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It is not mandatory that your salary should have a component like Dearness allowance. In Airfreight Ltd Vs State of Karnataka, the decision was that if the sum of the salary paid to employees is more than or equal to the basic + DA of the state government notified wages, the establishment is said to comply with minimum wages requirements and there is no need to pay DA. Therefore, if your state's minimum wages is Rs 7500 and you have a basic salary of Rs 3750 and the rest is paid as HRA or other component, you can do so provided this other component is available to the employee while on duty or leave and is not linked to any output or performance.

Keeping Basic wages on a low level would certainly reduce your (employer's) liability towards various contributions and payments like PF, Bonus, Leave encashment or Gratuity. But very strictly, in all these Acts the definition of wages is almost the same, and that is, the amount as per terms of service. What the employee has agreed as remuneration for the service he renders is the salary and for him it is 7500 and not 3750. It is not not at all justifiable that you pay 3750 per month for keeping the employee alive (FOOD) but at the same time pay the same, Rs 3750 for his SHELTER. Please pay some thing for his clothing also, so that it will be clear that we take care of his Roti, Kappada and Makkaan!

Now coming to the PF's view, it is true that HRA is excluded from PF. But what constitutes basic wages is clearly defined in the Act as "all emoluments which are earned by the employee while on duty or on leave....." but does not include dearness allowance, HRA, Overtime wages, ...... This does not mean that your Basic salary would only qualify for PF contribution although for the time being you can defend saying that HRA is excluded. In reality, basic wage is the base of the wage below which it should not fall under any circumstances. That was why the Apex Court of India had rightly said that a company which does not pay the bare minimum wage has no right to exist.

When we pay Gratuity, it is not merely the low Basic wages that will be considered but it will be the minimum wages that will form base for calculation of gratuity. Therefore, even if you fix a low basic wages, your calculation of gratuity should be on the minimum wages.

When it comes to ESI contribution, again, it is the gross salary which will qualify for contribution.


Dear Mr. Atul, Please keep 7500/- as the Basic and do all the statutory or other deductions. It is the correct one and even everybody practice the same.
From the above discussion- Shall we clarified that basic wages should be same with Minimum wages?
I need to convince my management as I had same problem
Is there any notification that "Min. wages and basic salary must same"?
Please share
Thanks & Regards

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