DEDUCTIONS UNDER THE PAYMENT OF WAGES ACT

INTRODUCTION
The need to protect the wages earned by the worker had been felt from the early years of the
20th century. Workers had always been exploited from one or the other way. In 1925 a private
bill called weekly payment bill was first time introduced in the legislative assembly. The bill
was however withdrawn on an assurance of the government that the matter was under
consideration of the government. Imposition of fines by employers on workers and deduction
of double amount of wages for absence period by way of fine was very much customary in
those days. The desirability of regulating the extent of fines and other deductions, through
legislation was felt by the government in 1926.
The Royal Commission1 on Labour in India made some valuable recommendations. The
payment of wages Act is based on these recommendations. The commission was of the
opinion that legislation regarding deduction from wages and fines was essential. These
recommendations were:
 Children were exempted from fine
 The minimum amount which could be deducted should not exceed half an anna in
the rupee in any month
 Fine should be utilized for some benefit of the employees recognized by an authority
 A notice specifying the fine must be placed and any other fine shall be deem to be
illegal
 Any deduction made for goods damaged must not exceed its wholesale price
 Deduction may be made for housing accommodation and tools and raw materials
 Imposition of any fine and deduction made which is not permitted by law should be
made penal
This recommendation was introduced in Legislative Assembly I 1933. The Payment of wages
Act was passed in 1936 and came into force on 21st March, 1937.
The preamble of the Act states that the object of the Act is “to regulate the payment of wages
to certain classes of employed person”.

1
Royal commission in 1928 presented recommendations on wages.
1
The Bombay high Court has observed in Arvind Mills Ltd. v. K.R.. Gadgil 2, the general
purpose of the Act is to provide that employed persons shall be paid their wages in a
particular form and at regular intervals without any unauthorized deduction”.

CONCEPT OF WAGES
A wage is compensation, usually financial, received by workers in exchange for their labour.
Compensation in terms of wages is given to workers and compensation in terms of salary is
given to employees. Compensation is a monetary benefit given to employees in return for the
services provided by them3.

According to Black’s Law Dictionary, wages means “to give security for a performance of a
thing”.
According to Section 2 (vi) of payment of wages act, wages means all remuneration, whether
by way of salaries, allowances or otherwise, expressed in terms of money or capable of being
so expressed which would, if the terms employment , express or implied were fulfilled, be
payable to a person employed in respect of his employment or of work done in such
employment.
It includes:
 Any remuneration payable under any award or settlement between the parties or the
order of court
 Any remuneration to which the person employed is is entitled in respect of overtime
work or holidays or nay leave period
 Any additional remuneration payable under the terms of employment whether called a
bonus or by any other name.

In case of D.P. Kelkar v. Ambadas4, it was held that, the definition of age is not limited to
remuneration payable under an agreement or contract. The amended definition would apply
to all kinds of remuneration arising out of a contract.

The expression "Wages" does not include:

 The Bonus declared voluntarily on the basis of profits, and the bonus (whether under
a Scheme of profit sharing-or otherwise) which does not form part of the

2
AIR 1941 Bom 26
3
http://en.wikipedia.org/wiki/Wage
4
AIR 1971 Bom 124
2
remuneration payable under the terms of employment, or which is not payable under
any award or settlement between the parties or order of a Court;
 The value of any house accommodation, of the supply of water, light, medical
attendance, or other amenity or any service excluded from the computation of wages
by a general or specific order of the State Government;
 Any contribution paid by the employer to any pension or provident fund, and the
interest accrued thereon;
 Any travelling allowance or the value of any travelling concession;
 Any sum paid to. the employed person to defray special expenses entailed on him by
the nature of his employment;
 Any gratuity payable on the termination of employment;
 Whether house rent are wages depends on terms of contract. It is so, if its payment is
compulsory, otherwise it is not.
 The term "wages" means wages earned and not potential wages.
 No other meaning can be assigned to the term "wages" than is mentioned in the
definition.

Minimum Wage Rate

A minimum wage is the lowest hourly, daily or monthly wage that employers may legally
pay to employees or workers. Equivalently, it is the lowest wage at which workers may sell
their labor. Although minimum wage laws are in effect in a great many jurisdictions, there
are differences of opinion about the benefits and drawbacks of a minimum wage. Supporters
of the minimum wage say that it increases the standard of living of workers and reduces
poverty5.

Minimum Wages in India

In India, 422.6 (94%) million workers out of the total workforce of 457.5 million belong to
the unorganized/informal sector. These workers contribute to more than 60 per cent to India‟s
GDP growth. Among other sectors, these workers work as farm labourers, landless labourers,
factory workers and construction workers. Currently the number of scheduled employments
in the Central government is 45, whereas in the state sphere the number is 1232.
The Minimum Wage Act, 1948 provides for fixation and enforcement of minimum wages in
respect of schedule employments to prevent sweating or exploitation of labour through

5
http://www.epi.org/content.cfm/issueguides_minwage, Real Value of the Minimum Wage
3
payment of low wages. The objective of the Act is to ensure a minimum subsistence wage for
workers. The Act requires the appropriate government to fix minimum rates of wages in
respect of employment specified in the schedule and review and revise the minimum rates of
wages at intervals not exceeding five years.
With effect from November 2009 the National Floor Level Minimum Wage has been
increased to Rs 100 from Rs 80 (in September 2007). The National Minimum Floor Level
Wage was Rs 66 in 2004, Rs. 45 in 1999, Rs. 40 in 1998 and Rs. 35 in 19966.

Objects and Application

This Act manages the payment of wages to specific classes of people employed in industry
and its significance can’t be under-evaluated. The Act ensures payment of wages on schedule
and with no reasonings aside from those approved under the Act. The Act accommodates the
obligation regarding payment of wages, fixation of the pay period, time and method of
payment of wages, an obligation to look for the endorsement or approval of the Government
for the acts and consent for which fines might be imposed by him and furthermore fixing of
the fines.
The Act doesn’t have any significant bearing to people whose payment or wage is Rs.
24,000/ – or more every month. The Act additionally gives such that a worker can’t contract
out of any privilege or right is given or conferred to him under the Act.
According to Section 1(4) of this act, It applies primarily to the installment of wages to
people utilized or employed in any production line or to people employed (generally than in a
factory) upon any railway by a rail route organization or either legitimately or through a sub-
temporary worker which can also be a subcontractor, by which an individual is satisfying an
agreement with a rail route organization and people utilized in a modern or other foundation
which are indicated in sub-clause (a) to (g) of clause (ii) of section 2.7

PAYMENT OF WAGES
Responsibility for payment of wages
Responsibilities for payment of ages are mentioned in Section 3 of the Payment of Wages
Act, 1936. Every employer is liable for the payment of all wages to every one of the workers
that he utilizes or employes for his work. In some other cases, if the employer names an
individual, or on the off chance that there is an individual capable of the business or is
designated, at that point, such an individual is liable for the payment of wages.

6
http://www.paycheck.in/main/officialminimumwages
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Payment of Wages
4
Notwithstanding anything contained in sub-section (1), the business is capable to make the
payment of all wages which the Act expects him to make. Actually, if the temporary worker
or the individual that the employer assigns to make the payment neglects to do as such, at that
point the duty lies with the employer. Each employer will be answerable for the payment to
people utilized by him of all wages required to be paid.
 On account of the industrial facility, the administrator of that manufacturing plant will
be obligated to pay the wages to workers utilized by him.
 On account of mechanical or different foundations, the duty of supervision will be
subject to the payment of wages to workers utilized or employed by him.
 On account of railroads, an individual named by the rail line organization for
determined territory will be at risk for the payment of wages to the workers.
 On account of a contractual worker, an individual assigned by such a temporary
worker who is straightforwardly under his charge will be at risk for the payment of
the wage to the representatives. On the off chance that he neglects to pay wages to
representatives, individuals who employed the workers will be at risk for the payment
of wages.

Fixation of wage period

Each individual who is liable for the payment of wages under section 3 will fix periods in
regard to which such wages will be payable. No wage period will surpass one month. That
implies pay can be paid on day by day, week by week, fortnightly (for at regular intervals)
and month to month as it were. Payment of wage period for payment of wages to
representatives by manager ought not to surpass 30 days, for example, one month.
In any case, compensation can’t be paid quarterly, half-yearly or once in a year.

Time of payment of wages

Each individual employed upon or in:
Any railway, production line or modern or different foundations upon or in which the
complete number of employed people is short of what one thousand, must get his wages
before the expiry of the seventh day from the most recent day of the pay time frame for which
the wages are payable. Some other railway, industrial or mechanical or different foundations,
must get his wage before the expiry of the tenth day from the most recent day of the
compensation time frame for which the wages are payable.

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 If the employer ends the work of an individual, at that point he should guarantee that
the fired employee gets his wages before the expiry of the second working day from
the date of the end of employment.
 The Appropriate Government can exclude to such a degree and furthermore subject to
such conditions in the request the individual liable for the payment of wages to utilize
or employ people.
 The business or the individual answerable for paying wages must guarantee that the
wages are paid on a working day.

Wages to be paid in current coins or currency notes

The employer or the individual answerable for making the payment of wages must pay in
money coins or cash notes or in both. Further, he can’t pay in kind. Additionally, the
employer can pay the wages by means of a cheque or a direct deposit to the bank of the
representative subsequent after taking a composed approval from him. Provided that the
appropriate Government may, by notification in the Official Gazette, specify the industrial or
other establishments, the employer of which shall pay to every worker employed in such
industrial or other establishments, the wages only by giving a cheque or by crediting the
payment in his bank account.

DEDUCTION FROM WAGES

An employer can lawfully withhold amounts from an employee’s wages only:
(1) When required or empowered to do so by state or federal law,
(2) when a deduction is expressly authorized in writing by the employee to cover
insurance premiums, benefit plan contributions or other deductions not amounting to a
rebate on the employee’s wages,
(3) When a deduction to cover health, welfare, or pension contributions is expressly
authorized by a wage8.
At the time of payment of the wage to employees, employer should make deductions
according to this act only. Employer should not make deductions as he like. Every amount
paid by the employee to his employer is called as deductions.
Section 7 of payment of wages act, says about the deduction which may be made from
wages.

8
http:/www.dir.ca.gov/dise/FAQs_dedductions.html
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Deductions which may be made from wages.-
(1) Notwithstanding the provisions of 11[the Railways Act, 1989 (24 of 1989)], the wages of
an employed person shall be paid to him without deduction of any kind except those
authorised by or under this Act.

[Explanation I].- Every payment made by the employed person to the employer or his agent
shall, for the purposes of this Act, be deemed to be a deduction from wages.

[Explanation II].- Any loss of wages resulting from the imposition, for good and sufficient
cause, upon a person employed of any of the following penalties, namely—

(i) the withholding of increment or promotion (including the stoppage of increment at an

efficiency bar);
(ii) the reduction to a lower post or time-scale or to a lower stage in a time-scale; or
(iii) suspension;
shall not be deemed to be a deduction from wages in any case where the rules framed by the
employer for the imposition of any such penalty are in conformity with the requirements, if
any, which may be specified in this behalf by the State Government by notification in the
Official Gazette.]

(2) Deductions from the wages of an employed person shall be made only in accordance with
the provisions of this Act, and may be of the following kinds only, namely-
(a) fines;
(b) deduction for absence from duty;
(c) deductions for damage to or loss of goods expressly entrusted to the employed person or
custody; or for loss of money for which he is required to account, where such damage or loss
is directly attributable to his neglect or default;
[(d) deductions for house-accommodation supplied by the employer or by Government or any
housing board set up under any law for the time being in force (whether the Government or
the board is the employer or not) or any other authority engaged in the business of subsidising
house-accommodation which may be specified in this behalf by 4[the appropriate
Government] by notification in the Official Gazette;]
(e) deductions for such amenities and services supplied by the employer as the 5[***] State
Government [or any officer specified specified by it in this behalf] may, by general or special
order authorise.
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Explanation.- The word “services” in 7[this clause] does not include the supply of tools and
raw materials required for the purposes of employment;8[(f) deductions for recovery of
advances of whatever nature (including advances for travelling allowance or conveyance
allowance), and the interest due in respect thereof, or for adjustment of over-payments of
wages;

(ff) deductions for recovery of loans made from any fund constituted for the welfare of labour
in accordance with the rules approved by the State Government, and the interest due in
respect thereof;

(fff) deductions for recovery of loans granted for house-building or other purposes approved
by the State Government and the interest due in respect thereof;]

(g) deductions of income-tax payable by the employed person;

(h) deductions required to be made by order of a Court or other authority competent to make
such order;

(i) deductions for subscriptions to, and for payment of advances from any provident fund to
which the Provident Funds Act, 1925 (19 of 1925), applies or any recognised provident fund
as defined [in clause (38) of section 2 of the Income-tax Act, 1961 (43 of 1961) or any
provident fund approved in this behalf by [the appropriate Government], during the
continuance of such approval; [***]

(j) deductions for payments to co-operative societies approved by [the appropriate

Government] [or any officer specified by it in this behalf] or to a scheme of insurance
maintained by the Indian Post Office; 6[and];[8(k) deductions, made with the written
authorisation of the person employed for payment of any premium on his life insurance
policy to the Life Insurance Corporation of India established under the Life Insurance
Corporation Act, 1956 (31 of 1956), or for the purchase of securities of the Government of
India or of any State Government or for being deposited in any Post Office Savings Bank in
furtherance of any savings scheme of any such Governmeeductions made, with the written
authorisation of the employed person, for the payment of his contribution to any fund
constituted by the employer or a trade union registered under the Trade Unions Act, 1926 (16
8
of 1926) for the welfare of the employed persons or the members of their families, or both,
and approved by 10[the appropriate Government], or any officer specified by it in this behalf,
during the continuance of such approval;

(kkk) deductions made, with the written authorisation of the employed person, for payment of
the fees payable by him for the membership of any trade union registered under the Trade
Unions Act, 1926 (16 of 1926);

(l) deductions for payment of insurance premia on Fidelity Guarantee Bonds;

(m) deductions for recovery of losses sustained by a railway administration on account of

acceptance by the employed person of counterfeit or base coins or mutilated or forged
currency notes;

(n) deductions for recovery of losses sustained by a railway administration on account of the
failure of the employed person to invoice, to bill, to collect or to account for the appropriate
charges due to that administration, whether in respect of fares, freight, demurrage, wharfage
and cranage or in respect of sale of food in catering establishments or in respect of
commodities in grain shops or otherwise;

(o) deductions for recovery of losses sustained by a railway administration on account of any
rebates or refunds incorrectly granted by the employed person where such loss is directly
attributable to his neglect or default.]

(p) deductions, made with the written authorisation of the employed person, for contribution
to the Prime Minister's National Relief Fund or to such other Fund as the Central Government
may, by notification in the Official Gazette, specify.]

(q) deductions for contributions to any insurance scheme framed by the Central Government
for the benefit of its employees.]

(3) Notwithstanding anything contained in this Act, the total amount of deductions which
may be made under sub-section (2) in any wage-period from the wages of any employed
person shall not exceed-

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(i) in cases where such deductions are wholly or partly made for payments to co-operative
societies under clause (j) of sub-section
(2), seventy-five per cent of such wages, and
(ii) in any other case, fifty per cent of such wages:
Provided that where the total deductions authorised under sub-section (2) exceed seventy-five
per cent or, as the case may be, fifty per cent of the wages, the excess may be recovered in
such manner as may be prescribed.

(4) Nothing contained in this section shall be construed as precluding the employer from
recovering from the wages of the employed person or otherwise any amount payable by such
person under any law for the time being in force other than 5[the Railways Act, 1989 (24 of
1989)].

Section 7 (1) provides that notwithstanding the provisions of Railway Act, wages for
employed person shall be paid to him without deduction of any kind except those authorized
by law. It lays down a general provision against any deduction from the wages of a worker.
Every payment made by the employed person to the employer or his agent shall be deem to
be a deduction from wages. It also lays down that any loss of wages resulting from the
imposition, upon a person, the following penalty should not be considered as deduction from
wages:
1. Withholding of increment or promotion including the stoppage of increment at any
efficiency bar.
2. The reduction to a lower post or time scale or to a lower stage in the scale.
3. Demotion.
4. Suspension.

Fines
Section 7(2) (a) of the said Act authorizes deduction by way of fines.
An employer may impose fines on an employee only for such acts and omissions that are
previously approved by the appropriate government. Before imposing a fine on an employee,
the employee must be given an opportunity of being heard against the fine. The amount of
fine imposed cannot not exceed 3 percent of the wages in a particular wage-period.
Fine ought to be forced by the employer on worker with the endorsement of the state
government or recommended authority. The employer ought to observe the guidelines
referenced underneath for and before forcing of fine on the worker.
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 Notice leading body of fines on workers ought to be shown in the work premises and
it ought to contain exercises that ought not to be made by the representative.
 Fine ought not to be forced on the worker until he gives the clarification and causes
for the demonstration or omission he made.
 The aggregate sum of fine ought not to surpass 3% of his pay.
 Fine ought not to be forced on any representative who is younger than 15 years.
 Fine ought to be forced for one time just on the pay of the employee for the
demonstration or exclusion he made.
 Fines ought not to be recovered in the method for portions or payments from the
representative.
 Fine ought to be recuperated or recovered within 60 days from the date on which fine
was forced.
 Fine ought to be forced on the day act of exclusion made by the worker or the
employee.
 All fines gathered from the worker ought to be credited to basic reserve and use to
help the employees.
 All fines and all acknowledge thereof will be recorded in a register to be kept by the
individual answerable for the payment of wages under section 3 in such structure as
might be prescribed, and all such acknowledge will be applied uniquely to such
purposes useful to the people employed in the factory or foundation as are affirmed by
the recommended authority.
 No fines forced on any employee or worker should be recuperated from him after the
expiry of 90 days from the day on which the fines were forced.

Deductions for absence from duty

Section 7(2) (b)9 of the Act permits deductions for absence from duty. The Authorizes the
employer to make deduction for absence from duty. Such a deduction can be made only on
account of the absence of an employed person from the place or places, where according to
the terms of employment he is required to work, if he, though present in person refused to
carry out his work in pursuance of a stay in strike or any other cause which is not reasonable
in the circumstances. Similarly, tool down strike without any Just Cause amounts to absence
from duty. According to Section 7(2) a permissible deduction can be made for absence from
duty.

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Payment of Wages Act, 1936
11
If the employee is absent from his duty at the time of work then the employer can deduct the
salary of the individual depending upon the time period he is absent from the work.10
The employer is also restricted to deduct only such amount from the salary which should not
exceed the bear of sum which is actually payable to the employee in regard to the pay time
frame as this time of nonattendance does to such wage-period.11

In the bank of India and another v. T.S. Kelawala Bombay and others 12, the bank employees
demanded wage revision and pending acceptance of demand decided to go on four hours
strike daily. The bank issued a circular to deduct full day’s wages of such employees who
participated in the strike. It was held that strikes and demonstrations are legitimate forms of
protest and they are not banned in this country. By an administrative circular the legitimate
mode of protest allowed and recognized by law cannot be stifled. It was held that payment of
wages act is regulatory. Section 7 (2) read with Section 9 of the act provides the
circumstances under which and the extent to which deduction can be made. It is only when
the employer has right to make deduction, resort should be had to the act to ascertain the
extent to which the deduction can be made. No deduction exceeding the limit provided by the
act is permissible even if the contract so provides. There cannot be contract contrary to or in
terms wider than the input of sections 7 and 9 of the act. Therefore wage deduction cannot be
made under section 7(2) of the payment of wages act if there is no such power to the
employer under the terms of contract.

In Surendranathan Nair and others v. Senior divisional personal officer (Rlys.) 13, some of the
railway employees applied for casual leave to participate in an agitation against railway
administration. The leave was refused but the employees participated in the agitation. The
management deducted the wages treating the period of leave applied for as absence from
duty. It was held that the leave rules to the railway are contained in the railway established
code and the rule made thereunder. The code derives its authority from Article 309 of the
constitution and the rules are made under the delegated power. These rules have general
application to all non-gazatted railway servants. Rejection of leave under such circumstances
was legal and proper. Absence from duty, especially for the purpose pf participation in an
agitation against his management is unauthorized. An unauthorized absentee has no right to
compel payment of wages for the period of unauthorized absence.
10
V. RamaChandran Vs. Indian Bank (1979) I LLJ 182
11
Anant Ram vs District Magistrate, Jodhpur, AIR 1956 Raj. 145
12
(1988) II L.L.J. 264 (Bom)
13
(1988) I L.L.J. 227 (Kerala)
12
In the case of Mineral Miner’s Union v. Kudremukh Iron Ore Co. Ltd.14, it was held by the
Karnataka High Court that deduction of wages for the Strike period is justified provided
strike was illegal.

In the case of French Motor Car o. Ltd., workers Union v. French Motor Car Co. Ltd 15., three
questions were decided. Some employees of the company indulge in go slow and resorted to
strike for 3 days and 29 employees were not allowed by the employer to resume work unless
they sign a guarantee bond. It has been held that on the principle of no work no pay, the
management was justified in deducting the wages of three days that is, the strike period.
Further the authority under the payment of wages act is not competent to examine whether
the strike was legal or not. The wages of the workmen could be deducted under section 7(2)
(b) for absence from duty. However, the absence from the duty by an employee must be
voluntary and it cannot cover his absence when he is forced by circumstances created by
employer from carrying out his duty. Therefore no deduction can be made from wages of 29
employees whose absence was not voluntary, in as much as they were not allowed to resume
their work without singing the guarantee bond. The third question was related to nonpayment
of variables.

Deductions for damage to or loss of goods

The act also authorizes the employer to effect deductions for damage to or loss of goods 16 .If
any money or goods entrusted to the employee is lost by his negligence or default, the
employer is entitled to deduct such loss.

Deductions for services rendered

The Act authorizes the employer to make deductions for house accommodation supplied by
the government or any housing board set up under any law for the time being in force or any
other authority engaged in the business of subsidising house-accommodation which may be
specified in this behalf by the State Government by notification in the Official Gazette. 17

Deductions for amenities services

14
(1989) I L.L.J. 227 (Karnataka)
15
(1991) I L.L.J. 107 ( Gauhati)
16
Section 7(2) (c) of Payment of Wages Act, 1936
17
Section (2) (d) of Payment of Wages Act, 1936
13
The deductions may also be made for such amenities and services supplied by the employer
as the State Government or the authorized person in this behalf authorities the employer to
provide amenities or services. The word services for the above purpose does not include the
supply of tools and raw material required for the purpose of employment. 18

Deductions for recovery of advances

The Act authorizes the employer to make deductions for the advances made by
him. (including advances for traveling allowance or conveyance allowance) 19

Deductions for recovery of loans

The employer may make deduction for the recovery of loans together with interest made
from any fund constituted for the welfare of labor in accordance with the rules approved by
the State Government in this regard.20

Deductions for recovery of loans granted for house-building

The deductions are also permitted to be made for the recovery of loans and interest granted
for house-building or other purposes in accordance with the rules approved by the State
Government.

Deductions of income-tax payable by the employed person

The Act permits an employer to make this deduction subject to the provisions of the Income
Tax Act.21

Deductions for provident fund

The employer should deduct provident fund contributions from his employee's salary
and shall also make contributions from his share, which is mandatory. 22

Deductions for payments to co-operative societies

The act authorizes the deductions for payments to Co-operative societies.23

Deductions with the consent of the employed Person

18
Section 7(2)(e) of Payment of Wages Act, 1936
19
Section 7(2)(f) of Payment of Wages Act, 1936
20
Section 7(2)(ff) of Payment of Wages Act, 1936
21
Section 7(2)(g) of Payment of Wages Act, 1936
22
Section 7(2)(i) of Payment of Wages Act, 1936
23
Section 7(2)(j) of Payment of Wages Act, 1936
14
Such deductions may be made with the written authorization of the person employed
for payment of any premium on his life insurance policy to the Life Insurance Corporation
Act of India established under the Life Insurance Corporation 1956 (31 of 1956) or for the
purchase of securities of the Government of India or of any State Government or for being
deposited in any Post Office Saving Bank in furtherance of any savings scheme.24

Deduction for the Welfare Fund

Deductions made with the written authorization of the employed person for the
payment of his contribution to any fund constituted by the employer or a trade union
registered under the Trade Union act 1926 (16 of 1926) for the welfare of the employed
persons or the members of their families or both and approved by the State Government or
any officer specified by it in this behalf during the continuance of such approval.25

Deduction for Trade Union Membership Fees

Deductions made with the written authorization of the employed person for payment of the
fees payable by him for the membership of any trade union registered under the Trade Union
Act 192626 provided that the person provides for a written authorization.27

Deductions for Fidelity Guarantee Bonds

The Act permits deduction for payment of insurance premier on Fidelity Guarantee Bonds. 28

Deductions for recovery of losses sustained by a railway administration

The Act permits this deduction on account of acceptance by the employed person
of counterfeit or base coins or mutilated or forged currency notes.29

Deduction for Prime Minister's National Relief Fund

The employee by written undertaking may authorize the employer to deduct some amount
from his wages towards the contribution to the Prime Minister's National Relief Fund or to
such other Fund as the Central Government may by notification in the Official Gazette
specify.

24
Section 7(2)(k) of Payment of Wages Act, 1936
25
Section 7 (2) (kk) of Payment of Wages Act, 1936
26
Section 7(2) (kkk) of Payment of Wages Act, 1936
27
Mansukh Gopinath vs W.M. Bapta (1982) 1LLJ 114 (Bomb.)
28
Section 7(2)(l) of Payment of Wages Act, 1936
29
Section 7(2)(m) of Payment of Wages Act, 1936

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Deduction for recovery of loans made from any fund
Section 7(2) provides that the recovery of loan may be made from any fund constituted for
the welfare of labour in accordance with the rule approved by state govt., and the interest due
in respect thereof.

Deduction from Recovery of Loses

The following deduction for recovery of losses may be made from the wages of an employed
person in accordance with the provisions of this ac:
1. Section 7 (2) (m) of the act authorize deduction for recovery of loses sustained by a
railway administration on account of acceptance by the employed person of
counterfeit or mutilated or forged currency notes.
2. Section 7 (2) (n) authorizes deduction sustained on account of failure of employed
person to invoice, bill or appropriate charges due to administration.
3. Section 7(2) (o) authorizes deduction sustained on account of any rebates or refunds
incorrectly granted where such loss is directly attributable to his neglect or default.

Permissible Total Deduction

Section 7 (3) lays down that total amount of deduction which may be made in any wage
period from the wage of the employed person shall not exceed 75% in case deduction for
payment of partly of wholly to Co-operative Societies and 50% in other cases.
If the deduction authorized exceeds the above limit then such may be recovered as in the
manner prescribed.

Deduction by Order of Court

No deductions can be made from the wages of an emplyoyee except otherwise provided
under the Act.30
In Municipal Corporation v. N.L. Abhyankar31, a representative union requested the employer
to collect the levies from the employee and remit the same. The employer refused the request
and the uion made an application to the Labour Court to order the above request. The Labour
Court ordered the employer to accept the request of the Union. In an appeal made by the
employer, it contended that no deductions other than permissible under the act can be made.
Therefore it was held by the court that other than the deductions specified under Section 7(2)

30
Section 7(2)(h) of Payment of Wages Act, 1936
31
(1979) II L.L.J. 258 (Bombay)
16
no other deductions can be made by the employer. But umder Section 7(2) (h) it clearly
allows deduction which are required to be made by order of a court or other authority
competent to male such deduction. In view of this the Industrial Court or the Labour Court
are competent to make an order for deduction.

In the case of Manager, Rajapalayam Mills Ltd. v. Labour Court, Madurai and another’s 32 ,
the employee resigned from the services. While he was in service he took some loan for
house building. The employer adjusted the salary which was due to him with the amount to
be paid for the house building. In the claim by the employee regarding the salary was rejected
as he ceased to be an emplyoyee due to his resignation. The court held that in such a case it is
open to the employer to adjust the entire amount due on account of wage under Section 7(4)
of the Payment of Wages Act.

Section 833 provides that fine shall be imposed on any employed person in respect of any
such act and omissions on his part as the employer, with the previous approval of the state
government or of the prescribed authority, may have specified by notice u/s 8(2).
 The notice specifying the acts and omissions for which fines may be imposed shall be
exhibited in the prescribed manner on the premises or the place in which the
employment is carried on.
 No fine shall be imposed on an employed person until he has given an opportunity of
showing cause against the fine.
 The total amount of fine in any one wage period on any employed person shall not
exceed three per cent of the rupee wages payable to him in respect of that wages
period.
 No fine shall be imposed on a person who is below the age of fifteen years.
 No fine shall be recovered from the employed person by instalments or after the
expiry of sixty days from the day on which it was imposed.
 Eve fine shall be deemed to have been imposed on the day of the actor omission.
 All fines and realisations thereof shall be recorded in a register to be kept by the
person responsible for the payment of wages in such form as may be prescribed. All
realisation of fines shall be applied only to such purposes as re beneficial to the
persons employed in the factory.

32
(1987) II L.L.J. 59 (Mad)
33
Payment of Wages Act, 1936
17
Section 934 of the Act the deduction may be made for the absence from duty.
 It lays down that any such deduction may be made on account of the absence of
employed person from the place or places where, by the terms of employment, he is
required to work.
 An employed person shall be deemed to be absent from duty if, though present at the
place of work, he refuses to carry out his work, in pursuance of a stay-in strike or for
any other cause which is not reasonable.
 The ratio between the amount of deductions for absence from duty and the wages
payable shall not exceed the ratio between the period of absence and total period
within such wage period.
 If, however, ten or more persons, acting in concert, absent themselves without due
notice and without reasonable cause, the deduction for absence from duty from any
such person may include such amount not exceeding his wages for eight days as may
be due to the employer in lieu of notice.

In G.Y.N. Chainulu and others v. The Depot Manager, A.P.S.R.T.C. Amalpuram and
another’s35 , it was held that once the strike is declared as illegal u/s 3 of Essential Services
Maintenance Act, a notice of strike u/s 22 of Industrial Dispute Act is not a due notice. The
employer has the right to deduct the wages in case of absence from duty without dur notice
and without a reasonable cause. But such an absence is made an offence u/s 4 Essential
Services Maintenance Act. The right given u/s 9 (2) of Payment of Wages Act is inconsistent
of Section 4 of Essential Services Maintenance Act. Therefore deduction of wages is without
authority of law and without jurisdiction.

In Prakash Chandra Johari v. Indian Overseas Bank and another’s36, it was held that the
words „terms of employment‟ would only refer to place or places of working of the
employee and not the working period. Therefore, the bank was justified in deducting the
wages fro the part of the day.

In Kothari (Madras) Ltd. v. Second A.J cum Appellate Authorities and Other’s 37, the question
for consideration was regarding the validity of deduction of wage of employees who were
prevented from attending the duty on account of Andhra Bandh. It was held that if the
34
Payment of Wages Act, 1936
35
(1986) II L.L.J. 81 (A.P.)
36
(1986) II L.L.J. 496 (Raj)
37
(1991) II L.L.J. 604 (Andhra Pradesh)
18
tribunal finds that an employee was not responsible for the absence from duty or he was
prevented from attending the duty, the management is not entitled to deduct the wages. The
tribunal has the power to look for the reasons and record a finding in that regard. In this case
the workmen were prevented from attending the duty by the organizers of the Bandh.
Therefore, the tribunal has the jurisdiction to look into sch a matter and resolve accordingly.

Section 10 of the Payment of Wages Act, 1936 lays down the deduction for damages and
loses.
 A deduction for damage to or loss or goods expressly entrusted to the employed
person for custody, or for loss of money which he is required to account can be made
where such loss is directly attributable to his neglect or default.
 A deduction for damage or loss shall not exceed the amount of damage or loss caused
to the employer by his neglect or default.
 A deduction for damage or loss shall not be made until the employed person has been
given an opportunity of showing cause against the deduction.
 All deductions and realisations in respect of damage or loss shall be recorded in a
register to be kept by the person responsible for the payment of wages.

Section 1138 provides that any deduction shall not be made from the wages of an
employed person unless the house accommodation, amenity or service has been
accepted by him as a term of employment.
Deduction for house accommodation and amenities and service supplied by the employer can
be made subject to the following conditions:
 Deductions cannot be made unless such services have been accepted by the employes
person as a term of his employment.
 Services do not include the supply of tools and raw materials required for the
purposed of the employment and no deduction can be made; in that respect.
 The amount of deduction cannot exceed an amount equivalent to the value of house
accommodation, amenity or service supplied.
 The amenities and services must be authorised by the State Government by a general
or special order.
 State Governments are empowered to make rules governing deductions for amenities
and services.

38
Payment of Wages Act, 1936
19
According to Section 1239, any deduction for the recovery of advance is subject to certain
conditions:
 Recovery to be made from first payment of wage and no recovery of travel expenses
 Advance given after the employment began shall be subject ot such conditions as the
government may impose
 Extent of loan and the rate of interest thereon should not exceed the amount so stated
by the state government.

Section 12 – A Deductions for Recovery of Loans

 Deduction for recovery of loans made from any fund constituted for the welfare of
labour and the interest due in respect thereof can be made provided the fund is
constituted in accordance with the rules approved by the State Government.
 Deductions can be made for recovery of loans granted for house building or other
purposes approved by the State Government and the interest due in respect thereof:

Section 13 - Deductions for Payments to Co-operative Societies and Insurance Schemes

These deductions shall include:
 Deductions for payments to co-operative societies approved by the State
 Government-or to a scheme of insurance maintained by the Indian Post Office;
 Deduction made with the written authorisation of the person employed for the
payment of any premium on his life insurance, policy to the Life Insurance
Corporation of India or for the purchase of securities of the Government of India or
of any State Government, or for being deposited in any Post office Savings Bank in
furtherance of any savings scheme of any such Government.

Theses deductions shall be subject to such conditions as the State Government may impose.

Other Deductions
The following deductions are also permissible under the Act;
a) deductions of income-tax payable by the employed person;
b) deductions required to be made by order of a court

39
Payment of Wages Act, 1936
20
c) deductions for subscriptions to, and for repayments of advances from any provident
fund to which the Provident Funds Act. 1925 applies or any recognised provident
fund or any provident fund approved in this behalf by the State Government.
d) deductions for payment of insurance premia of Fidelity Guarantee Bonds.
e) Wages and Labour taws e) deductions made, with the written authoristion of the
employed person, for the payment of his contribution to any fund constituted by the
employer are trade union registered under the Trade Unions Act, 1926 for the
welfare of the employed persons or the members of their families or both and
approved by the state government or any officer specified by it in the behalf, during
a continuing of such approval.
f) deductions made, with the written authorisation of the employed persons for
payment of the fees payable by him for the membership of any trade union
registered under the Trade Unions Act, 1926.
g) deductions for recovery of losses` sustained by a railway administration on account
of acceptance by the employed person of counter-feit or base coins or mutilated or
forged currency notes.
h) deductions for recovery of losses sustained bye a railway administration on account
of the failure of the employed person to invoice to bill, to collect or to account for
the appropriate changes due to that administration whether in respect of fares
freight, demurrage, warfare and carriage or in respect of sale of food in catering
establishments or in respect of sale of commodities is grain shops or otherwise;,
i) deductions for recovery of losses sustained by a railway administration on account
of any rebates of refunds incorrectly granted by the employed person where such
loss in directly attributable to his neglect or default;
j) deductions made with the written authorisation of the employed person for
contribution to the Prime Minister's National Relief Fund or to such other funds as
the Central Government may be notification in the official Gazette specify;
k) deductions for contribution to any insurance scheme framed by the Central
Government for the benefit of its employees.

The list of deductions in Sec. 7 (2) is exhaustive. Further, if any deduction is claimed by an
employer, the burden specifically -and clearly lies upon him to prove that the deduction is of
a nature which is capable of falling within the several clauses of Sec. 7 (2).
There is no provision in the Act limiting the period within which the employer should make
the deduction for adjustment of overpayment of wages.
21
Every payment by the employed person to the employer or his agent shall-be-deemed to be a
deduction: Any loss of wage resulting from the imposition, for good and sufficient cause,
upon a person employed, of any of the following penalties;-shall not be deemed to be a
deduction from any wages. These penalties are suspension, withholding of increment or
promotion (including stopping of increment at the efficiency bar).

Illegal Deductions
Any deductions other than those authorised under Section 7 of the Act would constitute
illegal deductions.

Limit on the amount of deductions (Sec. 7(3))

The total amount of deduction which may be made under Section 7 in a wage period from
the wages of any employed person shall not exceed 75 per cent of such wages in asend re
such deductions ye wholly or partly made for payments to co-operative societies. In air , other
case, the deductions shall not exceed SO per cent of such wages any agreement or contract
by which an employee agrees to any deductions other than those authorised under the Act
would be null and void under Section 23 of the Act. There is, however, no provision in the
Act limiting the period within which the employer should make the deduction for adjustment
of over payment of wages.

Maintenance of registers and records (Sec. 13-A)

Every employer must maintain registers and records giving the following particulars of the
every person employed by him:
a) the work performed by the person employed;
b) the wages paid to him;
c) the deductions made from his wages;
d) the receipts given by him.
The registers and records shall be in such form as may be prescribed, They shall be
preserved for a period of three years after the date of the last entry made therein.

UNAUTHORIZED DEDUCTION
If an employee believes that their employer has made an unlawful deduction from their wages
they are entitled to bring a claim to an Employment Tribunal. A claim must be submitted
within three months of the date of the deduction in question. Even if the tribunal rules in

22
favour of the employee and orders repayment they have no powers to award interest on the
money owed.
Some common payroll deductions often made by employers that are unlawful include40:

a. Gratuities. An employer cannot collect, take, or receive any gratuity or part thereof
given or left for an employee, or deduct any amount from wages due an employee on
account of a gratuity given or left for an employee.
b. Photographs. If an employer requires a photograph of an applicant or employee, the
employer must pay the cost of the photograph.
c. Bond. If an employer requires a bond of an applicant or employee, the employer
must pay the cost of the bond.
d. Uniforms. If an employer requires that an employee wear a uniform, the employer
must pay the cost of the uniform.
e. Business Expenses. An employee is entitled to be reimbursed by his or her employer
for all expenses or losses incurred in the direct consequence of the discharge of the
employee’s work duties.
f. Medical or Physical Examinations. An employer may not withhold or deduct from
the wages of any employee or require any prospective employee or applicant for
employment to pay for any pre-employment medical or physical examination taken as
a condition of employment, nor may an employer withhold or deduct from the wages
of any employee, or require any employee to pay for any medical or physical
examination required by any federal or state law or regulation, or local ordinance.

CASE LAW ANALYSIS

In case of The Divisional Engineer, G.I.P. Railway v. Mahadeo Raghoo and Anothers 41,
respondent was a gangman in the employ of the Central Railway Act that time his wages
were Rs. 18 per month plus dearness allowance. With effect from the 1st November 1947 the
Railway Board under Ministry of Railways of the Government of Indian introduced a scheme
of grant of compensatory (city) allowance and house rent allowance at rates specified in their
memorandum. This scheme was modified by the Railway Board's letter.
As a result of this scheme certain railway employees stationed at specified headquarters were
eligible for the allowance aforesaid at certain specified rates. The 1st respondent thus became
entitled to the allowance of Rs. 10 per month.

40
http:/www.dir.ca.gov/dise/FAQs_dedductions.html
41
AIR 1955 SC 295
23
Therefore he was offered a rent allowance by the government which he refused. The question
came up for consideration that whether deduction could be made regarding the house
allowance.
The Court held that, Section 7 of the Act deals with such deductions as may be made from
the wages as defined in the Act, of an employee. Sub-section (2) of section 7 categorically
specifies the heads under which deductions may lawfully be made from wages. Clause (d) of
this sub-section has reference to "deductions for house accommodation supplied by the
employer", and section 11 provides that such a deduction shall not be made unless the house
accommodation has been accepted by the employee and shall not exceed the amount
equivalent to the value of such accommodation. The definition of "wages" in the Act also
excludes from its operation the value of house accommodation referred to in sections 7 and
11 as aforesaid. The legislature has used the expression "value of any house accommodation"
in the definition of "wages" as denoting something which can be deducted from "wages". The
one excludes the other. It is thus clear that the definition of "wages" under the Act cannot
include the value of any house accommodation supplied by the employer to the employee;
otherwise it would not be a legally permissible deduction from wages. It is equally clear that
house rent allowance which may in certain circumstances as aforesaid be included in "wages"
is not the same thing as the value of any house accommodation referred to in the Act. That
being so, there is no validity in the argument advanced on behalf of the 1st respondent that
rule 3(i) aforesaid is inconsistent with the provisions of sections 7 and 11 of the Act.
Therefore the appeal allowed.

In the case of Bank of India v. T.S. Kelawala and Ors.42 , the question which came for
consideration was that whether an employer has a right to deduct wages unilaterally and
without holding an enquiry for the period the employees go on strike or resort to go-slow.
The appellant in this case is a nationalized bank. The demands for wage-revision made by the
employees of all the banks were pending at the relevant time, and in support of the said
demands the All India Bank Employees' Association had given a call for a countrywide
strike.
The appellant-Bank issued a circular to all its managers and agents to deduct wages of the
employees who would participate in the strike for the days they go on strike. the Bank issued
an Administrative Circular warning the employee that they would be committing a breach of
their contract of service if they participated in the strike and that they would not be entitled to
draw the salary for the full day if they did so, and consequently, they need not report for work
42
(1988) II L.L.J. 264 (Bom)
24
for the rest of the working hours on that day. The court held that, Section 7 (2) read with
Section 9 of the Payment of Wages Act provides the circumstances under which and the
extent to which deduction can be made. It is only when the employer has right to make
deduction, resort should be had to the act to ascertain the extent to which the deduction can
be made. No deduction exceeding the limit provided by the act is permissible even if the
contract so provides. There cannot be contract contrary to or in terms wider than the input of
sections 7 and 9 of the act. Therefore wage deduction cannot be made under section 7(2) of
the payment of wages act if there is no such power to the employer under the terms of
contract.

In case of P.C. Agarwala v. Payment of Wages Inspector, M.P. and Ors. 43, in the present
case the Company n enable to pay the wages to its workers. The question which came up for
consideration was that whether the Director can be held personally liable for not paying the
wages. The court held that, the Director cannot be held liable as there was no evidence to
show that the Director should be both employer and the manager of the Factory and in the
present case, there was no such evidence or allegation. It also further held that the assets lying
with the Official Liquidator be sold soon so as to make the payments.

CONCLUSION
The need to protect the wages earned by the worker had been felt from the early years.
Workers had always been exploited from one or the other way. Today also the wages are not
paid to the labours to their satisfaction.
The employer and employee are always been in conflict for one or the other reasons. Wages
are one of those issues. And deduction from wages has always been criticized by the
employees. Though there are various provisions made under the Payment of Wages Act,
1936 where deduction can be made in certain circumstances. But such deduction must be
permissible deduction so that the employers do not get resentful with such deduction.
Therefore Section 7 to Section 12 specifically provides for the deduction that can be made
from the wages of the employee.

43
AIR 2006 SC 3576
25
BIBLIOGRAPHY

BOOKS
 S. N. Mishra, S. (2009), Labour & Industrial Laws, (Central Law
Publications, 29th ed., 2019).
 Dr. V. G. Goswami, Labour & Industrial Laws (Central Law Agency,
2019).
 Industrial Relations and Labour Laws - P. C. Tripathi and C.B. Gupta, S. Cband &
Sons, Delhi.

BARE ACTS AND PROVISIONS

 The Payment of Wages Act, 1936

REPORTS
 The Royal Commission on Labour in India
 All India Reporters

WEBSITES
 http://en.wikipedia.org/wiki/Wage
 http://www.epi.org/content.cfm/issueguides_minwage
 http://www.paycheck.in/main/officialminimumwages
 http:/www.dir.ca.gov/dise/FAQs_dedductions.html

26
CASES
 Arvind Mills Ltd. v. K.R.. Gadgil, AIR 1941 Bom 26
 D.P. Kelkar v. Ambadas. AIR 1971 Bom 124
 Bank of India and another v. T.S. Kelawala Bombay and others, (1988) II L.L.J. 264
(Bom)
 Sudrenathan Nair and others v. Senior divisional personal officer (Rlys.), (1988) I
L.L.J. 227 (Kerala)
 Mineral Miner’s Union v. Kudremukh Iron Ore Co. Ltd, (1989) I L.L.J. 227
(Karnataka)
 French Motor Car o. Ltd., workers Union v. French Motor Car Co. Ltd, (1991) I
L.L.J. 107 ( Gauhati) Municipal Corporation v. N.L. Abhyankar, (1979) II L.L.J. 258
(Bombay)
 Manager, Rajapalayam Mills Ltd. v. Labour Court, Madurai and another’s, (1987) II
L.L.J. 59 (Mad)
 G. Y.N. Chainulu and others v. The Depot Manager, A.P.S.R.T.C. Amalpuram and
another’s, (1986) II L.L.J. 81 (A.P.)
 Prakash Chandra Johari v. Indian Overseas Bank and another’s, (1986) II L.L.J. 496
(Raj)
 Kothari (madras) Ltd. v. Second A.J cum Appellate Authorities and Other’s, (1991) II
L.L.J. 604 (Andhra Pradesh)
 The Divisional Engineer, G.I.P. Railway v. Mahadeo Raghoo and Anothers, AIR
1955 SC 295
 P.C. Agarwala v. Payment of Wages Inspector, M.P. and Ors., AIR 2006 SC 3576

27