In this part of Code on Wages, we shall discuss about the exclusive list of deduction which are allowed from the wages. To read Part 1 of Code on wages CLICK HERE: Code on Wages, 2019 | Part 1 – Basics, Minimum Wages and payment deadlines – Taxontips
1. No deductions from wages of the employee, except those authorized under the code. (Only specific deductions are allowed under the code against the wages paid to employees at specific wage period. As discussed in part 1, wage period can be daily, weekly, fortnightly or monthly).
2. Any payment made by the employee to employer or its agent shall be deemed to be deduction from his wages. (The word ‘agent’ has not been specifically defined in the Code.)
3. Any loss of wages due to good and sufficient cause resulting from withholding of increment, reduction to lower post or suspension shall not be deemed to be deduction. (Here the expression ‘good and sufficient cause’ is not specifically defined under the Code)
4. Allowable deductions from the wages of the employee as per code (here the word ‘wages’ is used. It was expressed in part 1 the importance of the term wages as it is forming a base for other calculations in the Code as well):
5. Fines imposed on employee (Defined under section 19 of the Code, detailed below in point 8)
6. Deductions from his absence from duty (Defined under section 20 of the Code, detailed below in point 9)
7. Deductions for damage of goods expressly entrusted to employees or for loss of money for which he is required to account (Defined under section 21 of the Code, detailed below in point 10)
8. Deductions for house accommodations supplied to employee.
9. Any services and amenities (not tools and raw material) as appropriate government may specify by general or special order.
10. Deductions for recovery of: advances and interest thereon of any nature, loans and interest thereon from any fund constituted for welfare of labor.
11. Deductions for recovery of loans and interest thereon for house building or other purpose as specified by the appropriate government.
12. Deductions of income tax or any other statutory levy levied by state or central government.
13. Deductions for subscription to social security fund or any other fund constituted by law including PF, pension fund, health insurance scheme or fund known by any other name.
14. Deductions made with the written authorization of the employee for payment of fees for membership of any trade union registered under Trade Unions Act, 1926.
15. Deductions for recovery of loss by the railway administration on account of acceptance of counterfeit or base coins or mutilated or forged currency notes by employees.
16. Recovery of loss to railway administration on failure of employee to invoice or to collect appropriate charges due to railway administration.
17. Recovery of losses by railway administration due to rebates or refunds incorrectly granted by employee
18. Deductions with written authorization of employees for contribution to Prime Minister’s national relief fund.
19. Total deductions under any wage period shall not exceed 50% of such wages. (As discussed in the first post, the definition of wages would be very crucial. As it can be understood here, it is clearly written, the deductions cannot exceed 50% of wages and not that of remuneration paid to the employee during such period).
20. If total deductions exceed 50%, the excess can be recovered in the manner specified by the authorized government. (The remaining amount can be recovered in subsequent wage period such that in no wage period the deduction shall exceed 50% of the wages of that wage period)
21. If any deduction is made by employer under section 18(2), but not deposited in the account of trust or government fund or any other account as specified, such employee shall not be held responsible for such default. (The time for deposit of such amounts shall be derived from the respective Acts)
Fines: Before imposing any fine on the employee, employer to make sure that a notice specifying such acts and omissions, that will result in a fine being imposed, must be exhibited on the premises. It shall be displayed at the conspicuous place, so that every employee would be able to easily read the contents of the notice.
Employees to be given opportunity of showing cause before imposing any fine(s) (As it can be understood, everything starting from imposing fine to showing cause should be well documented and stored for retrieval whenever required)
Total fine imposed in one wage period cannot be more than 3% of the wages payable to him in respect of the wage period. (Here again the definition of wages is crucial as discussed in Part 1)
No fine on any employee under 15 years of age.
No fine shall be recovered from employees in instalments or after 90 days from which such fine was imposed (This states the maximum amount that can be recovered shall be split maximum into 3 months. If however, the fine exceeds such amount, it is not clear as to how such amount has to be deducted)
Fine shall be deemed to be imposed on day of act or omission.
All fines and realisations to be recorded in register and such realisations to be applied only to such purposes beneficial to the persons employed in the establishment. (Proper documents to be maintained and also use of Fine realisation is for the benefit of employees only and no other purpose)
Deductions for absence from duty: Deduction to be made only if employee is absent from the place or places where by terms of his employment, he is required to work, being for whole or part of the period during which he is so required to work.
In no case the proportion of deduction to wages payable can exceed the proportion of absence to total period he was required to work as per the terms of employment. (This defines the maximum deduction related to employee absence and it is purely logical)
If 10 or more employees acting in concert absent themselves without due notice (As specified by their contracts of employment) and without reasonable cause, the deductions can be upto 8 days of wages, be due to employer in lieu of due notice. Also, the employer needs to inform the same to Inspector-cum-facilitator having jurisdiction within 10 days from such deduction. (The process of informing the Inspector is important and in case the employer has wrongly deducted any amount then the inspector can fine the employer as well)
For the purposes of section 20, employee shall be deemed to be absent, even if he is present at work place but he refuses to work, in pursuance of any stay-in strike or any other cause which is not reasonable in the circumstances to carry on his work. (Refusal to work without and sufficient cause is equal to absence from work as per the Code, doesn’t matter whether the employee is physically present at the location of his place of work as per the employment terms)
Deductions for Damage or Loss: Deduction for damage or loss shall not exceed the amount of damage or loss caused to the employer by negligence or default of the employee.
No deduction shall be made until the employee has been given opportunity of showing cause against the deduction. (The process needs to be completely documented)
Employer shall explain to employee personally and in writing the damage or loss caused and also how the employee is directly attributable to such damage or loss due to his neglect or default.
All such deductions and realisations to be recorded in register. (All records need to be maintained in a separate register)
To read Part 1 of Code on wages CLICK HERE: Code on Wages, 2019 | Part 1 – Basics, Minimum Wages and payment deadlines – Taxontips
To read the full Code CLICK HERE: 2589GI.p65 (egazette.nic.in)
CA Sourabh Kothari (C.A., B.Com)
He is currently working as Partner – Risk and Transaction advisory with a renowned firm in Jaipur having experience in Internal Audit, IFC Audit, Business consultancy, Due Diligence and Management consultancy.
E-mail: Sourabh.email@example.com | LinkedIn: Sourabh Kothari