Deductions from Wages

Section 7 of the Payment of Wages Act, 1936, outlines the deductions from wages permitted under the Act. An employer cannot make deductions of any kind except those specified under the Act. In this article, we will take a look at these rules pertaining to deductions from wages.

Section 7 – Deductions from Wages

Notwithstanding the provisions of the Railways Act, 1989 (24 of 1989), an employer must pay the wages of an employed person without deductions of any kind except those specified under the Payment of Wages Act, 1936. A deduction can be made only in the following manner.

1. Fines (explained in Section 8)

2. Absence from duty (explained in Section 9)

3. Damage to or loss of goods expressly entrusted in the employed person (explained in Section 10)

4. House-accommodation or other amenities or services that the employer provides (explained in Section 11).

It is important to note that the term ‘services‘ does not imply the supply of tools and also the raw materials required for fulfilling the job.

5. Recovery of Advances (explained in Section 12)

1. The recovery of loans made from any fund constituted for labor welfare
2. Also, the recovery of loans granted for house-building or other purposes

Additionally,

• The income tax that the employed person is liable to pay
• Any deduction under the order of the court or any other competent authority
• Provident fund – subscription and also the repayment of advances
• Payments that the employee makes to cooperative societies
• Payment of premium of the life insurance policy to the Life Insurance Corporation of India, of the employed person. Further, this requires written authorization from the person employed.
• Payment of the contribution of the employed person towards any fund that the employer or the trade union constitutes. This also requires written authorization from the person employed.
• Payment of the fees for the membership of any trade union registered under the Trade Union Act, 1926. Also, this requires written authorization from the person employed as well.
• The payment of insurance premium on Fidelity Guarantee Bonds
• Recovery of losses which the railway administration sustains on account of the employed person accepting counterfeit coins or mutilated or forged currency notes.
• If the railway administration sustains losses due to the employed person failing to invoice or bill or collect or account for the appropriate charges, then the losses are recovered as deductions.
• Recovery of losses which the railway administration sustains on account of the employed person incorrectly granting any rebates or refunds
• A contribution that the employed person makes to the Prime Minister’s National Relief Fund or any similar Fund which is notified in the Official Gazette. Further, this needs written authorization from the person employed.
• A contribution to an insurance scheme that the Central Government may make for its employees

Limit on Deductions

As per Section 7(3) of the Payment of Wages Act, 1936, the total amount of deductions cannot exceed:

1. 75 percent of the wages when the deductions are wholly or partly for payments to cooperative societies.
2. 50 percent of the wages in every other case

Solved Question

Q1. What is the limit on deductions from wages?

Answer: Section 7(3) details the limit on deductions from wages. Further, these limits are:

1. 75% – when the deductions are wholly or partly for payments to cooperative societies
2. 50% – in all other cases