Are Daily Wage Workers Covered by Gratuity and Wage Laws? Can We Pay Them in Cash?

Dear Seniors, I wanted to ask about daily wage workers—are gratuity, the Shop and Establishment Act, and the Minimum Wages Act applicable to daily wage workers? Can we pay their salary in cash? Thank you.

Shop and Establishment - Yes

Gratuity - No

Minimum Wages - Yes

Cash - Maybe

Thank you for using the corrected text.

Thank you. Also, could you please confirm if there is any specific category for daily wage employees in terms of skills, such as skilled or semi-skilled?

Understanding Wage Compliance

Daily wages, weekly wages, and monthly wages have nothing to do with statutory compliance. Skill differentiation is the organization's need (already mentioned in the new wage rule).

Applicable Laws for Different Workplaces

If the employees are engaged in a factory, the Factories Act applies, and in the case of Safety and Environment (S&E), it will be the S&E Act. The Minimum Wages Act, PF, ESIC, Bonus, Gratuity, etc., will also be applicable irrespective of working at a factory or establishment.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions

Dear colleague,

To provide the right answer to your query, some basic particulars are required:

1. Is your establishment a factory or a commercial establishment?
2. What is the business of the establishment?
3. What is the employee strength category-wise, including workers, supervisors, managers, etc.?
4. In which state are you located?

Whether the wages are daily-rated, monthly-rated, or paid has nothing to do with the applicability of most of the laws you mentioned. The Minimum Wages Act applies to the scheduled employments given in the Act. However, others are applicable depending on the number of 'workmen' in the organization drawing a certain prescribed wage limit.

Furthermore, the applicability of some of these laws will significantly change from 1st April '21 due to the new amended laws. Therefore, the applicability of several laws must be carefully examined before providing any definitive responses.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

Dear Archi,

The mode of payment of wages is not the sole criterion for determining one's employment status, such as permanent, temporary, casual, and the like. One can be temporarily employed in a permanent job. Therefore, it is the nature of the job and the continuity of a person's service in the organization that are decisive in the matter.

The status of employment and the mode of payment have no relevance to the application of any establishment-specific labor law, such as the Shops and Establishments Act, if the person is wholly and principally employed in the services of the establishment.

The application of the PG Act to such daily wagers depends on the applicability of the Act to the establishment and the completion of the minimum qualifying service in the establishment.

If the employment is scheduled, statutory minimum wages are automatically to be paid to daily wagers as well.

Disbursement of wages by cash is not prohibited.

Archi,

First, get one thing clear.

What is a daily rated worker?

The term actually refers to someone who is paid wages on a per-day rate, meaning they get paid for the days worked. This term would be correct if you had casual/temp workers who were actually paid on that basis. It does not make any sense for a proper shop, even for those who are not confirmed/permanent workers.

If they are working for the entire month, they are entitled to wages for a weekly off (they are entitled to it even if they work for 6 days of a month). They are also entitled to paid holidays and EL/PL based on your state laws (mostly applicable once they have worked for 3 months).

If they have worked for even a day, the Shop & Establishment Act applies. If they have worked for 5 years (240 days a year, not service breaks), the Gratuity Act will apply. The Minimum Wages Act applies, ESIC applies, PF applies. Overtime wages for work beyond 9 hours a day also apply. Payment of statutory bonus also applies.

In most states, wages can no longer be paid in cash. They have to be paid by bank transfers or crossed account payee cheques (See the amendment to sec 6 of the Payment of Wages Act made 3 years ago). Paying by bank transfers also protects you as there is proof of what you paid, and allegations that you underpaid do not hold ground. If you paid in cash, the court tends to believe the worker when they claim you did not pay full wages or made arbitrary deductions, etc.

The daily wage workers are also eligible for gratuity upon completion of 5 years of continuous service in an establishment registered under the Shops & Establishment Act.