How wages are determined in India? Is it through collective bargaining (union and firms) or by the employer or by bargaining between employer and individual employee or take-it -or-leave -it- basis or through any other mechanism?

Framework for wage calculation

Organized Sector:-

The `day’, `week’ and `month’ are the basic units for wages calculation. Used in combination.

Normal working week is five days (for government) five half days/ six days.

`Hour’ is generally not a unit for wage calculation. (In newer sectors like IT, ITES hour is becoming a standard).

Wage payment is made monthly.

Unorganized sector:

`Day’ is the common unit of calculation. In certain cases piece rate wages as well as hourly wages.

Methods of Wage Determination in India

Committee on Fair Wages 1946

Minimum Wage: – bare subsistence of worker, enough for health, efficiency and working capability

Fair wage: Above minimum wage

Living wage: male worker not to provide for himself, but for family – not just bare necessities but frugal comfort, education for children, social security etc.

Need based minimum wage

Institutions involved in wage determination

Wages Legislation. (covers organized/unorganized)

Wage Boards (covering select private and public sectors).

Pay Commission (for government/Public Sector).

Collective Bargaining (for covered workers).

Government Directives/Special commissions

Salary Surveys/Compensation Consultants – for private sector, non-officer cadre.

Wages Legislation

Minimum Wages Act 1948

Payment of Wages Act 1936: Introduced to ensure that wages are not withheld, no wrongful deductions made and payment is made in such manner that wage earner will benefit. (Objective was to reduce effects of payment in kind for work done). Agriculture sector not covered.

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Equal Remuneration Act 1976: Payment of equal wages for men and women workers for same work or work of same nature. However, discrimination exists in terms of definition as: difficult work (men) and easy work (work) in same workplace

Companies Act 1952.

Other (s):

Payment of Bonus Act:

8.33% minimum bonus and 20% maximum, even for loss making organizations.

Workers earning up to Rs 3500 per month alone eligible.

Calculation of Minimum Wages

15th Indian Labor Conference:

Standard working family of 1 man (earning) + 1 woman (wife) + 2 children.

2700 calories for adult 80% for wife and 60% for child (daily)

72 yards of cloth per annum.

Government rental cost for housing

20% of above for fuel, lighting, miscellaneous.

This formed the basis for calculation.

Minimum Wages: present situation

Idea of National Minimum wages not accepted.

Hence minimum wages determined by center/state government for different occupations. Now total 200 occupations covered.

For same occupation, minimum wages vary from state to state.

Declared on per day basis for 8 hour work

Wage Indexation

The system of DA (Dearness Allowance) to take care of effects of inflation. (Cost of living).

Indexation can be fixed or variable (indexation value decreases as income rises).

Consumer Price Index used as the basis.

Clearly followed in organized sector.

On some states minimum wages revised periodically, so no requirement for indexation.

Un-organized Sector

Inherited worker.

Contract worker.

Casual worker.

Beck and call worker.

Free labor/Help.

Bonded/Child (illegal)

Organized Sector

Permanent worker.

Contract Worker.

Badali Worker (substitute)

Casual Worker (daily wages).

Apprentice/Trainee.Types of employment contracts

The central govt. convened in 1947, and a tripartite conference consisting of representatives of employers, labor and government. Govt. of India formulated industrial policy resolution in 1948 where the govt. has mentioned to items which has bearing on wages

Statutory fixation of minimum wages

Promotion of fair wages.

To achieve 1st objective, the minimum wages act, 1948 was passed to lay down certain norms and procedures for determination and fixation of wages by central and state govt. To achieve 2nd objective govt. of India appointed in 1949, a tripartite committee on fair wages to determine the principles on which fair wages should be fixed Wages and salary incomes in India are fixed through several institutions. These are

Collective bargaining

Industrial wage bound

Govt. appointed pay commissions


•Collective bargaining relates to those arrangements under which wages and conditions of employments are generally decided by agreements negotiated between the parties.

•Broadly speaking the following factors affect the wage determination by collective bargaining process

Alternate choices & demands

Institutional necessities

The right and capacity to strike

In a modern democratic society wages are determined by collective bargaining in contrast to individual bargaining by working.

In the matter of wage bargaining, unions are primarily concerned with

General level of wage rates

Structure of wages rates (differential among occupations)

Bonus, incentives and fringe benefits, Administration of wages

Executive salaries have been shooting through the roof , particularly in sunrise sectors like IT, Bio – Tech


Concept of wage board was first enunciated by committee on fair wages.

It was commended by first five year plan and second five year plan also considered wage board as an acceptable machinery for setting wage disputes.

•Wage boards in India are of two types

Statutory wage board

Tripartite wage board

Statutory wage board means a body set up by law or with legal authority to establish minimum wages and other standards of employment which are then legally enforceable in particular trade or industry to which board’s decision relate.

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Tripartite wage board means a voluntary negotiating body set up by discussions between organized employers, workers and govt. to regulate wages, working hours and related conditions of employment. Tripartite Wage Boards consists of equal representatives of employers and workers and an independent Chairman.

Wage board decisions are not final and are subjected to either executive or judicious review or reconsideration by other authority or tribunals.

The powers and procedure of wage boards are same as those industrial

Determined the wages and other remuneration to be given to the workers in industries, where wage boards are formed.

Wage bargaining mostly took place at the industry level, and through Government controlled wage boards.

First Wage Board (Divatia Wage Board) was constituted in May, 1956


First pay commission was appointed by govt. of India in 1946 under chairmanship of justice vardachariar to enquire in to conditions of service of central govt. employees.

The vardachariar commission in its report said that in no case should a man’s pay less than living wage

The 2nd pay commission was appointed in Aug. 1957. and commission submits its report in 1959, examined the norms for fixing a need based minimum wage set up 15th session of ILC.

Govt. of India appointed third pay commissions in 1970’s which submit its report in April 1973. In this report commission express its support for a system in which pay adjustments will occurs automatically upon an upward movement in consumer price index.

After thirteen years, govt, appointed fourth central pay commissions under chairmanship of justice P.N.Singhal on July 26, 1983 to examine structure of all central govt. employees, including those of union territories. Officers belong to all India service and armed forces. Commission submits its report on July 30, 1986 and recommended drastic changes in pay scale.

The 5th pay commission (1952-1996) made certain recommendation regarding restricting of pay scales.

The 6th pay commissions was established on 2006 and committee submit its report on March 2008.

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