India: Government Proposes to Make All Wage Payments Cashless

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By Madhur Singh

Dec. 19— India may soon require all wages to be paid through bank transfers or checks to support the government's ongoing efforts to encourage cashless transactions as a means of getting control over the “informal” economy, which runs on a cash basis to avoid taxes and minimum wage requirements.

The federal Ministry of Labour and Employment introduced a bill Dec. 15 to amend the Payment of Wages Act of 1936 to empower the government to make it mandatory for specific businesses to pay wages by check or through bank transfers into workers' accounts.

Broad Impact

A Dec. 2 communique seeking stakeholder comments on the proposed amendment noted the government's recent “policy decisions encouraging cashless/electronic transactions” and said cash payment of wages has led to “ineffective enforcement” and fails to utilize technological advances to meet the policy goal of reducing “complaints regarding non-payment or less payment of minimum wages.”

Labor law practitioners and consultants told Bloomberg BNA that businesses across the board could be affected, as nearly all businesses employ at least some workers—such as daily-wage sweepers—who are presently paid in cash.

Kris Lakshmikanth, chairman and managing director of Head Hunters India, told Bloomberg BNA on the phone Dec. 14 that at present businesses either pay such workers in cash themselves or pay contractors by check or bank transfers, and the contractors then pay the workers in cash. The government's proposal could easily halve the cash component of wage payment within six months, he added.

Lakshmikanth said large corporations are already well positioned to make the move to cashless payments and may be well advised to help workers establish bank accounts.

Curbing ‘Black Money'

By barring cash wage payments, the government also aims to curb generation of “black money”—salary and other payments on which taxes are not paid—since payments made through banks will bring in much-needed transparency in business income and expenditure and make tax dodging more difficult.

Nishit Maru of Mumbai-based Maru Consultancy Services told Bloomberg BNA in an e-mail Dec. 15 that there will certainly be much resistance to the proposal from the unorganized sector—estimated to employ over 80 percent of India's work force—which relies on cash transactions because many workers do not have bank accounts.

To contact the reporter on this story: Madhur Singh in Chandigarh at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

For More Information

For more information on Indian HR law and regulation, see the India primer.

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