How Should We Address Auditor's Concerns About Contractor Wage Payments Timing?

Dear Sirs, we had a discussion with auditors about the wage period according to the Payment of Wages Act 1936 as follows:

Responsibility for payment of wages

(1) Every employer shall be responsible for the payment of all wages required to be paid under this Act to persons employed by him, and in the case of persons employed:
(a) In factories, if a person has been named as the manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948);
(b) In industrial or other establishments, if there is a person responsible to the employer for the supervision and control of the industrial or other establishment;
(c) Upon railways (other than in factories), if the employer is the railway administration and the railway administration has nominated a person in this behalf for the local area concerned;
(d) In the case of a contractor, a person designated by such contractor who is directly under his charge; and
(e) In any other case, a person designated by the employer as a person responsible for complying with the provisions of the Act; the person so named, the person responsible to the employer, the person so nominated or the person so designated, as the case may be, shall be responsible for such payment.

(2) Notwithstanding anything contained in sub-section (1), it shall be the responsibility of the employer to make payment of all wages required to be made under this Act in case the contractor or the person designated by the employer fails to make such payment.

Fixation of wage-periods

(1) Every person responsible for the payment of wages under section 3 shall fix periods (in this Act referred to as wage-period) in respect of which such wages shall be payable.
(2) No wage-period shall exceed one month.

Time of payment of wages

(1) The wages of every person employed upon or in:
(a) Any railway, factory, or industrial or other establishment upon or in which less than one thousand persons are employed, shall be paid before the expiry of the seventh day,
(b) Any other railway, factory, or industrial or other establishment, shall be paid before the expiry of the tenth day, after the last day of the wage-period in respect of which the wages are payable:
[Provided that in the case of persons employed on a dock, wharf, or jetty or in a mine, the balance of wages found due on completion of the final tonnage account of the ship or wagons loaded or unloaded, as the case may be, shall be paid before the expiry of the seventh day from the day of such completion.]

Practices in concern of Contract Labour to meet Statutory

The contractors are closing the attendance of their labour from the 21st of every month. The contractor has to submit their bills on the 23rd of every month to the principal employer. Upon verification of bills, the payment will be made on the 1st of every month to the contractor. The contractor will make payment to labour on or before the 5th of every month.

Comments from the auditor state that the contractor has to pay before the 28th of the month because the 21st to 20th bill period is treated as the wage period by them. My argument is that for administrative and statutory concerns, we have fixed the attendance period or bill period as the 21st to the 20th of every month. Officially, or as per the Payment of Wages Act, our wage period/payment will be on or before the 7th of every month.

Dear Uma Sir and other eminent members are requested to guide me on how to reply to him in a statutory manner. If it is a violation, kindly guide me to update it.

Dear Venkat, The contention of your auditor is correct beyond any doubt. As per the contract of employment, wages normally become payable by the employer only after the services are rendered by the employee. The term "wage period" actually refers to the periodicity in which wages are normally paid as agreed in the contract of employment. According to the Payment of Wages Act, 1936, no wage period shall exceed one month. A month is considered to comprise 30 days on average due to the differences in the number of days in the months on every calendar.

The ultimate "day" mentioned for payment under Section 5 of the Act should, therefore, be reckoned from the last day of the wage period, i.e., from the consecutive 30th day of the month whether "the month" is in sync with the calendar month or just a block of 30 consecutive days the employee is at the disposal of the employer. The days in between the 30th day and the actual day of the payment automatically constitute "the grace period," facilitating the preparation of wage bills. Therefore, the time taken for administrative purposes by both the contractor and the Principal Employer should not exceed the grace period by presuming the 7th or 10th day of the succeeding month as the ultimate date of disbursement of wages under the Payment of Wages Act, 1936.