Concept of Wages and Its Importance During Signing The Settlements:


8th Ed. of Black’s law dictionary defined wages as, “payment for labour or services, usually based on time worked or quantity produced..”

Fixation of a wage-structure is always a delicate task because a balance has to be struck between the demands of social justice which requires that the workmen should receive their proper share of the national income which they help to produce with a view to improving their standard of living, and the depletion which every increase in wages makes in the profits as this tends to divert capital from industry into other channels thought to be more profitable. The task is not rendered any easier because conditions vary from region to region, industry to industry and establishment to establishment. To cope with these differences, certain principles on which wages are fixed have been stated from time to time by the Hon’ble Apex court.

It is well known that the problem of wage structure with which industrial adjudication is concerned in a modern democratic State involves on the ultimate analysis to some extent ethical and social considerations. The advent of the doctrine of a welfare State is based on notions of progressive social philosophy which have rendered the old doctrine of laissez-faire obsolete. In the nineteenth centurv, the relation between employers and employees were usually governed by the economic principle of supply and demand, and the employers thought that they were entitled to hire labour on their terms and to dismiss the same at their choice subject to the specific terms of contract between them, if any. The theory of `hire and fire` as well as the theory of `supply and demand’  which were allowed free scope under the doctrine of laissez-faire no longer hold the field. In constructing a wage structure in a given case, industrial adjudication does take into account to some extent considerations of right and wrong, propriety and impropriety, fairness and unfairness. As the social conscience of the general community becomes more alive and active, as the welfare policy of the State takes a more dynamic form, as the national economy progresses from stage to stage, and as under the growing strength of the trade union movement collective bargaining enters the field, wage structure ceases to be a purely arithmetical problem. Considerations of the financial position of the employer and the state of national economy have their say, and the requirements of a workman living in a civilised and progressive society also come to be recognised. It is in that sense, and no doubt to a limited extent, that the social philosophy of the age supplies the background for the decision of industrial disputes as to wage structure.

To elaborate properly, the wages are being described below under their respective heads:-

Minimum Wages 

“Wages”, as is defined by the Minimum Wages Act, 1948, “means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment, or of work done in such employment [and includes house rent allowance] but does not include-


Minimum wage does not mean wage just sufficient for bare sustenance. At present the conception of a minimum wage is a wage which is somewhat intermediate to a wage which is just sufficient for bare sustenance and fair wage. Apart from bare sustenance of an employee and his family, minimum wage also includes expenses necessary for his other primary needs such as medical expenses, education expenses of his children etc..

The minimum wages as were in 1950 were not the same in the year 2000 moreso in 2009. It is a accepted position that minimum wages are not a static concept, but have to change with social and economic conditions.The concept of minimum wage is likely to undergo a change with the growth of economy and with the change in the standard of living.

While dealing with the case of Kamani Metals & Alloys, the three Judges’ Bench of the Apex Court broadly described the principles of Minimum Wages, the Fair Wages and the Living Wages. Enumerating those principles, Hon’ble M.Hidayatullah, J wrote,

“Broadly speaking the first principle is that there is a minimum wage which, in any event, must be paid, irrespective of the tent of profits, the financial condition of the establishment or the availability of workmen on lower wages. This minimum wage is independent of the kind of industry and applies to all alike big or small. It sets the lowest limit below which wages cannot be allowed to sink in all humanity.”

The Apex Court in the case of The Standard Vacuum Refining Company has approved following norms for wage fixing including minimum wages:

"(i) In calculating the minimum wage, the standard working class family should be taken to consist of 3 consumption units for one earner, the earnings of women, children and adolescents should be disregarded.

(ii) Minimum food requirement should be calculated on the basis of a net intake of calories, as recommended by Dr. Aykroyd for an average Indian adult of moderate activity.

(iii) Clothing requirements should be estimated at a per capita consumption of 18 years per annum which would give for the average workers' family of four, a total of 72 years.

(iv) In respect of housing, the rent corresponding to the minimum area provided for under Government's Industrial Housing Scheme should be taken into consideration in fixing the minimum wage.

(v) Fuel, lighting and other 'miscellaneous' items of expenditure should constitute 20 per cent of the total minimum wage."

In the year 1992, while dealing with the case of Reptakos Brett & Co. Ltd., the Hon’ble Apex Court felt the need of adding sixth norm for fixing the wage structure. The Apex Court expressed the need of sixth norm in its para 12 as,

"12. The concept of 'minimum wage' is no longer the same as it was in 1936. Even 1957 is way behind. A worker's wage is no longer a contract between an employer and an employee. It has the force of collective bargaining under the labour laws. Each category of the wage structure has to be tested at the anvil of social justice which is the live fibre of our society today. Keeping in view the socio-economic aspect of the wage structure, we are of the view that it is necessary to add the following additional component as a guide for fixing the minimum wage in the industry:

(vi) children's education, medical requirement minimum recreation including festivals/ceremonies and provision for old age marriages etc. should further constitute 25 per cent of the total minimum wage."

Fair Wages:

In the case of Kamani Metals & Alloys, the Hon’ble Apex Court has described the principle of fair wages as,

“The second principle is that wages must be fair, that is to say, sufficiently high to provide a standard family with food, shelter, clothing, medical care and education of children appropriate to the workman but not at a rate exceeding his wage earning capacity in the class of establishment to which he belongs. A fair wage is thus related to the earning capacity and the workload. It must, however, be realised that 'fair wage' is not 'living wage' by which is meant a wage which is sufficient to provide not only the essentials above-mentioned but a fair measure of frugal comfort with an ability to provide for old age and evil days. Fair wage lies between the minimum wage, which must be paid in any event, and the living wage, which is the goal. As time passes and prices rise, even the fair wage fixed for the time being tends to sag downwards and then a revision is necessary. To a certain extent the disparity is made up by the additional payment of dearness allowance. This allowance is given to compensate for the rise in the cost of living.”

            Thus, the fair wages specifically demands the need of sufficiently high wages which will be enough to provide the employee and his family with today’s basic needs which include not only food, clothing and shelter, but sufficient medical care, education to his children etc. Though, it would not be able to provide a comfortable life (which includes vehicle, mobile, Cable TV etc.), but it would definitely be sufficient to fulfill the basic needs of the employee.

Region-cum-Industry Formula-  Decisive factor:

The basis of fixation of wages and dearness allowance is a region-cum-industry formula. Where there are a large number of industrial concerns of the same kind in the same region it would be proper to put greater emphasis on the industry part of the region-cum-industry principle as that would put all concerns on a more or less equal footing in the matter of production costs and therefore in the matter of competition in the market. The industry part of the formula becomes relevant when the business carried on by the employer before industrial adjudication is also carried on by several other concerns in the region in which the employer is working.

But where the number of comparable concerns is small in a particular region and therefore the competition aspect is not of the same importance, the region part of the region-cum-industry formula assumes greater importance. For e.g., in the case of Woolcombers of India, the industry part of the formula is not applicable because, the Woolcombers was the only concern in the region carrying on the business of woolcombing. Besides woolcombing, Woolcombers also comb Rayon, Nylon, Terelene, Terine, Visocose, Terycotton and Posmina. This case is accordingly governed by the region part of the region-cum-industry formula. The region part of the region-cum-industry formula requires that comparable concerns should nearly be similar to the line of business carried on by the employer before industrial adjudication.

Last but not the least, the complete protection which is advised to be given against the price rise is to the employees who draw the lowest wage in any establishment.




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