India Proposes to Make Wage Payments Cashless

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By Madhur Singh

India may soon require that wages be paid through bank transfers or by checks, a plan that was in line with ongoing government efforts to encourage cashless transactions after high-denomination notes were scrapped Nov. 8.

A bill to amend the Payment of Wages Act of 1936 would require that specific businesses pay wages by check or through bank transfers to workers’ bank accounts was introducted Dec. 15 by the federal Ministry of Labor and Employment.

A Dec. 2 ministry communique seeking comments on the proposal said the cash payment of wages led to “ineffective enforcement” and failed to use technological advances to reduce “complaints regarding non-payment or less payment of minimum wages.”

The deadline for comments is Dec. 16, after which the federal cabinet of ministers plans to finalize the proposal and present it in parliament for approval. The cabinet has circulated a note seeking input on the measure from federal ministries and state governments.

Parliament is expected to end its session Dec. 16 without passage of the bill, leaving enactment of the measure unclear.

Labor law practitioners and consultants told Bloomberg BNA that many businesses could be affected because employers pay at least some workers with cash.

Workers may be paid directly in cash by employers or contractors, said Kris Lakshmikanth, chairman and managing director at recruiting company Head Hunters India. If the proposal is finalized by the government, it could easily halve the cash component of wage payments within six months, he told Bloomberg BNA on Dec. 14.

Large companies are well-positioned to make the move to cashless payments, and could help workers obtain bank accounts, Lakshmikanth said. Cash transactions may be questioned in tax audits after the ongoing demonetization of high-value currency notes and the government’s push toward cashless transactions, he said.

Nishit Maru, of Maru Consultancy Services in Mumbai, told Bloomberg BNA in an e-mail Dec. 15 that resistance to the proposal likely would be from the employment sector without labor agreements, which employs about 80 percent of India’s workers and relies on cash transactions because many workers do not have bank accounts, Maru said.

Although a program to open savings accounts was launched by India’s National Mission for Financial Inclusion, political opposition against the ongoing demonetization has been strong.

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

To contact the editor on this story: Michael Trimarchi at mtrimarchi@bna.com

For More Information

The amendment can be found at http://www.labour.nic.in/sites/default/files/paymentofwages_amendment.pdf.

More information on payroll issues in India can be found in the India country primer.

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