UNIT -4

A national wage policy, thus aims at establishing wages at the highest possible level,
which the economic conditions of the country permit and ensuring that the wage earner
gets a fair share of the increased prosperity of the country as a whole resulting from the
economic development.

The term “wage policy” here refers to legislation or government action calculated to
affect the level or structure of wages or both, for the purpose of attaining specific
objectives of social and economic policy.

1. To eliminate malpractices in the payment of wages.

2. To set minimum wages for workers, whose bargaining position is weak due to the fact
that they are either un-organised or inefficiently organised. In other words, to reduce
wage differential between the organised and unorganised sectors.
3. To rationalise inter-occupational, inter-industrial and inter-regional wage differentials in
such a way that disparities are reduced in a phased manner.
4. To ensure reduction of disparities of wages and salaries between the private sector and
public sector in a phased manner.
5. To compensate workers for the raise in the cost of living in such a manner that in the
process, the ratio of disparity between the highest paid and the lowest paid worker is
reduced.
6. To provide for the promotion and growth of trade unions and collective bargaining.
7. To obtain for the workers a just share in the fruits of economic development.
8. To avoid following a policy of high wages to such an extent that it results in substitution
of capital for labour thereby reducing employment.
9. To prevent high profitability units with better capacity to pay a level of wages far in
excess of the prevailing level of wages in other sectors.

10.To permit bilateral collective bargaining within national framework so that high wage
islands are not created.

11.To encourage the development of incentive systems of payment with a view to

raising productivity and the real wages of workers.

12.To bring about a more efficient allocation and utilisation of man-power through wage
differentials and appropriate systems of payments. In order to achieve the above
objectives under the national wage policy, the following regulations have been adopted
by the state:

1. Prescribing minimum rates of wages.

2. Compulsory conciliation and arbitration.
3. Wage boards.

1. Minimum Wages:
 In order to prescribe the minimum rate of wages, the Minimum Wages Act, 1948 was
passed. The Act empowers the government to fix minimum rates of wages in respect of
certain sweated and unorganised employments. It also provides for the review of these
wages at intervals not exceeding 5 years.

2. Compulsory Conciliation and Arbitration:

With the object of providing for conciliation and arbitration, the Industrial Disputes Act
1947 was passed. It provides for the appointment of Industrial Tribunals and National
Industrial Tribunals for settlement of industrial disputes including those relating to
wages.

3. Wage Boards:

A wage board is a tripartite body with representatives of management and workers,

presided over by a government nominated chairman who can act as an umpire in the
event of disagreement among the parties.

Technically, a wage board can make only recommendations, since there is no legal
sanction for it, but for all practical purposes, they are awards which if made
unanimously, are considered binding upon employers.

Following factors influence the determination of wage rate:

1. Ability to Pay:

The ability of an industry to pay will influence wage rate to be paid, if the concern is
running into losses, then it may not be able to pay higher wage rates. A profitable
enterprise may pay more to attract good workers. During the period of prosperity,
workers are paid higher wages because management wants to share the profits with
labour.

2. Demand and Supply:

The labour market conditions or demand and supply forces to operate at the national
and local levels and determine the wage rates. When the demand for a particular type
of skilled labour is more and supply is less than the wages will be more. One the other
hand, if supply is more demand on the other hand, is less then persons will be available
at lower wage rates also.

According to Mescon,” the supply and demand compensation criterion is very closely
related to the prevailing pay comparable wage and on-going wage concepts since, in
essence to all these remuneration standards are determined by immediate market
forces and factors.
3. Prevailing Market Rates:

No enterprise can ignore prevailing wage rates. The wage rates paid in the industry or
other concerns at the same place will form a base for fixing wage rates. If a unit or
concern pays low rates then workers leave their jobs whenever they get a job
somewhere else. It will not be possible to retain good workers for long periods.

4. Cost of Living:

In many industries wages are linked to enterprise cost of living which ensures a fair
wages to workers. The wage rates are directly influenced by cost of living of a place.
The workers will accept a wage which may ensure them a minimum standard of living.

Wages will also be adjusted according to price index number. The increase in price
index will erode the purchasing power of workers and they will demand higher wages.
When the prices are stable, then frequent wage increases may not be required

5. Bargaining of Trade Unions:

The wage rates are also influenced by the bargaining power of trade unions. Stronger
the trade union, higher will be the wage rates. The strength of a trade union is judged by
its membership, financial position and type of leadership.

6. Productivity:

Productivity is the contribution of the workers in order to increase output. It also

measures the contribution of other factors of production like machines, materials, and
management .Wage increase is sometimes associated with increase in productivity.
Workers may also be offered additional bonus, etc., if productivity increases beyond a
certain level. It is common practice to issue productivity bonus in industrial units.

7. Government Regulations:

To improve the working conditions of workers, government may pass a legislation for
fixing minimum wages of workers. This may ensure them, a minimum level of living. In
under developed countries bargaining power of labour is weak and employers try to
exploit workers by paying them low wages. In India, Minimum Wages Act, 1948 was
passed empower government to fix minimum wages of workers. Similarly, many other
important legislation passed by government help to improve the wage structure.

8. Cost of Training:

In determining, the wages of the workers, in different occupations, allowances must be

made for all the exercises incurred on training and time devoted for it.
Systems of payments
Paycheck

You might consider paying your employees by either writing or printing payroll checks.
With paychecks, employees do not need to have bank accounts. Employees can use a
check cashing service (for a fee) to receive their wages.

Some employees prefer to receive their wages via paychecks because they like having
an actual check delivered to them. However, paychecks could get lost or stolen.

Time and cost of this payment option

With a written paycheck, you need to handwrite a paycheck for each employee. Writing
out the checks each pay period takes time. For handwritten checks, you will need to
purchase blank checks.

If you decide to print your employees’ paychecks, you can save considerable time from
writing them all out. However, you will pay more in supplies to print the paychecks. For
printing paychecks, you need check stock, ink, and a printer. You might even need a
special MICR printer with magnetic ink to read, process, and print bank account and
routing numbers on the checks.

Direct deposit

Direct deposit is the most common payment method used. Eighty-two percent of U.S.
workers receive their wages via direct deposit. One of the biggest benefits of direct
deposit is the convenience it offers for both you and your employees.

With direct deposit, you receive your employees’ banking information when you hire
them and deposit their wages each pay period. Your employees do not need to be
physically present at your business to receive payment each period. For example, if an
employee is on vacation, they will still receive their wages on time.

Time and cost of this payment option

With direct deposit, you do not need to worry about filling out and distributing checks
each period. If you have online payroll software, direct deposit might be incorporated at
no added cost. Simply review your payroll before submitting it to be deposited in your
employees’ bank accounts.

If you do not have payroll software, you will be responsible for paying direct deposit
fees. You might need to pay set-up fees, monthly fees, and a small fee per pay period
 for each direct deposit. Set-up fees could range from $50-$150, and transaction fees
might be $1.50 per transaction.

JOB EVALUATION
A job evaluation is a systematic way of determining the value/worth of a job in relation to
other jobs in an organization. It tries to make a systematic comparison between jobs to
assess their relative worth for the purpose of establishing a rational pay structure. Job
evaluation needs to be differentiated from job analysis. Job analysis is a systematic way
of gathering information about a job. Every job evaluation method requires at least
some basic job analysis in order to provide factual information about the jobs
concerned. Thus, job evaluation begins with job analysis and ends at that point where
the worth of a job is ascertained for achieving pay equity between jobs and different
roles.

There are four basic methods of job evaluation currently in use which are grouped into
two categories:

1. Qualitative Methods

(a) Ranking or Job Comparison

(b) Grading or Job Classification

2. Quantitative Methods

(a) Point Rating

(b) Factor Comparison

Methods of Job Evaluation

1. Ranking Method
The ranking method is the simplest form of job evaluation. In this method, each job as a
whole is compared with other and this comparison of jobs goes on until all the jobs have
been evaluated and ranked. All jobs are ranked in the order of their importance from the
simplest to the hardest or from the highest to the lowest.

Ranking method is appropriate for small-size organizations where jobs are simple and
few. It is also suitable for evaluating managerial jobs wherein job contents cannot be
measured in quantitative terms. Ranking method being simple one can be used in the
initial stages of job evaluation in an organization.
 Merits of Ranking Method       

(i) It is the simplest method.

(ii) It is quite economical to put it into effect.

(iii) It is less time consuming and involves little paper work.

Demerits of Ranking Method  

(i) The main demerit of the ranking method is that there are no definite standards of
judgment and also there is no way of measuring the differences between jobs.

(ii) It suffers from its sheer unmanageability when there are a large number of jobs.

2. Grading Method
Grading method is also known as ‘classification method’. This method of job evaluation
was made popular by the U.S. Civil Service Commission. Under this method, job grades
or classes are established by an authorised body or committee appointed for this
purpose. A job grade is defined as a group of different jobs of similar difficulty or
requiring similar skills to perform them. Job grades are determined on the basis of
information derived from job analysis.

The grades or classes are created by identifying some common denominator such as
skills, knowledge and responsibilities. The example of job grades may include,
depending on the type of jobs the organisation offers, skilled, unskilled, account clerk,
clerk-cum-typist, steno typist, office superintendent, laboratory assistant and so on.

Merits of Grading Method

(i) This method is easy to understand and simple to operate.

(ii) It is economical and, therefore, suitable for small organizations.

(iii) The grouping of jobs into classifications makes pay determination problems easy to
administer.

(iv) This method is useful for Government jobs.

Demerits of Grading Method

(i) The method suffers from personal bias of the committee members.
 (ii) It cannot deal with complex jobs which will not fit neatly into one grade.

(iii) This method is rarely used in an industry.

3. Points Rating
This is the most widely used method of job evaluation. Under this method, jobs are
broke down based on various identifiable factors such as skill, effort, training,
knowledge, hazards, responsibility, etc. Thereafter, points are allocated to each of these
factors.

Weights are given to factors depending on their importance to perform the job. Points so
allocated to various factors of a job are then summed. Then, the jobs with similar total of
points are placed in similar pay grades. The sum of points gives an index of the relative
significance of the jobs that are rated.

Merits of Points Rating

(i) It is the most comprehensive and accurate method of job evaluation.

(ii) Prejudice and human judgment are minimized, i.e. the system cannot be easily
manipulated.

(iii) Being the systematic method, workers of the organization favour this method.

(iv) The scales developed in this method can be used for long time.

(v) Jobs can be easily placed in distinct categories.

Demerits of Points Rating

(i) It is both time-consuming and expensive method.

(ii) It is difficult to understand for an average worker.

(iii) A lot of clerical work is involved in recording rating scales.

(iv) It is not suitable for managerial jobs wherein the work content is not measurable in
quantitative terms.

4. Factor Comparison Method

This method is a combination of both ranking and point methods in the sense that it
rates jobs by comparing them and makes analysis by breaking jobs into compensable
factors. This system is usually used to evaluate white collar, professional and
managerial positions.

Merits of Factor Comparison Method

(i) It is more objective method of job evaluation.

(ii) The method is flexible as there is no upper limit on the rating of a factor.

(iii) It is fairly easy method to explain to employees.

(iv) The use of limited number of factors (usually five) ensures less chances of
overlapping and over-weighting of factors.

(v) It facilitates determining the relative worth of different jobs.

Demerits of Factor Comparison Method

(i) It is expensive and time-consuming method.

(ii) Using the same five factors for evaluating jobs may not always be appropriate
because jobs differ across and within organizations.

(iii) It is difficult to understand and operate.

Basic Pay
The concept of basic Pay is contained in the report of the Fair Wages Committee.
According to this Committee, the floor of the basic pay is the “minimum wage” which
provides “not merely for the bare sustenance of life but for the preservation of the
efficiency of the workers by providing some measure of education, medical
requirements and amenities.” The basic Pay has been the most stable and fixed as
compared to dearness allowance and annual bonus which usually change with
movements in the cost of living indices and the performance of the industry.

Dearness Allowance
Dearness allowance is a cost of living adjustment allowance paid to the government
employees and pensioners. It is one of the components of salary, and is counted as
a fixed percentage of the person’s basic salary. It is adjusted according to the
inflationary trends to lessen the impact of inflation on government employees.
D.A. as a Separate Component
The fixation of wage structure also includes within its compass a fixation of rates of
dearness allowance. In the context of a changing pattern of prices and
consumption, real wages of the workmen are likely to fluctuate greatly. Ultimately, it is
the good

The Second World War, too, repeated the same economic inflation and again the
demand for increased D.A. was made by the industrial workers. It is to be noted here
that the main reason for keeping the D.A. as a separate component and not merging it
in the wages, was due to the fact that the employers always considered the D.A.
increase as a temporary feature and expected such allowance to be adjusted
downward, if the cost of living restored. But their hope was never fulfilled and the D.A.
continued to remain as a separate component which could be raised with the rise in the
price index number. This element of D.A. is also found in some of the early reports like
the Report of Rau Court of Inquiry which was constituted in the year 1940 under the
provisions of the Trade Disputes Act, 1929 to investigate the dearness allowance of
railway employees. Subsequently, Justice Rajadhyaksha Award given in 1946 in the
trade dispute between the Post Telegraph Department and its non-gazetted employees,
the Central Pay Commission 1947, the Committee on Fair Wages, 1948, the Bank
Award Commission, 1955, the Second Pay Commission, 1959, the Dass Commission,
1965 and the Gajendragatkar Commission, 1967, all approved and recommended
payment of D.A. as a separate component of the earning of the workers. The Wage-
Boards also generally sought to keep the D.A. as a separate component although some
of them recommended the merger of D.A. with the basic wage.

Foreign Countries Experience

It is interesting to note that the practice of paying D.A. as a separate component
appears to he confined only to India and some Asian countries and similar concept is
not found elsewhere in other industrial countries. However in other countries to meet the
demand of the increase cost of living, the real wages themselves are revised to provide
for the desired level of standard of living. Some wage agreements contain ‘escalator
clause’ to provide for the review of wages in the event of increase in price index. Such

practice is common in USA, Italy and Scandinavian countries. In Japan cost of living
allowance and rent allowance is comprised in the wages. In some countries the wage
agreements provided for the increase in wage as a separate component linked with the
increase in the price index. In India such increase is referred as ‘Dearness Allowance’
keeping it as 3 component distinct from the wages. There are different pros and cons of
retaining D.A. as a separate component in India as it would give flexibility in the
determination of the quantum of D.A. corresponding to the increase in the Price Index
number and to achieve desirable level of neutralisation.

Overtime Payment
Working overtime in industry is possibly as old as the industrial revolution. The
necessity of the managements’ seeking overtime working from employees becomes
inevitable mainly to overcome inappropriate allocation of manpower and improper
scheduling, absenteeism, unforeseen situations created due to genuine difficulties like
breakdown of machines. In many companies, overtime is necessary to meet urgent
delivery dates, sudden upswings in production schedules, or to give management a
degree of flexibility in matching labour capacity to production demands. The payment of
overtime allowance to the factory and workshop employees is guaranteed by law. All
employees who are deemed to be workers under the Factories Act or under the
Minimum Wages Act are entitled to it at twice the ordinary rate of their wages for the
work done in excess of 9 hours on any day or for more than 48 hours in any week. The
major benefit of overtime working to workers is that it offers an increase in income from
work.

Annual Bonus
The bonus component of the industrial compensation system, though a quite old one,
had assumed a statutory status only with the enactment of the Payment of Bonus Act,
1965. The Act is applicable to factories and other establishments employing 20 or more
employees.

Eligibility: Every employee not drawing salary/wages beyond Rs. 10,000 per month
who has worked for not less than 30 days in an accounting year, shall be eligible
for bonus for minimum of 8.33% of the salary/wages even if there is loss in the
establishment whereas a maximum of 20% of the employee’s salary/wages is payable
as bonus in an accounting year. However, in case of the employees whose
salary/wages range between Rs. 3500 to Rs. 10,000 per month for the
purpose of payment of bonus, their salaries/wages would be deemed to be Rs. 3500. 

Incentive System
The term “incentive” has been used both in the restricted sense of participation and in
the widest sense of financial motivation. It is used to signify inducements offered to
employees to put forth their best in order to maximise production results. Incentives are
classified as financial and non-financial. Important financial incentives are attractive
wages, bonus, dearness allowance, traveling allowance, housing allowance, gratuity,
pension, and provident fund contributions. Some of the non-financial incentives are
designation, nature of the job, working conditions, status, privileges, job security,
opportunity for advancement and participation in decision making. However, a vast
diversity exists in regard to policy and practice of incentive payments. Incentive systems
also have been classified into three groups: individual wage incentive plan, group
incentive scheme, and organisation-wide incentive system.

The individual wage incentive plan is the extra compensation paid to an individual
over a specified amount for his production effort. Individual incentive systems are based
upon certain norms established by work measurement techniques such as past
performance, bargaining between union and the management, time study, standard
data, predetermined elemental times and work sampling. There are four types of
individual incentive systems such as measured day-work, piece-work standard, group
plans and gains-sharing plans. Under the measured day-work incentive wage system,
an individual receives his regular hourly rate of pay, irrespective of his performance.
Piece-work system form the most simple and frequently used incentive wage. In this,
individual’s earnings are direct and proportionate to their output. Group plans embody a
guaranteed base rate to the workers in which the performance over standard is
rewarded by a proportionate premium over base pay. Gains-sharing system involves a
disproportionate increase in monetary rewards for increasing output beyond a
predetermined standard. As the gains are shared with the entrepreneurs, the worker
gets less than one per cent increment in wage for every one percent increase in output.

The group or area incentive scheme provides for the payment of a bonus either
equally or proportionately to individuals within a group or area. The bonus is related to
the output achieved over an agreed standard or to the time saved on the job – the
difference between allowed time and actual time. Such schemes may be most
appropriate where:

(a) people have to work together and teamwork has to be encouraged; and
(b) high levels of production depend a great deal on the cooperation existing among a
team of workers as compared with the individual efforts of team members.

The organisation-wide incentive system involves cooperation among employees and the
management and purports to accomplish broader organisational objectives such as:

(i) to reduce labour, material and supply costs;

(ii) to strengthen loyalty to the company;
(iii) to promote harmonious labour-management relations; and
(iv) to decrease turnover and absenteeism.

One of the aspects of organisation-wide incentive system is profit sharing under which
an employee receives a share of the profit fixed in advance under an agreement freely
entered into. The major objective of the profit sharing system is to strengthen the unity
of interest and the spirit of cooperation. Some of the advantages of such a scheme are:

(i) it inculcates in employees’ a sense of economic discipline as regards wage costs and
productivity;
(ii) it engenders improved communication and increased sense of participation;
(iii) it is relatively simple and its cost of administration is low; and
(iv) it is non-inflationary, if properly devised.

One of the essentials of a sound profit sharing system is that it should not be treated as
a substitute for adequate wages but provide something extra to the participants. Full
support and cooperation of the union is to be obtained in implementing such a scheme.
 Fringe Benefits
The remuneration that the employees receive for their contribution cannot be measured
by the mere estimation of wages and salaries paid to them. Certain supplementary
benefits and services known as “fringe benefits” are also available to them. The
characteristics of fringe benefits are:

1. These benefits are distinctly additional to the regular wages paid to the workers. As
such, they are not provided as a substitute for wages or salaries of the employees.
2. These benefits are meant primarily to be of advantage to the employees.
3. The advantages accrued to the employees through the provision of fringe benefits are
as such they cannot be secured through their own individual efforts.
4. Only those benefits fall within the purview of fringe benefits which are or can be
expressed in cash terms.
5. The scope of fringe benefits is different from that of welfare services. Fringe benefits are
provided by the employers alone whereas welfare services may be provided by other
agencies as well. Benefits that have no relation to employment should not be regarded
as fringe benefits.

Fringe benefits have been classified in several ways. In terms of their objectives,
Meggison classifies them into two groups: those providing for employees’ security and
those purporting to increase employees’ job satisfaction causing reduction in labour
turnover and improvement in productivity. The former group includes retirement
programmes, workmen’s compensation, unemployment compensation, social
insurance, and other provisions. The later group incorporates vacations, holidays, sick
leave, discounts on company goods and services, and allied tangible and intangible
benefits.

Fringe benefits are also categorised as statutory, contractual, and voluntary. Statutory
benefits include social security and medical care, unemployment compensation,
workmen’s compensation, provident fund, and gratuity. The benefits provided by the
employers in pursuance of agreements with workers may include dearness allowance,
house rent allowance, city compensatory allowance, medical allowance, night-shift
allowance, heat allowance, transport, housing and educational allowances. Voluntary
fringe benefits which are provided unilaterally by the company include group insurance,
death benevolent fund, washing allowance, leave encashment, leave travel concession,
conveyance allowance, incentive for family planning, service awards, and suggestion
awards.

Currently fringe benefits are a significant part of employee compensation system and
the employees tend to take them for granted and do not link these items with wages or
income as they do not have any direct bearing on payments. They are no more on the
fringe of compensation but form an integral component of individual’s earnings involving
spiraling costs for the company. However, the fringe benefit system can become
effective if attempts are made to gear them to the needs of human resource in
organisational settings.
Conveyance allowance
Conveyance allowance is one of the compulsory employee benefits provided for
meeting an expenditure incurred by an employee ( especially government employee) for
commuting from home to office and office to home. In order to claim conveyance
allowance by an employee, he or she should reside and work in towns only.

City compensatory allowance

City compensatory allowance is one of the employee benefits provided for meeting
additional cost of living for working in cities.

MINIMUM WAGES ACT 1948:

Object and scope of the legislation

To provide for fixing minimum rates of wages in certain employments.

The employments are those which are included in the schedule and are referred to as ‘Scheduled
Employments’. The Act extends to whole of India.

Appropriate Government [Section 2(b)] Means

– Central Government, in relation to any scheduled employment carried on by or under the

authority of the Central or a railway administration, or in relation to a mine, oilfield or major part
or any corporation established by a Central Act, and State Government, in relation to any other
scheduled employment.

Scheduled employment [Section 2(g)] Means

An employment specified in the Schedule or any process or branch of work forming part of such
employment. The schedule is divided into two parts namely, Part I and Part II. When originally
enacted Part I of Schedule had 12 entries.

Part II relates to employment in agriculture. It was realised that it would be necessary to fix
minimum wages in many more employments to be identified in course of time. Accordingly,
powers were given to appropriate Government to add employments to the Schedule by following
the procedure laid down in Section 21 of the Act. The State Government and Central
Government have made several additions to the Schedule and it differs from State to State.

Wages [Section 2(h)] Means

all remunerations capable of being expressed in terms of money, which would, if the terms of the
contract of employment, express or implied, were fulfilled, be payable to a person employed in
respect of his employment or of work done in such employment . And includes house rent
allowance. But does not include: the value of any house accommodation, supply of light, water
medical; the value of any any other amenity or any service excluded by general or social order of
the appropriate Government; contribution by the employer to any Pension Fund or Provides
Fund or under any scheme of social insurance; any traveling allowance or the value of any
traveling concession; any sum paid to the person employed to defray special expenses entailed
on him by the nature of his employment; any gratuity payable on discharge.

Fixation of minimum rates of wages [Section 3(1)(a)] ‘Appropriate Government’ shall fix the
minimum rates of wages, payable to employees in an employment specified in Part I and Part II
of the Schedule, and in an employment added to either part by notification under Section 27. In
case of the employments specified in Part II of the Schedule, the minimum rates of wages may
not be fixed for the entire State. Parts of the State may be left out altogether.

Revision of minimum wages {Section 3(1)(b)}

Appropriate Government’ may review at such intervals as it may thing fit, such intervals not
exceeding 5 years, and revise the minimum rate of wages, if necessary. This means that
minimum wages can be revised earlier than five years also.

Manner of fixation/revision of minimum wages {Section 3(2)} ‘Appropriate Government’

may fix minimum rate of wages for: time work, known as a Minimum Time Rate; piece work,
known as a Minimum Piece Rate; a “Guaranteed Time Rate” for those employed in piece work
for

Different minimum rates of wages may be fixed for {Section 3(3)}– different scheduled
employments; different classes of work in the same scheduled employments; adults, adolescents,
children and apprentices; different localities Minimum rates of wages may be fixed by any one
or more of the following wage periods- by the day, by the month, or by such other large wage
periods as may be prescribed; Where such rates are fixed by the day or by the month, the manner
of calculating wages for month or for a day as the case may be, may be indicated. However,
where wage period has been fixed in accordance with the Payment of Wages Act, 1936 vide
Section 4 thereof; minimum wages shall be fixed in accordance therewith

Minimum rate of wages (Section 4) Any minimum rate of wages fixed or revised by the
appropriate Government under Section 3 may consist of – a basic rate of wages and a special
allowance at a rate to be adjusted, at such intervals and in such manner as the appropriate
Government may direct to accord as nearly as practicable with the variation in the cost of living
index number applicable to such worker (hereinafter referred to as the cost of living allowance);
or a basic rate of wages or without the cost of living allowance and the cash value of the
concession in respect of supplies of essential
EMPLOYEE COMPENSATION ACT 1923:

Objective and Scope of this Act The Employees’ Compensation Act

is social security legislation.

It imposes statutory liability upon an employer to discharge his moral obligation towards his
employees when they suffer from physical disabilities and diseases during the course of
employment in hazardous working conditions.

To help the dependents of the employee rendered destitute by the ‘accidents’ and from the
hardship arising out from such accidents.

The Act provides for cheaper and quicker mode of disposal of disputes relating to compensation
through special proceedings than possible under the civil law.

The Act extends to the whole of India.

Dependant 2(1)(d)

Means any of the following relatives of a deceased employee: a widow, a minor legitimate or
adopted son, an unmarried legitimate or adopted daughter, or a widowed mother, and if wholly
dependent on the earnings of the employee at the time of his death, a son or a daughter who has
attained the age of 18 years and who is infirm; and if wholly or in part dependent on the earnings
of the employee at the time of his death: a widower, a parent other than a widowed mother, a
minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or illegitimate
or adopted if married and a minor, or if widowed and a minor, a minor brother or an unmarried
sister, or a widowed sister if a minor,

Wages { Section 2(1)(m)}

Include any privilege or benefit which is capable of being estimated in money,

other than a travelling allowance or the value of any travelling concession or a contribution paid
by the employer to an employee towards any pension or provident fund or a sum paid to
employee to cover any special expenses entailed on him by the nature of his employment.
Amount has been changed from 80,000 to 1,20 000
,

Amount has been changed from 90,000 to 1,40,000

 PAYMENT OF BONUS ACT 1965:

The Payment of Bonus Act, 1965 provides for the payment of bonus to persons
employed in certain establishments, employing 20 or more persons, on the basis of
profits or on the basis of production or productivity and matters connected there with.

The minimum bonus of 8.33% is payable by every industry and establishment under
section 10 of the Act. The maximum bonus including productivity linked bonus that can
be paid in any accounting year shall not exceed 20% of the salary/wage of an employee
under the section 31 A of the Act.

Applicability

 Payment of Bonus Act, 1965 extends to whole of India.

 Payment of Bonus Act, 1965 applies to every factory and to every other establishment
in which 20 or more persons are employed on any day during an accounting year;
 The Government may also apply the act on any factory or establishment in which has
less than 20 but not less than 10 persons are employed;
 Payment of Bonus Act, 1965 is applicable on every employee whether doing any skilled,
unskilled, manual, supervisory, managerial, administrative, technical or clerical work for
hire or reward and whether the terms of employment are express or implied.

Eligibility

 Payment of Bonus Act, 1965 is applicable on employees drawing wages / salary up-to
10,000/- per month.
 Only those employees are entitled for bonus, who have worked for at least 30 working
days in an accounting year.
 Rate of Bonus

 33% of the salary or wages earned by an employee in a year or Rs. 100/-, whichever is
higher.
 In case allocable surplus exceeds the amount of provision of minimum bonus, the
employer shall be bound to pay maximum bonus not exceeding 20% of the salary or
wages earned by employees.
 In case allocable surplus exceeds the maximum bonus (20% of the salary or wages
earned by employees), the excess surplus shall be carried forward for being set on in
the succeeding accounting years up to and inclusive of the 4th accounting year.