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July 21, 2020

Wage determination


July 21, 2020

The system of workers’ wage fixing had commenced with the advent of the industrial revolution in Europe and the United States from around 1760 to 1840.

This was a period of transition to new manufacturing processes, which enhanced both the quantity and quality of finished products. At the same time, they increased the workload of workers contributing towards improvement in productivity.

The mode and manner of the payment of wage and its quantum were determined by negotiations between the individual worker and his employer. The other terms and conditions of employment, including the number of daily working hours, were also agreed upon in the same way. The workers would not accept employment if they found that the manner of wage-payment and its quantum were unsatisfactory.

However, due to the economic distress of workers, they could not assert their position before the employers, who were much stronger financially. Under these circumstances, the state could not remain a silent spectator, and had to intervene with legislation. The mode and manner of wage payment were regularized by the state, which also laid down minimum rates of wages in certain occupations and industries.

Despite the negotiation between the employer and worker, the process of wage determination was unilateral, favouring the employer, which would entail the following disadvantages in wage payment for the worker: one: payment in kind, especially in the agricultural economies. Two, when paid in cash, payment in illegal tender.

Three, arbitrary deductions: these deductions primarily related to fines for breach of discipline, compensation to the master for spoiled work or damage done to materials, and charges for materials, tools, services, etc supplied by the employer. On many occasions, arbitrariness was exercised both in the frequency and amount of wage deductions. As a result of these deductions, the quantum of wages received by the worker, was much less than what he actually earned on the basis of wage rates decided upon at the time of employment. And, four,Irregular payment and non-payment altogether.

With a view to removing the above malpractices, legislative proposals were formulated in 1928, which were subsequently placed before the Royal Commission on Labour in 1929, for reconsideration. The Royal Commission, after examining the connected problems, made several recommendations, on the basis of which the Payment of Wages Act, 1936, the first legislation of its kind in the Subcontinent, was enacted. The Act, with few subsequent amendments, is still in force in Pakistan.

It is interesting to note that the then British government appointed a commission at the highest level to resolve one of the issues confronting labour in the Subcontinent. The reforms in law brought in on the recommendations of the commission 90 years ago are still relevant to the local industry. Drastic changes and improvements in the form and structure of all the labour laws in Pakistan and bringing about an effective mode of their implementation are needed. However, neither did anyone in the successive governments appear to be concerned about the issues confronted by the stakeholders nor has there been any will to resolve.

As early as 1896, the State of Victoria (Australia) adopted a legislation to protect workers employed in certain marginalized trades. Great Britain followed suit by enacting the Trade Boards Act in 1909. In the US also, a number of states adopted legislative measures after 1912 for the fixation of minimum rates of wages, particularly for women and minors employed in various occupations and trades.

A similar protective legislation – the Minimum Wages Ordinance – was adopted in Pakistan in 1961. This was followed by the West Pakistan Minimum Wages for Unskilled Workers Ordinance, 1969.

Another objective of laws regulating the quantum of wages is to fix just and fair wages, taking into account the circumstances prevailing in the industries concerned and the economy as a whole.

Occasionally, the state has also regulated wages for maintaining the purchasing power of wage-earners. Over the last decade, the federal and provincial governments in Pakistan have been enhancing the minimum wage of unskilled workers almost every year. While announcing the budget for the current fiscal year, the federal government has not increased the existing minimum wage of Rs17,500, applicable all over Pakistan. The government may have the eroding paying capacity of entrepreneurs in view, due to the pandemic of Covid-19.

The government is facing severe criticism on this account from the opposition parties and the labour federations. However, the fact remains that it is not necessary to keep increasing the minimum wage every year but that its implementation must be ensured. The majority of the employers, especially third-party contractors, are paying much less than Rs17,500 pm to their workers.

At the federal level in the US, the minimum wage has not been raised in a decade. Nevertheless, the employers there are committed to paying all their employees a living wage. In Pakistan, the living wage is usually quoted as Rs30,000 pm. However, it will be worth applauding if every employer here undertakes to pay his/her workers not less than the minimum wage.

It is pertinent to mention here that the system of fixing salary for the higher levels of management hierarchy is quite technical and requires in-depth knowledge and skill to arrive at the desired amount.

The writer is an industrial relations professional and teaches labour

welfare laws at IBA.

Email: [email protected]