A wage (or pay) is the amount of money paid periodically to an employee or worker for their service in production. The term “wages” often refers to the hourly or daily rate given to groups such as production or maintenance workers, commonly called blue-collar workers.
In simple terms, wage or compensation refers to any economic payment an employer makes to an employee for the services they provide. Though the word "wages" can refer to all forms of financial benefits, in a narrower sense, wages are seen as the price paid specifically for labor services.
Components of Wages
Wages generally include two major components:
1. Basic Wage
This is the base salary paid to the employee as per the contract of employment. It’s the fundamental payment for the work done.
2. Allowances
These are additional payments made to ensure the value of the basic wage remains sufficient over time. Some allowances are statutory (mandatory by law), while others are voluntary and offered by employers.
Common allowances include:
- Holiday pay
- Overtime pay
- Bonuses
- Social security benefits
Statutory Minimum Wage
This refers to the wage that is fixed under the procedures laid out in the Minimum Wages Act, 1948. It's the legal minimum that an employer must pay workers engaged in certain employments.
Bare or Basic Minimum Wage
This is the minimum wage determined by Industrial Tribunals, National Tribunals, and Labour Courts based on judicial rulings. Employers are legally bound to follow these.
Minimum Wage (As Defined by the Committee)
The Committee defined minimum wage as one that should cover basic sustenance needs and also help preserve a worker’s efficiency. So, it must include provisions for:
- Food and clothing
- Medical needs
- Basic education
- Other necessary amenities
However, deciding a universal minimum wage isn’t simple. Here’s why:
- Living conditions and prices vary greatly across regions.
- The standard of living is hard to define accurately.
- It’s unclear how many family members a wage should support.
- The cost of living changes with inflation, so minimum wages must be reviewed periodically.
Minimum Wages Act, 1948
This Act was introduced to protect unorganized sector workers by ensuring fair wages. It binds employers to pay at least the minimum wage as fixed under the Act.
Factors influencing wage fixation under the Act include:
- Income levels
- Employer’s capacity to pay
- Prices of essential items
- Local economic conditions
- Productivity
Living Wage
A Living Wage was proposed by the Committee as the ideal and fair wage to be achieved over time.
It is defined as a wage that allows a worker to provide:
- The essentials of life (food, clothing, shelter)
- Basic comfort
- Children’s education
- Protection from illness
- Support during misfortunes (like old age or accidents)
The Committee proposed achieving this in 3 stages:
- Stabilize a wage for the working class.
- Establish fair wages in each community/industry.
- Move toward ensuring living wages for all workers.
Fair Wage
According to the Committee on Fair Wages, a fair wage lies between the minimum wage and the living wage.
- Lower Limit: The statutory minimum wage
- Upper Limit: The capacity of the industry to pay
This upper limit isn’t just about the industry’s current economic health, but also its future potential.
The actual wage should be based on:
- (a) Productivity of the worker
- (b) Prevailing wage rates in nearby localities or industries
- (c) The country’s national income and its distribution
- (d) The economic importance of the industry in question
Need-Based Minimum Wage
In July 1957, the 15th session of the Indian Labour Conference introduced the concept of a need-based minimum wage—one that would meet the basic needs of an industrial worker.
The Conference laid down the following guidelines:
- A standard working-class family is assumed to consist of 3 consumption units (i.e., the earner plus dependents). The income of women, children, and adolescents is not considered.
- Food requirement should provide at least 2,700 calories per day, as per Dr. Akroyd’s recommendation for an average Indian adult with moderate activity.
- Clothing needs should amount to 18 yards of cloth per person annually, or 72 yards for a family of four.
- For housing, the rent standard should be the minimum rent charged by the government under the Subsidized Housing Scheme for low-income groups.
- Expenses on fuel, lighting, and miscellaneous items should make up 20% of the total minimum wage.
This framework was intended to ensure that workers could meet not just survival needs but also live with dignity and basic security.
Take a look at the detailed post on the topic -
