Payment of Wages Act

The Code on Wages, 2019, in force since 21 November 2025. Its section 69(1) repealed the Payment of Wages Act, 1936 along with the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

This entry keeps the old name because that is what people search for and what most internal documentation still cites. But an obligation cited to the 1936 Act is cited to a repealed statute, and in one respect the old citation is not merely stale but actively misleading, which the coverage section below explains.

The division of labour between the two halves of the Code is worth holding onto. Minimum wages say how much must be paid. These provisions say when it must be paid and what may be taken out of it before it reaches the employee.

Their origin is the practice they were written to stop: long and irregular pay cycles, payment in kind, and deductions imposed at the employer's discretion for damage, indiscipline or debts owed to the employer. The response was to fix the timing, require payment through prescribed means, and replace employer discretion over deductions with a closed statutory list.

That closed list is the part payroll teams most often collide with. The instinct in a payroll query is to ask whether a deduction is fair or agreed. The statutory question is different and narrower: is this deduction one of the kinds the Code permits? If not, agreement does not save it.

Three timing rules, and the third is the one most often missed.

• The wage period must not exceed one month. Longer cycles are not permitted, whatever the contract says. The employer fixes the period as daily, weekly, fortnightly or monthly, and may fix different periods for different establishments.
• Each wage period carries its own deadline, and the Code states all four. Daily engagement: at the end of the shift. Weekly: on the last working day of the week, that is, before the weekly holiday. Fortnightly: before the end of the second day after the fortnight ends. Monthly: before the expiry of the seventh day of the succeeding month.
• Where employment ends, by removal, dismissal, retrenchment, resignation or closure, the wages earned must be paid within two working days. This is much shorter than the ordinary cycle and shorter than most full and final settlement processes assume.

The third rule is where organisations routinely fall short without noticing. A settlement process that waits for clearances from several departments, then pays with the next payroll run, can leave an employee unpaid for weeks after their last day. The employee's own view of that delay is usually that it is normal, which is why it goes unchallenged rather than because it is compliant.

Two qualifications belong with those deadlines rather than in a footnote. The appropriate government may provide a different time limit where it considers that reasonable, and nothing in these provisions displaces a time limit set by another law in force. The two-day rule is the Code's default, not a figure immune to variation, so an establishment covered by a specific notification should check it rather than assume the general rule.

Wages must be paid in current coin or currency notes, by cheque, by crediting the employee's bank account, or by electronic mode. The appropriate government may notify establishments whose employer must pay only by cheque or bank credit.

One boundary is worth knowing. This whole chapter of the Code, the wage payment and deduction scheme, does not apply to Government establishments unless the appropriate government notifies that it does.

Only these kinds, and each has conditions attached.

Total deductions in a wage period cannot exceed fifty per cent of the wages for that period.

The co-operative society question is worth settling, because a great deal of payroll guidance still gets it wrong. Under the 1936 Act there was a higher ceiling, seventy-five per cent, where deductions included payments to co-operative societies. That higher ceiling did not survive. The Code sets one flat fifty per cent for the total of all permitted deductions, and co-operative society payments are simply one permitted purpose within it. An employer applying a seventy-five per cent cap is applying a repealed provision.

What happens when the permitted deductions exceed the cap is less definite than it is usually made out to be. The Code says the excess may be recovered in such manner as may be prescribed. It does not itself say the excess is carried into later wage periods, and until the rules are read the safe position is that the excess cannot simply be taken. Spreading a recovery is the sensible practice; it is not, on the face of the Code, a stated rule.

One further consequence. A recovery of notice pay, an asset not returned or a training bond is not on this list as such, and treating it as a deduction from wages rather than as a claim against the employee is a different act with a different legal footing.

Two protections sit alongside the list and are easy to miss. Any payment made by an employee to the employer or its agent counts as a deduction, so routing a recovery as a payment back rather than as a payslip line does not take it outside the rules. And where the employer deducts but fails to deposit the money in the fund or account it was meant for, the employee is not held responsible for that default.

Fines are permitted but hedged, and the hedges are usually ignored by organisations that impose them. The Code sets these limits itself rather than leaving them to the rules, so they can be stated as figures.

• The act or omission must be one the employer has specified by notice with the previous approval of the appropriate government or the prescribed authority, and the notice must be exhibited on the premises. A fine for something not on that list is unlawful.
• The employee must be given an opportunity of showing cause before the fine is imposed.
• The total fine in any one wage period cannot exceed three per cent of the wages payable for that period.
• No fine may be imposed on an employee under the age of fifteen.
• A fine cannot be recovered by instalments, nor after ninety days from the day it was imposed. It is deemed imposed on the day of the act or omission, not the day someone got round to processing it, which is what makes the ninety days shorter in practice than it looks.
• Every fine and every realisation must be recorded in a register, and realisations may be applied only to purposes beneficial to the employees in the establishment, as approved by the prescribed authority. The money is not the employer's to keep.

The realistic conclusion for most employers is unchanged by the Code: at three per cent of a wage period, with prior government approval of the list, a hearing, a register and a ninety-day recovery window, fines are more trouble than they are worth, and the ordinary disciplinary process is the better instrument.

This is the change that matters most, and the one where relying on the old Act gets the answer backwards.

The 1936 Act applied to persons employed in factories and specified establishments, and only to employees whose wages fell below a notified ceiling. Above that ceiling the Act simply did not apply, which is why senior staff sat outside it while the workforce it was designed for sat inside. The ceiling was revised upwards over the years but never removed; the Code's own Statement of Objects and Reasons records that these provisions applied, immediately before the Code, only to employees drawing up to twenty-four thousand rupees a month.

The Code removes it. There is no wage ceiling anywhere in the payment and deduction chapter, and the duty runs on employee, defined to cover manual, operational, supervisory, managerial, administrative, technical and clerical work alike. An employer who still scopes these obligations by a wage ceiling is excluding staff who are now covered, and the exclusion runs in the direction of non-compliance: the senior employee whose final settlement drifts three weeks past the last working day is now within the two-day rule, where previously they were not.

Confirm the position for your establishment against the Code and the applicable state rules, since states are at different stages of notifying rules under it.

Six checks cover most of the exposure.

• Full and final settlements are paid within two working days of the last working day, not with the next convenient payroll run.
• The scope of these obligations is not still limited by the old wage ceiling. Every employee is in.
• Every recurring deduction on the payslip maps to an item on the permitted list, and the ones relying on employee authorisation actually have it in writing.
• Total deductions in any period are tested against the fifty per cent cap, and no payroll still runs a seventy-five per cent ceiling for co-operative society cases.
• Notice pay recoveries, asset recoveries and bond amounts are examined rather than assumed to be ordinary deductions.
• Wage slips show the deductions individually rather than as a single net adjustment, so an employee can see what was taken and why.

The last is worth doing even where it is not strictly required. Most disputes about deductions are disputes about visibility rather than entitlement.