PAYMENT OF WAGES (AMENDMENT) ACT, 2017

   

Payment of Wages (Amendment) Bill, 2017: A Detailed Overview

The Payment of Wages (Amendment) Bill, 2017 was assented to by the President of India on 15th February 2017. This amendment came as a replacement for the Payment of Wages Ordinance, 2016, which was promulgated on December 28, 2016, to address issues concerning the payment of wages to employees in a more modernized and efficient manner. The aim of the amendment is to adapt the Payment of Wages Act, 1936, to changing technological, economic, and industrial realities, ensuring that wages are paid in a manner that enhances transparency, reduces discrepancies, and promotes financial inclusivity.

Context and Rationale Behind the Amendment

Historically, the Payment of Wages Act, 1936, set out provisions regarding the timely and full payment of wages to employees, ensuring that employees in industrial and non-industrial establishments are not exploited. The initial law, however, was based on payment methods of that time, which mostly involved cash (coin or currency notes).

In response to evolving business practices, widespread use of electronic transactions, and the growing need for financial inclusion, the Indian government recognized the necessity to amend the law to accommodate modern payment methods. This was particularly crucial with the growing number of employees working in the informal sector or in industries where digital transactions were increasingly common.

Key Amendments in Section 6 of the Payment of Wages Act, 1936

The amendment specifically revises Section 6 of the Payment of Wages Act, 1936, which outlines the modes of payment of wages. The core change brought about by the Payment of Wages (Amendment) Bill, 2017 is the introduction of flexible payment options for employers. These options are designed to benefit both employers and employees by ensuring wage payments are efficient, transparent, and secure.

Modes of Wage Payment Under the Amendment:

The amended Section 6 allows employers to pay wages through one of the following methods:

1. 1. Coin or Currency Notes:
      • Employers are allowed to continue paying wages in physical coins or currency notes (cash). This method ensures that employees who may not have access to banking facilities or who prefer receiving physical currency are not excluded from receiving their wages.
   2. Cheque:
      • Payment via cheque is now a legal method under the amended law. This provision makes it easier for employers to issue wages to employees without requiring physical cash, and for employees to deposit their wages into their bank accounts for safekeeping.
   3. Bank Transfer (Credit to Bank Account):
      • The direct credit of wages to an employee’s bank account has become the most modern and preferred mode of wage payment. This ensures that wages are paid electronically, which reduces the chances of errors, fraud, and theft. It also provides employees with immediate access to their wages, which can be used for personal expenses, savings, or investments.

Provisions for Specific Sectors or Establishments:

A significant provision under the amendment is that the appropriate government (either central or state) has the power to mandate certain industrial or other establishments to pay wages exclusively through cheque or bank transfers. This decision will be made through a notification in the Official Gazette, allowing for targeted application in specific sectors.

• • Government’s Role: The government can specify the industries or sectors where wage payments must be made via cheque or bank transfer. This can apply to industries where digitization is prevalent or where employees’ access to banking facilities is widespread.

Text of the Amended Section 6

The amended text of Section 6 now reads as follows:

Section 6: Wages to be Paid in Current Coin or Currency Notes, by Cheque, or by Crediting the Wages in the Bank Account

• • All wages shall be paid in:
    • Current Coin or Currency Notes; or
    • By Cheque; or
    • By Crediting the Wages in the Bank Account of the Employee.
  • 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 person employed in such industrial or other establishment, the wages only by cheque or by crediting the wages in the bank account.

Implications and Benefits of the Amendment

1. Increased Transparency and Accountability:

• • The shift to digital payment methods like cheques or bank transfers promotes transparency in wage disbursement. Employees are less likely to face issues related to non-payment or underpayment, and employers are encouraged to maintain accurate records.
  • Electronic payments also ensure that wages can be tracked more easily through bank records or digital payment platforms, reducing the chances of wage-related disputes.

2. Financial Inclusion:

• • The amendment encourages financial inclusion, particularly for workers who may have previously been excluded from the formal banking system. By requiring wages to be credited directly into an employee’s bank account, the government aims to ensure that all employees, even in informal sectors, can access banking services.
  • The provision also facilitates the linking of wages to government schemes, such as direct benefit transfers (DBT), which helps in better distribution of welfare benefits.

3. Employee Security:

• • Bank transfers provide a higher level of security for employees. Physical cash payments expose employees to the risk of theft or loss, while cheques and digital payments are traceable and safer.
  • Employees also benefit from immediate access to their wages without needing to visit the employer to collect physical payments. The direct credit to a bank account also provides easier access to other financial services like loans and savings.

4. Improved Employer-Employee Relationship:

• • Employers who adopt electronic payment systems often enhance their relationship with employees by ensuring timely and hassle-free payments. This can lead to improved employee satisfaction, lower turnover rates, and a more stable workforce.
  • Additionally, employers are likely to experience reduced administrative costs and improved efficiency in managing payroll systems.

5. Government’s Role in Sector-Specific Enforcement:

• • By empowering the government to specify sectors where electronic payments are mandated, the government can target areas where the use of cash may still be prevalent and encourage digitization in a controlled manner.
  • This move also helps in ensuring uniformity in wage payments across different sectors, preventing exploitation in informal industries.

Challenges and Considerations

While the amendment brings several advantages, it is also important to consider some challenges:

• • Accessibility to Bank Accounts: While digital payments are beneficial, not all employees, particularly in rural areas, may have access to a bank account or the necessary digital infrastructure. In such cases, employers may need to assist in facilitating access to banking services.
  • Employee Resistance: Some employees might be resistant to the idea of digital payments due to lack of awareness or preference for cash. Awareness programs and guidance from employers or financial institutions will be crucial to overcome such resistance.
  • Technical Challenges: Employers may face challenges in implementing digital payment systems, especially in sectors that are not well-versed in technology or where infrastructure is lacking.

The Payment of Wages (Amendment) Bill, 2017 represents a significant step towards modernizing the way wages are paid in India. By permitting payment through cheques and bank transfers, the amendment not only brings convenience, security, and transparency but also fosters financial inclusion. It enables employees to benefit from a more formalized, traceable system of wage disbursement while offering employers greater control over their payroll systems. This amendment is a reflection of India’s push towards a digital economy and a more organized labor market.

In the long term, this amendment is expected to play a pivotal role in strengthening India’s workforce and enhancing the ease of doing business, all while promoting the government’s broader financial inclusion agenda.

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