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This article contains some important aspects of Industrial relations like Trade unions and
Wage laws in India. The paper consists of my experience and learning as a PGDM
student of Final year specializing in HRM.
My sincere acknowledgements goes to my Human Resource and Industrial
Relations faculties who have given me an in-depth knowledge of the subject so that I am
able to write an article on the same.
Giving a brief overview of Industrial Relations, I would like to say that it is a
collective relationship between two parties unlike Human Relations, which is a one-to-
one, and an interpersonal relationship. There are two aspects of IR. One is “Curative” in
which a conflict/dispute is resolved after it has arisen in the industry. The other one is
“Preventive” in which the Management takes appropriate steps to prevent/avoid any
dispute. This is also called “CONSTRUCTIVE INDUSTRIAL RELATIONS”. Collective
Bargaining and Joint Consultations are Preventive forms of IR.

HISTORICAL EVOLUTION OF TRADE UNIONS IN INDIA

Trade union as per Trade Union Act 1926 – “ Any combination formed primarily for
the purpose of regulating the relations between workmen and employers or workmen and
workmen or employers and employers or for imposing restrictive conditions on the
conduct of any trade or business and includes any federation of two or more trade
unions.”
From the above definition it is clear that Trade union is not just an association of the
workmen of a factory or a trade or a business but also can be formed by officers and
managers. Trade union movement in India was started and led by philanthropists and
social organizations and not by the workers.
Bombay Presidency - by servants of India society
Eastern India - by Brahmo Samaj
South India centered around Madras - by Theosophical Society

Trade union is a direct product of Industrialization and a very recent development. In


India, the foundation of modern industry was laid between 1850 and 1870. Prior to that
trade was confined to individuals and families like craftsmen and artisans. They had
expertise and specialized skills which was inherited by their offsprings. After Industrial
revolution, these people started losing their individual identities and had to join factories
to earn their livelihood and compete with mass production. There was a psychological
dislocation as they were losing their identities.

Indian trade union movement can be divided into three phases.

The first phase falls between 1850 and 1900 during which the inception of trade unions
took place. During this period of the growth of Indian Capitalist enterprises, the working
and living conditions of the labour were poor and their working hours were long.
Capitalists were only interested in their productivity and profitability. In addition to long
working hours, their wages were low and general economic conditions were poor in
industries. In order to regulate the working hours and other service conditions of the
Indian textile labourers, the Indian Factories Act was enacted in 1881. As a result,

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employment of child labour was prohibited. Mr. N M Lokhande organized people like
Rickshawalas etc., prepared a study report on their working conditions and submitted it to
the Factory Labour Commission. The Indian Factory Act of 1881 was amended in 1891
due to his efforts. Guided by educated philanthropists and social workers like Mr.
Lokhande, the growth of trade union movement was slow in this phase. Many strikes
took place in the two decades following 1880 in all industrial cities. These strikes taught
workers to understand the power of united action even though there was no union in real
terms. Small associations like Bombay Mill-Hands Association came up.

The second phase of The Indian trade union movement falls between 1900 and 1947.
this phase was characterized by the development of organized trade unions and political
movements of the working class. It also witnessed the emergence of militant trade
unionism. The First World War (1914-1918) and the Russian revolution of 1917 gave a
new turn to the Indian trade union movement and organized efforts on part of the workers
to form trade unions. In 1918, B P Wadia organized trade union movements with Textile
mills in Madras. He served strike notice to them and workers appealed to Madras High
Court because under ‘Common Law’, strike is a breach of law. In 1919, Mahatma Gandhi
suggested to let individual struggle be a Mass movement. In 1920, the First National
Trade union organization (The All India Trade Union Congress (AITUC)) was
established. Many of the leaders of this organization were leaders of the national
Movement. In 1926, Trade union law came up with the efforts of Mr. N N Joshi that
became operative from 1927.

The third phase began with the emergence of independent India (in 1947), and the
Government sought the cooperation of the unions for planned economic development.
The working class movement was also politicized along the lines of political parties. For
instance Indian national trade Union Congress (INTUC) is the trade union arm of the
Congress Party. The AITUC is the trade union arm of the Communist Party of India.
Besides workers, white-collar employees, supervisors and managers are also organized
by the trade unions, as for example in the Banking, Insurance and Petroleum industries.

LABOUR LAWS

Law—“ Law is a rule or a system of rules recognized by a country or a community as


regulating the actions of its members and enforced by the imposition of penalties.”

Factors responsible for development of Labour laws

 Exploitation of the workmen by the capitalists


 Social pressure and pressure from trade unions
 Government policies based on Government philosophy which in turn was based
on the political ideologies
 Constitution of India (Directive Principles of state policy)
 Supreme Court’s recommendations on the cases that came up in the courts
 Recommendations of various commissions and committees set up by government
from time to time
 Conventions and recommendations of International labor organization (ILO)
 Awareness about environment

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Common features of all laws

 Short title and commencement


 Preamble i.e. purpose of the law
 Definitions
 Substantive provisions
 Penalty provisions
 Records/ Registers/ Returns
 Inspectorate/ Enforcement authority

Categories of Labour Laws

 Regulatory legislations to oversee the conditions of work at workplace


Eg. Machinery arrangement, spittoons, working hours, leave with wages
etc.
 Legislations related to wages
Eg. Payment of Wages Act, 1936, Minimum Wages Act, 1948
 Legislations related to social security
Eg. ESI Act, 1948, Employees Provident Fund Act, 1952
 Legislations related to Industrial Relations (IR)
Eg. Industrial disputes Act, 1947, Industrial Employments (Standing
Orders) Act, 1946, Trade Union Act, 1926
 Legislations related to service conditions
Eg. Regulations of environment Act (for Dock workers), Conditions of
Service Act (for Sales Promotion employees)
 Miscellaneous
Eg. Apprentices Act, 1961, Environment protection Act, 1986

In this paper, I would be discussing about the four legislations related to


Wages/Remunerations along with the necessary definitions and calculations.

1. THE EQUAL REMUNERATION ACT, 1976


2. THE PAYMENT OF WAGES ACT, 1936
3. THE MINIMUM WAGES ACT, 1948
4. THE PAYMENT OF BONUS ACT, 1965

THE EQUAL REMUNERATION ACT, 1976

1975 was the benchmark year in the Indian history because there was an emergency
declared in the Indian state by the Government and strikes by Trade unions were
prohibited. The year was International Women’s Year and the Government introduced
The Equal remuneration Act in 1976. The article 39d of the Indian Constitution i.e.
Directive Principles of State Policy says: ‘Equal pay for equal work for both men and
women.’ This was the connection of the Act with the constitution.

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I should define ‘Same or Similar nature of work’ before going any further on the act. It
means “a work in respect of which the skill, effort and responsibility required are the
same when performed under similar working conditions by a man or a woman.”

Therefore, the Act says that no employers should pay to any workman who is employed
by him, a remuneration at rates less favourable than those at which the remuneration is
paid by him to a worker of opposite sex who is performing the same or similar nature of
work. In simpler terms, same remuneration is to be paid to both men and women workers
for same or similar nature of work.

The Act does not disturb ‘Wage Differential’ i.e. the differences in wages in the same
grade on the basis of length of service. The law is not universally applicable to all
industries. Till now 76 industries have been covered by the legislation. There will not be
any revision of service prior to the commencement of the Act.

The Act also encourages employment of Female workers. These workers will:
 Be entitled to certain benefits amongst which the prominent one is The Maternity
benefit Act
 Not be allowed to work between 7pm to 6am
 Face severe restrictions between 10pm to 5am
 Not be allowed to work in mines

THE PAYMENT OF WAGES ACT, 1936

Provisions of the Act:


 Payment to be made on time
 Payment to be made in cash
 No unauthorized deductions to be allowed

There are two kinds of industrial establishments under the law:


 Less than 1000 employees
 More than 1000 employees

Law obliges an employer to fix a wage period under this act. If the establishment is the
first type i.e. number of employees is less than 1000, then the wage period (the period
within which the wage to the employees has to be paid) is 7 days. If the establishment has
1000 or more employees, then the wage period is 10 days.
This would be clear with a small example as below:

 Week ending – 03/03/05


 Month ending – 30/06/05

< 1000 employees 1000 or more employees

If weekly wages is given then, If weekly wages is given then,


It is within 10/03/05 it is within 13/03/05

If monthly wages is given then, If monthly wages is given then,


It is within 07/07/05 it is within 10/07/05

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Total deductions shall not exceed 50% of the wages. However, in case of Co-operative
societies it can go upto 75% of the wages.

Example:
Basic (Rs.) DA (Rs.) Allowances (Rs.) Total (Rs.)
1000 250 150 1400

Deductions not more than 50% i.e. Rs.700


In case of Co-operative societies not more than 75% i.e. Rs. 1050

If 10 or more employees refuse to work or go on a strike, then the deductions will not be
only on pro-rata basis but an additional deduction to the extent of 8 days wages will be
made. The employer has to issue a show-cause in case of deductions for damages and any
damage due to willful negligence is liable for deductions.
If an employer fines, then the following procedure has to be followed by him:
 Employer will have to develop a list of acts and conditions for which fine can be
imposed
 The list should be approved by the appropriate government
 It should be displayed at a conspicuous place
 As and when the employee commits such act, a show-cause notice is to be issued
asking for explanations
 The explanation considered, if found satisfactory, ends the matter then and there
 Otherwise, fine may be imposed by the employer

Restrictions on employers regarding imposition of fine:

 Not more than 3% of the wages payable can be imposed as fines


 Fines cannot be recovered in instalments. It must be one time recovery
 It must be recovered within the period of 60 days from the date of imposition
 No fine can be imposed on an employee of age below 15 years
 The money/fine recovered shall be transferred to a welfare fund

Contracting out:

Any agreement between the employer and employee outside the provisions of the
Payment of Wages Act, shall be considered null and void.
Example: If an employer is going through acute financial losses and the employee enters
into an agreement with the employer to receive the wages after 2 months, then the
agreement will be null and void and wages payment has to be made within the stipulated
time period of 7 or 10 days as the case may be.

The claims made by employees on account of payment made not within time or on
account of unauthorized deductions, will be settled by an authority appointed by the
Government called Payment of wages authority.

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THE MINIMUM WAGES ACT, 1948

Wage is nothing but the price of labour sold by labourers to employers. Its rate is
determined by the forces of demand & Supply in the market. Since supply of labour is
high in the Indian market and the rates are low, Government enacted The Minimum
Wages act to fix the minimum wage rate to be paid by the employer.

The purposes of this act are:

 To empower the government to fix or to revise minimum rates of wages in the


Scheduled Employments i.e. those employments that are listed in the Schedule
 Wages to be paid in cash but where a part is paid in kind, government may allow
the continuance of such wages. Example of payment of wages in kind includes
agricultural products
 Wage rates may be fixed on hourly, daily, monthly basis

Minimum rates of wages may differ from employment to employment, from location to
location and also amongst different classes of workmen (Adults, children, adolescents)

It is one of the most flexible legislations and can be very seldom challenged in the Court
of Law.

There are two alternative procedures for fixing or revising minimum wage rate, out of
which the government can adopt any one.

 Committee method: Under this method, Government forms a tripartite


committee of employers, employees and independent persons (mainly
Government officers). This committee examines the prevailing situation in
Industry and makes recommendations based on that. On receipt of such
recommendations, government fixes the minimum wage rate with or without
modifications.
 Notification method: Under this method, the government itself suggests the
minimum rate of wages for an employment. It makes a proposal and gets it
notified in the official gazette for information of all concerned. After 2 months of
wait for any suggestions/recommendations by employments, government takes up
the proposal in light of the comments it receives and finalizes it with/without
modifications.

After the fixation or revision of minimum wage rate, it has to be published in the official
gazette.

An authority appointed by the Government called Payment of wages authority will settle
the claims made by employees.
Contracting out is not allowed in this Act also.

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At this juncture, I would highlight certain points of difference between The Payment
of Wages Act, 1936 and The Minimum Wages Act, 1948, which unless made clear
might create confusion in the minds of the readers.

THE MINIMUM WAGES ACT, 1948 THE PAYMENT OF WAGES ACT, 1936
Wage rate is fixed by government which can Wage rate is fixed by Collective Bargaining
be daily, weekly monthly or Industrial Tribunal or Wage Board

Nothing is mentioned about wage period in Wage period is fixed by employer and can be
the Act weekly, monthly etc.
The Act is applicable to Scheduled The Act is applicable to all Industrial
employments only which is an unorganized establishments, which is an organized sector.
sector
Empowerment Enactment

Both Cash & Kind payments Only Cash payments

THE PAYMENT OF BONUS ACT, 1965

Bonus payment started much before the law was enacted in Ahmedabad textile mills both
in cash and kind. It was a payment to employees to face the rigours at work. Gradually by
1929-30, large number of employers all over the country started it out of his own sweet
will. It was an ex-gratia concept. By 1930’s, the union started clamoring for such
payments on claims that they are also entitled to a share in company’s profits since they
contribute a great deal to earn it. Hence, the concept changed from ex-gratia to Profit
sharing. The problem now faced by the management was computation of accurate
profits. A High court Commission was ordered to compute the profits. In 1961, Bonus
Commission was set up by the Government of India. Later unions felt that bonus should
be paid to everyone and devised a new concept called Deferred Wages. The argument
was that their wages were so low that they were unable to save any sum of money.
Demand under deferred wages was 13 months wages for 12 months i.e. 1 month wage to
be paid during festivals.

In the Law, Concept of Profit sharing and Deferred wages was integrated and the
Payment of Bonus Ordinance, 1965 was converted to The Payment of Bonus Act, 1965.
The law is applicable to factories and other establishments employing 20 or more
persons.

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Since, the main concept of the act is Profit sharing, Bonus is calculated on the basis of
trading results of an establishment during a particular accounting year. Each accounting
year is a unit and there is no relationship between last and next accounting year.

Only those employees who are drawing a salary/wage not more than Rs. 3500 per month
are covered under this act. Capacities of the employees on the basis of skilled/unskilled
are not taken into consideration.

Computation of Bonus: Hypothetical example Rs.

 Net Profit 10,00,000

 Add: Add backs charged to


Profit & Loss account in respect
of those items included in
Schedules I and II 5,00,000

 Gross Profit 15,00,000

 Less: Deductions like direct tax,


Depreciation and 6%-8.5% of
Equity capital 7,50,000

 Available Surplus 7,50,000

 60% of Available surplus is


Allocable surplus 4,50,000

Allocable surplus is to be distributed as Bonus to the employees. The law obliges an


employer to pay a minimum of 8.33% of the wage bill as bonus subject to a maximum of
20% of wage bill. This will be made clear from the following examples.

Hypothetical example: Rs.

Total wage bill 45,00,000


Allocable surplus (from the above example) 4,50,000

Therefore, 10% of the wage bill (Rs. 4,50,000) will be paid as bonus to the employees
with salary not more than Rs. 3500/month.

Yearly wage (Rs.) Bonus @ 10% (Rs.)

Employee X 30,000 3,000


Employee Y 15,000 1,500
: : :
: : :
: : :
: : :
: : :

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45,00,000 4,50,000

If wage bill is Rs. 90,00,000, then allocable surplus of Rs. 4,50,000 would form only 5%
of the wage bill. This is less than the minimum amount of bonus payable i.e. 9.33% of
wage bill. The minimum amount to be paid is Rs. 7,50,000 (8.33% of Rs. 90,00,000) and
the allocable surplus is Rs. 4,50,000. A shortfall of (Rs. 7,50,000 - Rs. 4,50,000) Rs.
3,00,000 is created which is set off against next accounting year’s allocable surplus.
Hence, Set off can be defined as – When there is no Available surplus or the Allocable
surplus is insufficient to pay the minimum Bonus payable, then that shortfall will be
carried forward to the next accounting year and upto and including four consecutive
accounting years.

Similarly, if the wage bill is Rs. 9,00,000, the allocable surplus of Rs. 4,50,000 forms
50% of the wages paid. Maximum bonus that can be paid is 20% of the wage bill i.e. Rs.
1,80,000. So, the excess allocable surplus of Rs. 2,70,000 (Rs, 4,50,000 – Rs. 1,80,000)
will be set on to the next accounting year and upto and including four accounting years
subject to a maximum of 20% of the wages. This means that only Rs. 1,80,000 will be set
on for the next accounting year and the rest Rs. 90,000 will get cancelled.

The Bonus on a wage of Rs. 2500 and upto Rs. 3500 will be calculated on the amount of
Rs. 2500.

Hypothetical example.

Monthly Yearly Bonus declared


Wages (Rs.) Wages (Rs.) @ 10%

Employee A 1,500 18,000 1800


Employee B 2,000 24,000 2400
Employee C 3,000 36,000 3000
Employee D 36,000 4,32,000 ***

Employee C will get a bonus on Rs. 30,000 (Rs. 2500 *12) @ 10% i.e. Rs. 3000 whereas
Employee D is not eligible for a bonus as his salary exceeds the maximum amount of Rs.
3500 per month.

Gunjan Khaitan
PGDM student