the concept of National Floor Level Minimum Wage has been introduced with effect from 1996, which is the minimum wage below which no state Government in India can fix the minimum wage. Unlike the concept of “minimum wage” this is a non-statutory measure to ensure upward revision of minimum wages in different in States/UT’s. Thus, the State Governments are persuaded to fix minimum wages such that in none of the scheduled employments, the minimum wage is less than the National Floor Level Minimum Wage. This method has helped to some extent in reducing disparity among different rates of minimum wages.

International usage of the term “minimum wages”
The 54th General Conference of the International Labour Organisation (ILO) passed the Convention No. 131 concerning Minimum Wage Fixing, with special reference to developing countries, on 22 June, 1970.

Under Article 1 of Convention No. 131, each Member of the ILO which ratifies the Convention undertakes to establish a system of minimum wages, and Part III of Recommendation No. 135 provides details on the scope of application of this system. Furthermore, Article 4 of the Convention also requires the creation and/or maintenance of machinery adapted to national conditions and requirements whereby minimum wages for groups of wage earners covered under Article 1 can be fixed and adjusted from time to time. Paragraph 6 of the Recommendation contains an illustrative list of the methods of fixing minimum wages that can be implemented.

While ILO Convention No. 131 does not contain a specific definition of the minimum wage, and does not enumerate its components, the Committee observed that national legislation shows great variety in this regard. Although only the basic wage is taken into account in certain countries, others also include wage supplements such as commissions or productivity bonuses. Then there is the issue of including benefits in kind particularly in view of the difficulty of assessing objectively the value of such benefits. The Convention No. 131 does not enumerate the type of needs that minimum wages should satisfy.

The 1992 General Survey on minimum wages thus clarified that, no ILO instrument defines the term “minimum wage”. The ILO Committee hence, considered that the minimum wage may be understood to mean “the minimum sum payable to a worker for work performed or services rendered, within a given period, whether calculated on the basis of time or output, which may not be reduced either by individual or collective agreement, which is guaranteed by law and which may be fixed in such a way as to cover the minimum needs of the worker and his or her family, in the light of national economic and social conditions” (1992 General Survey para 42).

This definition refers both to the binding nature of minimum wages, regardless of the method of fixing them, and to the major social and economic considerations that should be taken into account in determining their rates. It does not indicate, however, the elements to be included in the minimum wage.

There is large scale variation of minimum wages both within the country and internationally owing to differences in prices of essential commodities, paying capacity, productivity, local conditions, items of the commodity basket, differences in exchange rates etc. In view of this the minimum wages in India may appear to be lower as per International Standards. In several countries campaigns have been launched for a living wage which should enable workers not only to satisfy their basic needs, such as food and housing, but also to participate in social and cultural life.

Global Wage Report 2012-13 published by ILO reported the estimations of United States Department of Labor, Bureau of Labor Statistics, 2011 that total hourly compensation costs in manufacturing were estimated at US$1.36 in China for 2008 and at US$1.17 in India for 2007. Although these differences are measured in current US dollars and therefore, are dependent on exchange rate fluctuations, they nonetheless point towards the persistence of wide gaps in wages and labour productivity across the world.

Relevant legislation and other provisions in various countries are given in Appendix IV of the ILO report on “Minimum Wage Systems” issued in 2014

1. Source: as mentioned in the Annual Report on the Working of Minimum Wages Act, 1948 for the year 2008

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