The Concepts of Wages | Labor Law

1) Introduction -

          Wage is a remuneration to labor for the work done for the service rendered by it to the employer. There are different theories on the concept of wages as enunciated by economists and sociologists, which explain various aspects of wage problems. However, these theories are not applicable in all circumstances.

2) Meaning and Definition of Wage

    According to Section 2(h) of the Minimum wages Act, 1948 the term "wages" means all remuneration 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 –

(i) the value of –

(a) any house accommodation supply of light water medical attendance or

(b) any other amenity or any service excluded by general or special order of the appropriate government;

(ii) any contribution paid by the employer to any person fund or provident fund or under any scheme of social insurance;

(iii) any traveling allowance or the value of any traveling concession;

(iv) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(v) any gratuity payable on discharge;

3) Concepts of Wages 

      Broadly Speaking, the wages can be classified into the following categories: 

(a) Living Wage

(b) Fair Wage

(c) minimum Wage

(a) Living Wage -

       The concept of "Living wage" is the wage rate which prevails in most of the economically advanced Countries. The term Living Wage has not been defined under the Minimum wages Act, 1948. South Australian Act of 1912 defines it as 'Living Wage means a sum sufficient for the normal and reasonable needs of the average employee living in a locality, where the work under consideration is done or is to be done.
       Justice Higgins of the Australian  Commonwealth Court of Conciliation defined the living wage as one appropriate for the normal needs of the average employee, regarded as a human being living in a civilized society.  The living wage must provide not merely for absolutely essentials such as food, shelter, and clothing but for condition of frugal comfort, estimated by current human standard.
        Living wages are wages without which working people cannot live and perform their duties as a citizen. It varies from country to country depending upon the price level of necessaries of life, and it is determined by the socio-economic conditions of a particular country. 
        The living wage should enable the wage earner to provide for himself and his family not merely the bare essentials of food, clothing and shelter but the measure of frugal comfort including education for the children protection against ill health, requirements for essential social needs and a measure of insurance against the more important misfortune ilcluding old age.
         In India, there is no statutory definition for the term 'living wage'. According to Article 43 of the Indian Constitution, the State shall endeavor to Secure to all workers living wages, conditions of ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities. 

(b) Fair Wage - 

       Fair wage is a mean between the living wage and the minimum wage. A fair wage is related to fair work-load and the earning capacity. It can say that it is more than minimum wage but less than the living wage. It may roughly be said to approximate to the need based minimum, in the sense of the wage which is adequate to cover the normal needs of the average employee regarded as a human being in a civilized society.  Fair wage is fixed, taking into consideration, the present economic position and further prospects of the Industry.

     Between these two limits (Living Wage and the Minimum Wage) actual wage would depend upon a consideration of certain factors namely -

      i) the productivity of Labor.

     ii) the prevailing rates of wages in the same industry for similar occupations in the same or similar occupations in the same or neighboring localities;

    iii) the level of national income and its distribution; and

     iv) the place of the industry in the economy of the country.

   The Concept of fair wages, therefore, involves a rate sufficiently high to enable the worker to provide a standard family with food, shelter, clothing, medical care and education for children appropriate to his status in life but not at a rate exceeding the wage-earning capacity of the class of establishment concerned. As time passed and prices rise even the fair wage fixed for the time being tends to sag downwards and then revision becomes necessary. 

(c) Minimum Wage -

            The term 'Minimum Wage' has not been defined in the said Act ( Minimum Wages Act, 1948) The minimum wage is the lowest wage in the scale below which the efficiency of a worker is likely to be inspired. The minimum wage includes not only the bare physical necessities but also a modicum of comfort otherwise known as conventional necessities. The Minimum wages must, therefore, provide not merely for the bare subsistence of life but also for the preservation of the efficiency of the worker.  For this purpose, the minimum wage must also provide for the same measure of education, medical requirements, and amenities. Therefore any employer who is unable to pay this minimum wage to workers has no right to exist. Where a person provides labor or service to another for remuneration which is less than the minimum wages, such labor is 'forced labor'  within the meaning of  Article 23 of the Indian Constitution and thereby entitles the person to invoke Article 32 or Article 226 of the Constitution of India.

The Concept of fair wages was to be dynamic. There is no reason to assume that fair wages fixed years ago should continue to be fair wages for al time, and any fixation of minimum wages, should be taken not as minimum wages but as fair wages because it is above the fair wages once fixed.

Constituents or Components of Minimum Wage -

According to Section 4 of the said Act, (Minimum Wages Act, 1948) consists of the following :

        (1) Any minimum rate of wages fixed or revised by the appropriate government in respect of scheduled employments under section 3 may consist of –

        (i) 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 workers;

        (ii) a basic rate of wages with or without the cost of living allowance and the cash value of the concessions in respect of suppliers of essential commodities at concession rates where so authorized; or

        (iii) an all-inclusive rate allowing for the basic rate the cost of living allowance and the cash value of the concessions if any.

(2) The cost of living allowance and the cash value of the concessions in respect of supplies of essential commodities at concession rate shall be computed by the competent authority at such intervals and in accordance with such directions as may be specified or given by the appropriate government.


See also 

Eligibility and Disqualifications for Bonus

Bonus: Meaning, Definition and Kinds of Bonus

Industrial Tribunals: Constitution, Jurisdiction and Powers of the Industrial Tribunals