DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, ANDHRA PRADESH

SUBJECT

ECONOMICS

TITLE OF THE ASSINGMENT

COST – BENEFIT ANALYSIS OF MINIMUM WAGES ACT

NAME OF THE FACULTY

Mr. ABHISHEK SINHA

NAME OF THE CANDIDATE

S.S .NAMRATHA

ROLL NUMBER

17LLB075

SEMESTER – 1
 Table of Contents

 Introduction………………………………………..


INTRODUCTION:

The Minimum Wages Act 1948 is an Act of Parliament concerning Indian Labour Law that sets
minimum wages that must be paid to skilled and unskilled labour. To achieve this during
November 1948, the Central Advisory Council appointed a Tripartite Committee of Fair wage ,
this committee came up with the concept of Minimum Wage, which not only guarantees bare
subsistence and preserves efficiency.

India introduced the Minimum Wages Act in 1948 giving both the Central government and State
government jurisdiction in fixing wages. The act is legally non-binding, but statutory. Payment of
wages below the minimum wage rate amounts to forced labour.

Wage boards are set up to review the industry’s capacity to pay and fix minimum wages such that
they at least cover a family of four requirements

Under the Law, wage rates in scheduled employments differ across states, sectors, skills, and
occupations owing to different costs of living, Hence there is no single uniform minimum wage
rate across the country and the structure has become overly complex

The highest minimum wage rate as updated in 2012 is Rs 322 per day in Andaman and Nicobar
and lowest is Rs 38 per day in Tripura.

Research Methodology: Research was purely based on analytical and doctrinal method of
research.

MINIMUM WAGES ACT 1948:

The Minimum Wages Act 1948, was to secure the welfare of unorganized workers in certain
industries by fixing the minimum rates of wages, the act contemplates that minimum wages rates
must ensure for him not only his subsistence and that of his family but also preserve his efficiency
as a workman. The Act empowers the appropriate Government for fixation of minimum wages in
employments enumerated in the schedule to the act.

The Act provides for fixing wage rate (time, piece, guaranteed time, and overtime) for any
industry.
1) While fixing hours for a normal working day as per the act should make sure of the following:

 The number of hours that are to be fixed for a normal working day should have one or more
intervals/breaks included.
 At least one day off from an entire week should be given to the employee for rest.
 Payment for the day decided to be given for rest should be paid at a rate not less than the
overtime rate.
2) If an employee is involved in work that categorizes his service in two or more scheduled
employments, the employee’s wage will include respective wage rate of all work for the number
of hours dedicated at each task.
3) It is mandatory for the employer to maintain records of all employee’s work, wages and receipts.
4) Appropriate governments will define and assign the task of inspection and appoint inspectors
for the same.
Fixation and revision of minimum wages
1
The Minimum Wages Act 1948 generally specifies minimum wage rates on a per day basis, and
extends to the entire country and is revised within a period of not less than five years, however
there is a provision to increase dearness allowance every two years. The norms in fixing and
revision of minimum wages were first recommended by ILC, 1957. Revision of minimum wage
rates is based on a 'cost of living index' and wages can be fixed for an entire state, part of the state,
class or classes and employments pertaining to these categories. The fixation of wages is based on
the norms mentioned and a wage board (different for different industry).
Under the Minimum Wages Act, State and Central Governments have the power to fix and revise
minimum wages. The act specifies that the "appropriate" government should fix the wages i.e. if
the wages to be fixed are in relation to any authority of Central government or Railway
administration then the Central government fixes it. However, if the wage rate is to be fixed or
revised for a scheduled employment, the respective state governments fix it. The Centre fixes the
National floor level Minimum Wage that is lower than most states' respective minimum wages.
The ambiguity and overlap in the jurisdiction of both these tiers of government have caused
debates and controversies. One of such debates revolves around fixing wage rates of MGNREGA
scheme, an employment guarantee initiative by the Central Government
As per Section 5 of the Minimum Wages Act, 1948, there are two ways of fixing and/or revising
minimum wages
• Committee Method: Committees and Sub-committees are set up to make recommendations or
create inquiries.
• Notification Method: The government publishes proposals and an official date in the Official
Gazette. All advice and recommendations from various committees and sub-committees as well
as representations are collected before the specified official date and the government then proceeds
to fix/revise minimum wages.

COST INVOLVED:

The 2017-18 budget saw the highest ever allocation to Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA)–the world’s largest make-work programme–at Rs 480
billion, but 56% wages were delayed and 15% wage seekers did not find work in 2016-17, an India
Spend analysis of government data shows. The allocation to be announced by Finance Minister
Arun Jaitley on February 1, 2018, when he presents his government’s last full-year budget ahead

1
https://en.wikipedia.org/wiki/Minimum_Wages_Act_1948.
of the general elections in 2019 will be closely watched, even as his government has decided to
“pump an additional Rs 70 billion into the rural job scheme” for the current financial year, as the
Telegraph reported on January 5, 2018. Eight states have declared a drought in the past year, and
6,867 farmers were reported to have committed suicides due to farm distress. India’s agricultural
growth has been declining, and has now dipped to 2.1%, government data show.

As much as 64% of India’s agriculture is rained and 85% of Indian farmers are categorized as
small or marginal–that is, they own less than 5 acres of land. With demonetization adding to the
troubles, as India Spend reported here and here, MGNREGA becomes crucial to tackle rising rural
distress.

Minimum wage is announced for 45 scheduled employments in the Central Sphere while the State
level minimum wage is determined by every state keeping in view the sectors more dominant in
the State. Minimum wage is revised while considering the following five elements: three
consumption units per earner; minimum food requirement of 2700 calories per average adult; cloth
requirement of 72 yards per annum per family; house rent corresponding to the minimum area
provided under the Government's Industrial Housing Scheme; fuel, lighting and other
miscellaneous items of expenditure to constitute 20% of the total minimum wage; and children
education, medical requirement, minimum recreation including festivals/ceremonies and provision
for old age, marriage etc. should further constitute 25% of the total minimum wage (the last
component added by the Supreme Court in Reptakos Brett Vs Workmen case in 1991). Minimum
wages may be reviewed at different intervals however such intervals cannot exceed five years. The
Minimum Wages Act provides for two methods of fixation/revision of minimum wages. Under
the Committee Method, committees and sub-committees are set up by the Government to hold
inquiries and make recommendations with regard to fixation and revision of minimum wages.
Under the Notification method, government proposals are published in the Official Gazette for
information of the persons likely to be affected and specify a date (not less than two months from
the date of the notification) on which the proposals will be taken into consideration.

Regular Pay

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. It however does not
include the value of any house-accommodation, supply of light, water, medical attendance, or any
other prescribed amenity or service; any pension or provident fund, or social insurance scheme,
contributions paid by the employer; travelling allowances or concessions; reimbursement for
special expenses incurred by the employee; or gratuity payable on discharge.

In accordance with the Minimum Wage Act, the employer is obliged to pay wages on regular and
timely basis at least once a month. Wage period may be fixed on hourly, daily, weekly or monthly
basis. The employer is under obligation to pay wages in cash on a working day before the expiry
of the 7th day after the last day of the wage period (in establishments with less than 1000 workers).
In other establishment, i.e., those hiring more than 1,000 workers, wages must be paid before
expiry of 10th day after the last day of the wage period. If the employment of a worker is terminated
by or on behalf of the employer, the outstanding wages are paid within two days of employment
termination. Wage periods can't be fixed for duration longer than one month.

BENEFITS OF MINIUMUM WAGES ACT:

 It can be helpful depending on the type of market

The effectiveness of minimum wage actually depends on the type of market it is imposed
on. Specifically, it can be beneficial to workers and a monopoly market if it can secure a
higher minimum wage and employment level, Also drawbacks of wage rigidity can be
solved by assessing the minimum wage level more often though this would involve other
costs of transactions when policy makers re adjust wage levels too often . Moreover,
minimum wage is also observed to help with reducing labour turnover and improving
organizational efficiency, considering that there is just a slight increase in labour costs.
 It can help with reducing tax burden.
Unemployed people are given welfare, food stamps and rent assistance. Thus, having as
many people as possible on minimum wage would lower the need for public assistance
which will reduce tax burden on communities and the state.
 It can help certain families
It can prevent from the exploitation of people by providing minimum wages
 It can help with setting small business budgets
By being unable to set a minimum wage small business will find it difficult to budget their
money , on the other hand it will help them to know how a minimum wage policy the pay
for each hour and will allow creating for new jobs within their organizations based upon
the budgeting information.
 It serves as an employment incentive.
A minimum wage will provide the unemployed an incentive to take job opportunity as they
would know how much their minimum pay would be Unemployed individuals will then
have the opportunity to compare the money they would get from public assistance to
minimum wage to determine perks of taking job.