Late coming deduction under the Code on Wages: pay for time lost, or a fine?

Ask ten HR managers how they handle latecomers and you will hear "three lates make a half day" from at least six of them. It is a familiar rule, it is easy to explain, and under the Code on Wages it is often unlawful. A late coming deduction is allowed in exactly two forms: pay for the time actually lost, or a fine imposed with a set procedure. Anything in between is a deduction the Code does not permit.

Deductions are a closed list

Section 18 of the Code on Wages, 2019 says wages can be reduced only by the deductions the Code lists. Two of them are relevant to late arrival:

• Section 20: deductions for absence from duty.
• Section 19: fines.

There is no third category for "late marks". So every late penalty has to fit one of these two.

Deduction for absence from duty: the default

A deduction for absence from duty under section 20 is allowed only on account of absence for the whole or any part of the period the employee was required to work. And it can never be larger in proportion than the time absent bears to the time required.

In plain terms: you can stop paying for the minutes the person was not there, and no more.

Two consequences follow:

1. A deduction worked out minute by minute, or in sensible blocks that do not exceed the time lost, is fine.
2. A half-day deduction is fine if the employee really lost half a day. That happens, for example, where the standing orders say a worker who arrives after the grace period is not allowed in until the second half, and the gate actually closes. The worker is then absent for half a day.

Fines under Code on Wages: the procedure

Fines under Code on Wages sit in section 19, and the procedure is strict:

• Fines can be imposed only for acts and omissions the employer has specified in a notice, with the prior approval of the appropriate government or the prescribed authority.
• The notice must be displayed. Under rule 15 of the Wages (Central) Rules, 2026, it goes up in Hindi, English and the local language, physically or electronically, and a copy goes to the Inspector-cum-Facilitator.
• The employee must be given a chance to show cause. Rule 16 gives 7 days, by written or electronic intimation, and the fine is communicated within 15 days.
• The total fine in a wage period cannot be more than 3% of the wages payable for that period.
• No fine on a person under 15, no recovery by instalments, and no recovery after 90 days from the act.
• Every fine is recorded in the register (Form IV, column 24, under the Central Rules).
• The money may be used only for purposes beneficial to the employees, as approved by the prescribed authority (section 19(8)).

That last point surprises many finance teams. A fine is not the company's income. Book it to a fines fund liability and spend it on, say, a canteen improvement or a workers' welfare event, with the approval on file.

The 3 lates half day rule, tested

Take Anita, a packer at a textile unit in Coimbatore. Her monthly wage is ₹15,600, for 26 working days of 8 hours. That is ₹600 a day, ₹75 an hour, or ₹1.25 a minute.

In October she is late four times: 20, 15, 35 and 10 minutes, 80 minutes in all.

The 3 lates half day rule charges Anita ₹300 for 45 minutes of lateness across three days. Unless the company has an approved notice listing late arrival as an act liable to fine, has given her seven days to explain, and records the ₹200 excess as a fine within the 3% cap, that excess is an unlawful deduction.

Habitual late attendance is a conduct matter

The Model Standing Orders, 2026 under the Industrial Relations Code treat habitual late attendance as a matter for the standing orders and link any deduction to the Code on Wages. That gives employers a cleaner tool than a payroll formula: warnings, then disciplinary action for habitual lateness, with the pay deduction limited to time lost.

A practical policy usually has three layers:

1. A grace period of five to fifteen minutes, written into the attendance policy.
2. Pay for time lost beyond the grace period, worked out by the minute or in blocks that never exceed the time lost.
3. Warnings and disciplinary action for repeated lateness under the standing orders, with a fine only if the company has gone through the section 19 approval and runs the show-cause step every time.

Keep late marks separate from short leave and permission hours, or the two will double-count. We set out how in the short leave policy post. In plants with rotating shifts, the late mark should be counted against the shift the person actually worked, as explained in shift detection for rotating shifts.

Where the late coming deduction shows in the registers

Under the Central Rules, the register of wages (Form IV) has a column for "recovery of fine". Only fines imposed with the section 19 procedure go there, with the act and date recorded. A deduction for time lost is not a fine; it shows as lower wages earned or fewer days worked. Printing every late deduction as a fine, as some older systems do, tells an inspector that you have fined workers without the procedure. More on the registers in the Labour Code registers post.

A policy check before next payroll

1. Is your late rule written down, with a grace period, and known to workers?
2. Does the deduction ever exceed the time lost? If yes, either cut it back or run it as a fine.
3. If you fine, do you have the approved notice, displayed in three languages, with a copy to the inspector?
4. Is the show-cause step built into the process, with seven days?
5. Do fines stay within 3% of the period's wages and go to a fines fund?
6. Does your wage register show fines and time-lost deductions in different places?

Vatsin Attendance records the minutes late on each day, and payroll then treats the late deduction as pay for the time lost by default, capped at the minutes actually missed. A company with an approved fine notice can switch to the fine method, which records the notice reference and the show-cause period and applies the 3% limit.