The government’s most recent amendment mandating that wages be paid by cheque or bank transfers is a welcome by-product of the demonetization drive.
President Pranab Mukherjee promulgated with immediate effect an ordinance amending the Payment of Wages Act, 1936 on 28 December 2016 (Ordinance). Amending an 80 year old law that required payments to be made only in cash, the Ordinance allows employers to pay wages by cheque or by electronic transfer. It provides employers with the option to pay their employees in cash, except where the worker is employed in an “industrial or other established sector”. In such cases, wages must be paid only through cheque or bank transfer.
The Payment of Wages Act, 1936 (POW Act) applies to persons earning up to Rs. 18,000 per month. Importantly, it makes specific provisions for persons employed in specified “industrial or other establishment”, that is, sectors where government regulation is required for the protection of workers, (for instance, railways, coal mines, etc.).
Shortcomings of the Ordinance
Although the Ordinance has been viewed as a welcome change, it leaves certain issues unaddressed. For example, it proceeds on the assumption that all workers have functioning bank accounts, and know how to operate them. This not necessarily being the case, workers who lack such facilities may be more inconvenienced. The Ordinance also does not contain any provision aiding the transition for workers without bank accounts to be accommodated into the new regime. Ensuring that employees have functional bank accounts and are aware of how they operate would iron out major creases in implementation.
Aside from such operational hurdles, the Ordinance is expected to increase transparency in wage payments. It could reign more salaried people in under the tax net, and ensure that workers are paid the fair wage due to them.
Manasa Venkataraman is a Research Associate at the Takshashila Institution and tweets from @nasac.