Govt empowers employers to force non-cash payments on workers

Seeking to take the country towards a less-cash society, the newly notified Ordinance has enabled the Centre and states to classify industries and establishments that will have to pay wages to workers either through cheque or by crediting that into their bank accounts. “The Ordinance to amend the Payment of Wages Act 1936 became law of land after its notification on Wednesday. It was brought to nudge employers of certain industries to make payment only through electronic mode and cheques,” a source said.

“Besides moving towards a less-cash society, the Ordinance will help avoid pay cut taken by workers getting salary in cash. Moreover, it will help the labour ministry bring these workers under the net of social security schemes run by EPFO and ESIC.”  The Union Cabinet approved the Ordinance on Wednesday last week after the Payment of Wages (Amendment) Bill 2016 could not be passed in Parliament’s Winter Session, which ended on December 16.

The Bill was introduced in the Lok Sabha on December 15, 2016, and is pending there for passage. As per practice, the government introduces Ordinance to amend laws for immediate implementation of new rules. An Ordinance is valid for six months only. The government is required to get it passed in Parliament within that period.

The Payment of Wages (Amendment) Ordinance, 2016, has amended Section 6 of the principal Act to enable employers to pay wages to employees through cheques or by crediting it to their bank accounts electronically. With the written authorisation of an employee, wages can be given through cheque or transferred to his or her bank account as per the Act. But this is not required after the Ordinance.

It has also enabled the Centre and state governments to specify industrial or other establishments for the purpose. The Section 6 of the Act as amended through Ordinance says, “All Wages shall be paid in currency coin or currency notes or by cheque or by crediting the wages into the bank account of the employees provided that the appropriate governments may, by notification in the office Gazette, specify industries or other establishment, the employers of which shall pay to every person employed in such industrial or other establishment, the wages only by cheque or by crediting the wages in his bank account.” 

The Act had come into force on April 23, 1936, providing for payment of wages in coin or currency notes, or in both. The provision for wage payment by cheque or crediting it into bank accounts after obtaining requisite authorisation of employee was inserted in 1975.

At present, the Act covers all those employees in certain categories of establishments whose wage does not exceed Rs 18,000 per month. The Centre can make rules regarding payment of wages in relation to the Railways, air transport services, mines, oil fields and its establishments while states take a call on all other cases. 

By making state-level amendments to the Act, Andhra Pradesh, Uttarakhand, Punjab, Kerala and Haryana have already made provisions for payment of wages through cheque and electronic transfer.

Meanwhile, the auto sector is likely to witness decline in December wholesale figure with the rural retail market suffering a double-digit fall as compared to its urban counterpart due to liquidity crunch post demonetisation, says a Nomura report. According to the Japanese brokerage firm, normalised availability of cash may happen by February-March 2017, post which growth is expected to pick up.

“We expect December wholesales to be impacted by a sharp decline in retail sales due to demonetisation,” Nomura said in a research note, adding that Original Equipment Manufacturers (OEMs) might go for inventory de-stocking to clear off 2016 model year inventory. The report further noted that “rural retails are impacted more (double-digit decline) compared to the urban segment, due to the liquidity crunch”.

The outlook for the auto sector, however, looks bullish post the normalisation of cash crunch. “Normalised availability of cash may happen by February- March 2017, post which we expect growth to pick up,” Nomura said adding “we expect a strong double-digit growth by second half of financial year 2017-18, off the low base.” 

Segment-wise, the medium and heavy commercial vehicle (MHCV) segment is likely to be impacted most. Nomura expects around 30 per cent year-on-year drop in industry volumes. “This poses a risk to street estimates of pre-buying ahead of emission norm changes in April-2017, if uncertainty prevails,” Nomura said.

Meanwhile, the passenger vehicle industry is likely to decline about 11 per cent year-on-year. “Annual maintenance shutdown at Maruti Suzuki, and a limited wholesale push to clear off older inventory should keep volumes muted,” it said. The report also said the two-wheeler industry growth is also likely to decline about 12 per cent. “This should be driven largely by Hero Motocorp, which is likely to see sharp around 30 per cent decline due to poor offtake in rural segment.” 

Demonetisation is also likely to affect the realty space with a 10-30 per cent drop in sales volumes over the next 12 months, even as no major price correction is expected in the metros, says a report. According to Kotak Institutional Equities, trying times are expected to continue. “While in the long run all can go well, it’s the near to medium-term cash flows that will make developers grow/survive”.