ALIGARH MUSLIM UNIVERSITY,

MALAPPURAM

Subject: Labour Law-II

Topic: "Definition of wages and its determinants under
minimum wage act and the code on wage bill

Submitted By:
Zeeshan Akhtar Khan
BALLB, 8th semester
Roll no. : 21LLBWK110
Submitted to:
Enrollment no. : GM8957
Dr. Shally Victor
Asst. Professor,
AMU,Malappuram
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INDEX

1.Introduction

2.Definition of Wages

3.Components of Wages

4.Determinants of Wages

5.Judicial Interpretations and Landmark

Cases

6.Conclusion

7.References
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SYNOPSIS
Introduction
Definition of Wages and Key Differences
The Minimum Wages Act, 1948 defines wages in a limited scope, applicable only to specific
industries where the government prescribes minimum wages. In contrast, the Code on Wages,
2019 provides a broader definition, covering all organized and unorganized sectors. It also
introduces a uniform wage definition across multiple labor laws, ensuring better transparency
and compliance.
Components of Wages
The wage structure comprises various components, including basic pay, dearness allowance
(DA), retaining allowance, bonuses, and incentives. Some elements like provident fund (PF)
and gratuity are statutory deductions, while others, like house rent allowance (HRA) and
transport allowance, support employees' financial well-being but are excluded from the legal
wage definition.
Determinants of Wages
Wages are influenced by several factors, including economic conditions, legal frameworks,
organizational policies, and individual skills. Factors such as demand and supply of labor,
inflation, minimum wage laws, and geographical location also play a crucial role in wage
determination.
Judicial Interpretations and Landmark Cases
Key legal cases have shaped wage policies in India. For instance:
• Air India Statutory Corporation v. United Labour Union (1997) emphasized equal pay
for contract workers performing core functions.
• Peoples' Union for Democratic Rights v. Union of India (1982) ruled that non-payment
of minimum wages amounts to forced labor under the Indian Constitution.
• Unichoyi v. State of Kerala (1962) upheld the government’s right to revise minimum
wages regardless of an employer’s financial capacity.
Conclusion
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INTRODUCTION
Wages form the cornerstone of economic security for workers, acting as a fundamental link
between labor and capital in any economy. The concept of wages refers to the monetary
compensation paid by employers to employees in exchange for their labor and services. It
serves as the primary source of livelihood for workers, enabling them to meet their basic needs
such as food, shelter, healthcare, and education.1 The regulation of wages plays a crucial role
in ensuring economic stability, social justice, and industrial harmony.
In India, wage regulation has evolved significantly over the years, reflecting the country’s
commitment to safeguarding workers from exploitation and ensuring equitable economic
growth. Prior to independence, wage determination was largely unregulated, with employers
having significant discretion over how much workers were paid.2 This lack of a structured wage
system often resulted in unfair compensation, widespread poverty, and labor unrest.
Recognizing the need for legal intervention, the Minimum Wages Act, 1948, was enacted as
one of the first comprehensive labor welfare legislations in independent India. The primary
objective of this Act was to ensure that workers received fair remuneration for their services,
particularly in industries prone to exploitation and in sectors where bargaining power was
weak.
While the Minimum Wages Act, 1948, laid the foundation for wage regulation, the evolving
nature of the labor market, changing economic conditions, and the need for a uniform wage
structure led to the introduction of the Code on Wages, 2019. This legislation aimed to
modernize and consolidate various wage-related laws into a single framework, ensuring greater
clarity and consistency. Unlike the Minimum Wages Act, which applied only to specific
scheduled employments, the Code on Wages extends wage protection to all employees across
both organized and unorganized sectors, thereby broadening its scope and effectiveness.3
The definition and components of wages have also undergone changes under these legislations.
While both the Minimum Wages Act, 1948, and the Code on Wages, 2019, define wages as
monetary remuneration for employment services, the latter provides a more detailed
classification of inclusions and exclusions, ensuring better compliance and transparency.
Additionally, the Code on Wages introduces a uniform wage definition applicable across
various labor laws, simplifying compliance for employers while protecting employees' rights.
The regulation of wages is not merely a statutory requirement but a fundamental necessity to
uphold workers' dignity, reduce income disparities, and foster economic growth. Ensuring fair
wages leads to improved productivity, better industrial relations, and a more equitable society.4
By understanding the legal framework governing wages, employers, employees, policymakers,
and legal professionals can work towards creating a fair and just labor market.

1
See P.K. Padhi, Labour and Industrial Laws 3–4 (5th ed. 2020).
2
See K.R. Shyam Sundar, The Evolution of Wage Policy in India: An Assessment of the Reforms, 55(2) Indus.
Rel. J. 134, 137 (2020).
3
See Ministry of Labour & Emp., Gov’t of India, Report on Wage Code Implementation (2021).
4
See Aparna Ravi, The Impact of Wage Regulation on Economic Growth in India, 12(3) NUJS L. Rev. 98, 103
(2020).
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This study aims to analyze the key aspects of wage regulation in India, comparing the
Minimum Wages Act, 1948, with the Code on Wages, 2019. It explores the definitions,
components, and determinants of wages, as well as the impact of judicial interpretations on
wage laws. Through this analysis, the study seeks to highlight the significance of wage
regulation in protecting workers' rights and promoting socio-economic development.

Definition of wages

• Definition of Wage under the Minimum Wage Act, 1948

The Minimum Wage Act, 1948 defines the term "wages" under Section 2(h) as
follows: “Wages” means all remuneration, capable of being expressed in terms of
money, which would, if the terms 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.”5

• Definition of Wages under the Code on Wages, 2019

The Code on Wages, 2019 defines "wages" under Section 2(y) as follows:
“Wages” means all remuneration, whether by way of salary, allowances, or otherwise,
expressed in terms of money or capable of being so expressed, which would, if the
terms of employment (express or implied) were fulfilled, be payable to a person in
respect of his employment or of work done in such employment.”6

Differences Between the Definitions

1. Scope and Coverage
o The Minimum Wage Act, 1948 applies only to employees in sectors where
minimum wages are prescribed by the government. This limits its reach,
leaving out many informal sector workers.
o The Code on Wages, 2019 offers universal coverage, applicable to all
employees across organized and unorganized sectors, ensuring broader
protection.

5
The Minimum Wages Act, No. 11 of 1948, § 2(h), INDIA CODE.
6
The Code on Wages, No. 29 of 2019, § 2(y), INDIA CODE.
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2. Inclusions in Wages
o The Minimum Wage Act includes basic wages, dearness allowance, and
other remuneration payable under employment terms.
o The Code on Wages expands this to include retaining allowance in addition
to basic pay and dearness allowance, ensuring better clarity for industries
with variable pay structures.
3. Exclusions from Wages
o Both laws exclude non-core elements like bonus, house rent allowance, and
gratuity.
o The Code on Wages provides a more detailed exclusion list, adding elements
like conveyance allowance, commission, and overtime wages, which were
not explicitly mentioned in the earlier Act.
4. Uniformity in Wage Calculation
o The Minimum Wage Act deals specifically with minimum wage rates and
does not standardize wage definitions across various labour laws.
o The Code on Wages introduces a uniform wage definition applicable to
calculating wages for minimum wages, bonus payments, overtime
calculations, and compensations under various labour statutes. This
unification simplifies compliance for employers and ensures greater
transparency for employees.
5. Regulatory Approach
o The Minimum Wage Act focuses mainly on protecting vulnerable workers
from exploitation by setting minimum wage thresholds.
o The Code on Wages emphasizes fair pay practices, promoting both
employee welfare and employer flexibility.

Components of wages
1. Basic Pay (Fixed Component)
Definition: The core component of wages, constituting a fixed amount paid to
employees for their work.7
Significance: Basic pay is crucial as it forms the foundation for calculating other
benefits such as provident fund (PF), gratuity, and bonus.

7
S.N. Mishra, Labour Law in India 78 (30th ed. 2020).
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Example: If an employee earns ₹30,000, their basic pay might be ₹15,000 (50% of
total wages).

2. Dearness Allowance (DA)

Definition: A cost-of-living adjustment allowance paid to employees to offset
inflation.8
Significance: DA is calculated as a percentage of basic pay and varies based on
economic conditions.
Example: If the DA rate is 20%, an employee with ₹15,000 basic pay will receive
₹3,000 as DA.

3. Retaining Allowance
Definition: An allowance paid to employees to retain them in service during
seasonal or temporary shutdowns.
Significance: This component ensures income continuity for workers in industries
with fluctuating production cycles.

4. House Rent Allowance (HRA)

Definition: An allowance provided to employees to cover their housing expenses.
Significance: While commonly included in salary packages, HRA is excluded from
the legal definition of wages under the Code on Wages, 2019 when calculating
statutory benefits.

5. Bonus
Definition: A performance-linked or productivity-based payment made to
employees in addition to their regular wages.
Significance: Bonuses are often mandatory under the Payment of Bonus Act,
1965, for eligible employees in profit-making organizations.

6. Overtime Wages
Definition: Extra wages paid for working beyond the standard working hours.9

8
Dr. P.K. Padhi, Labour and Industrial Laws 112 (4th ed. 2019).
9
The Equal Remuneration Act, No. 25, Acts of Parliament, 1976 (India).
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Significance: Overtime pay rates are typically higher (e.g., double the regular rate)
as per labour laws.

7. Incentives and Commission

Definition: Performance-based pay designed to motivate employees to achieve specific
targets or goals.
Significance: This element is variable and directly linked to individual or company
performance.

8. Provident Fund (PF) Contribution

Definition: A mandatory contribution by both the employer and employee to the
Employees' Provident Fund (EPF) for retirement savings.10
Significance: Though it’s a legal deduction, PF is excluded from the wage definition
under the Code on Wages, 2019.

9. Gratuity
Definition: A lump-sum payment made by the employer to employees who have
completed five or more years of continuous service.11
Significance: Gratuity is excluded from the definition of wages for calculating
minimum wages but is crucial for employee retirement benefits.

10. Conveyance or Transport Allowance

Definition: An allowance paid to employees for commuting between their residence
and workplace.
Significance: This allowance is generally excluded from the wage calculation for
statutory benefits.

11. Medical and Insurance Benefits

Definition: Healthcare benefits provided by the employer to ensure employee well-
being.
Significance: Though not classified as wages, these benefits improve employee
satisfaction and retention.

10
The Payment of Gratuity Act, No. 39, Acts of Parliament, 1972 (India).
11
ibid
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12. Special Allowances

Definition: Variable payments such as project bonuses, risk allowances, or hardship
pay.
Significance: Special allowances are often flexible and adjusted according to job
requirements.

Determinants of Wages
Wages are influenced by a complex interplay of economic, social, legal, organizational,
individual, and technological factors. Understanding these determinants is essential for
designing fair wage structures, ensuring compliance with labor laws, and promoting equitable
economic growth.
1. Economic Determinants
Economic factors play a pivotal role in wage determination as they reflect the overall financial
stability, productivity, and demand-supply dynamics of labor in a given market.
1.1 Demand and Supply of Labor
The fundamental principle of wage determination is derived from the economic law of supply
and demand. When the demand for a particular skill set or profession is high, but the supply is
limited, wages tend to increase. Conversely, an excess supply of labor, particularly in unskilled
or semi-skilled sectors, leads to lower wages.12
• Example: IT professionals specializing in artificial intelligence and blockchain
technology command higher salaries due to limited availability and high industry
demand.
1.2 Market Conditions and Economic Growth
Wages are also influenced by macroeconomic factors such as GDP growth, industrial
productivity, and overall economic stability. In a booming economy, wages tend to rise as
businesses expand, whereas economic downturns may lead to wage stagnation or reductions.13
• Example: The 2008 global financial crisis led to widespread job losses and wage
freezes across various sectors.
1.3 Inflation and Cost of Living

12
PAUL SAMUELSON & WILLIAM D. NORDHAUS, ECONOMICS 255 (19th ed. 2009).
13
RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 432 (9th ed. 2014).
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Inflation significantly impacts real wages, requiring periodic adjustments to maintain

employees' purchasing power. Employers may provide a Dearness Allowance (DA) to offset
inflationary pressures.
• Example: In India, government employees receive DA linked to the Consumer Price
Index (CPI) to compensate for rising living costs.
1.4 Productivity and Profitability of Industry
Industries with high profit margins and technological advancements tend to offer better wages
than labor-intensive industries with lower productivity levels.14
• Example: The IT sector in India provides significantly higher wages than the textile
industry due to differences in value addition and global competitiveness.

2. Social Determinants
Social and cultural factors shape wage structures, ensuring fairness, social equity, and work-
life balance.
2.1 Standard of Living
Wages should be sufficient to maintain a minimum standard of living, enabling workers to
access basic necessities such as food, housing, healthcare, and education.
2.2 Social Perception of Occupations
Certain professions are valued higher due to their social prestige and perceived contribution to
society.
• Example: Medical professionals and legal practitioners generally receive higher
salaries than factory workers due to the specialized skills and responsibilities associated
with their roles.
2.3 Bargaining Power of Trade Unions
Strong labor unions can influence wage negotiations, securing better pay and benefits for
workers.
• Example: The All India Bank Employees Association (AIBEA) played a significant
role in negotiating salary revisions for banking sector employees.

3. Legal and Regulatory Determinants

Governments regulate wages through legal frameworks to protect employees from exploitation
and ensure fair compensation.
3.1 Minimum Wage Legislation

14
JOSEPH STIGLITZ, GLOBALIZATION AND ITS DISCONTENTS 145 (2002).
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The Minimum Wages Act, 1948, and the Code on Wages, 2019, establish minimum wage
standards, preventing underpayment and ensuring economic security.15
3.2 Equal Remuneration Laws
The Equal Remuneration Act, 1976, mandates equal pay for men and women performing the
same work, promoting gender equity in wages.
3.3 Payment of Bonus and Other Benefits
The Payment of Bonus Act, 1965, ensures that eligible employees receive a share in their
company's profits, contributing to overall wage enhancement.16

4. Organizational Determinants
Wages also depend on internal company policies, employment hierarchy, and industry-specific
factors.
4.1 Wage Policies of the Firm
Each organization designs its wage structure based on financial capabilities, revenue models,
and competition.
4.2 Job Role and Responsibilities
Jobs requiring higher skill levels, decision-making authority, or leadership roles are
compensated better than routine, low-skill jobs.
4.3 Employee Experience and Skills
Experienced employees with specialized expertise receive higher wages, promotions, and
performance-based incentives.

5. Individual Determinants
Personal attributes of employees also influence wages.
5.1 Educational Qualifications
Higher academic degrees often lead to better employment opportunities and higher salaries.
• Example: MBA graduates from top-tier institutions receive significantly higher salaries
than general graduates.
5.2 Performance and Productivity

15
The Minimum Wages Act, No. 11 of 1948, INDIA CODE.

16
The Payment of Bonus Act, No. 21 of 1965, INDIA CODE.
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Employees demonstrating exceptional performance, innovation, or leadership often receive

bonuses, increments, and promotions.

6. Technological Advancements
The increasing adoption of automation, artificial intelligence, and digitalization influences
wage patterns. Employees proficient in advanced technologies command higher salaries due
to increased demand for specialized skills.
• Example: Data scientists and cybersecurity experts receive higher wages compared to
traditional IT roles due to the growing demand for cybersecurity and big data analytics.

7. Geographic Location
Wages vary based on regional economic conditions and cost of living.
• Example: Employees working in metropolitan cities like Mumbai, Delhi, and
Bangalore receive higher wages than those in rural areas due to higher living costs
and increased job opportunities.

Judicial Interpretations and Landmark Cases

1. Air India Statutory Corporation v. United Labour Union17

Issue:
Whether contract labourers working in core operational areas of an establishment are
entitled to the same wages and benefits as permanent employees.
Judgment:
The Supreme Court ruled in favour of the contract labourers, stating that:
If contract labour is engaged in essential business activities (core functions), they are
entitled to the same rights, wages, and benefits as permanent employees. The Court
emphasized that exploitation of contract labour violates labour rights and directed Air India
to absorb these workers as permanent employees.

2. Peoples' Union for Democratic Rights v. Union of India18

Key Facts of the Case:

17
1997 AIR 645
18
1982 AIR 1473
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The People’s Union for Democratic Rights (PUDR), a human rights organization, filed a
Public Interest Litigation (PIL) highlighting the exploitation of labourers engaged in the
1982 Asian Games construction projects in Delhi. The petitioners alleged that labourers
were being paid below the prescribed minimum wage, forced to work under exploitative
conditions, and subjected to forced labour.
Issue:
Whether non-payment of minimum wages amounts to forced labour under Article 23 of
the Indian Constitution, which prohibits "begar" (forced labour).
Judgment:
The Supreme Court ruled that:
Non-payment of minimum wages is a violation of Article 23 and constitutes forced labour,
as workers are being denied fair compensation for their efforts. The Court held that poverty
and economic distress often force individuals to work for low wages, and this condition is
equivalent to coercion. The Court emphasized that labour laws must be strictly enforced to
protect vulnerable workers from exploitation.

3. Unichoyi v. State of Kerala19

Key Facts of the Case:
The State of Kerala revised the minimum wages for workers in the tile industry
under the Minimum Wages Act, 1948.Employers challenged this revision, claiming
that the increased wage rates were unreasonable, excessive, and beyond their
financial capacity. The petitioners argued that the revised wages were unfair and
would adversely impact business sustainability.

Issue:
• Whether the Kerala government’s revised minimum wages under the Minimum
Wages Act, 1948 were valid and reasonable.
• Whether an employer's financial capacity should influence the determination of
minimum wages.

Judgment:
The Supreme Court upheld the Kerala government’s wage revision, ruling that:
The Minimum Wages Act, 1948 aims to protect workers' welfare by ensuring they
receive wages sufficient to meet their basic needs and maintain a minimum standard
of living. An employer’s financial condition cannot be a determining factor when

19
1962 AIR 12
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fixing minimum wages. The Court emphasized that minimum wages are intended
to protect vulnerable workers and ensure social justice, regardless of the employer's
ability to pay.

Conclusion

The concept of wages and their regulation under Indian labor laws, particularly the
Minimum Wages Act, 1948 and the Code on Wages, 2019, plays a crucial role in
safeguarding workers' rights. These laws ensure that employees receive fair compensation
that meets their basic needs and upholds their dignity.
Landmark cases such as Unichoyi v. State of Kerala, Mcleod & Co. Ltd. v. State of West
Bengal, and People's Union for Democratic Rights v. Union of India have significantly
shaped the interpretation of wage laws in India. These judgments emphasize that minimum
wages are a fundamental right and cannot be compromised, even in challenging economic
conditions.
The Code on Wages, 2019 modernized wage laws by unifying multiple regulations,
ensuring consistency and transparency in wage determination. By mandating that at least
50% of total remuneration must include core wage components like basic pay and dearness
allowance, the Code further strengthens wage protection for workers.
Overall, India's wage laws continue to evolve, ensuring a balance between economic
growth and worker welfare. These legal frameworks reinforce the principle that fair wages
are essential to reducing inequality, promoting social justice, and protecting the labor force
from exploitation.
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REFERENCES:
Books
1. P.K. Padhi, Labour and Industrial Laws (5th ed. 2020).
2. S.N. Mishra, Labour Law in India (27th ed. 2021).
3. G.B. Pai, Labour Law in India (LexisNexis 2019).
Journal Articles
4. K. R. Shyam Sundar, The Code on Wages, 2019: An Assessment of the Reform in Wage
Policy in India, 55(2) Indus. Rel. J. 134 (2020).
5. Surya Prakash, Minimum Wage Law and Its Judicial Interpretations in India: An
Analytical Approach, 45(1) J. Ind. L. Inst. 67 (2021).
6. Aparna Ravi, The Evolution of Wage Regulation in India: An Overview of the Minimum
Wages Act and the Code on Wages, 2019, 12(3) NUJS L. Rev. 98 (2020).
Statutes & Government Reports
7. The Minimum Wages Act, No. 11 of 1948, India Code (1948).
8. The Code on Wages, No. 29 of 2019, India Code (2019).
9. Ministry of Labour & Employment, Report on Wage Code Implementation (Gov’t of
India 2021).
Websites
10. Ministry of Labour & Employment, Labour Codes and Rules, Gov’t of India,
https://labour.gov.in.
11. International Labour Organization (ILO), Wage Policies in India: Challenges and
Reforms, https://www.ilo.org.
12. PRS Legislative Research, The Code on Wages, 2019 – Analysis and Impact,
https://prsindia.org.