Every industrial establishment irrespective of its sectorial classification such as Private Sector or Public Sector and irrespective of its constitution such as a Company registered under the Companies Act or any other form has the liberty to formulate its own employee compensation package or remuneration structure. In the matter of hiring of labour, you know well what is hired is labour-power and its measurement for the purpose of paying compensation or wages is labour-time. But owing to the rise in the collective bargaining power of labour through unionisation and the universal advent of social security labour legislations the effective cost of labour began to be more. In order to lessen the burden of the employer,the wage structure came to be broken into components thus distinguishing them into direct and indirect parts. What all to be included for determining the statutory social security measures such as provident fund, insurance against employment accidents, gratuity became to be recognized as direct components including the actual basic cost of hiring the labour-power and the rest as indirect ones. I do hope that you are well aware of the concepts of NOMINAL/MONEY WAGE which is just the earning in cash or its equivalent and REAL WAGE which denotes the money wages discounted by cost of living index showing the purchasing power of the wages actually earned. Thus the practice of paying D.A linked to cost of living index came into vogue. Even you can pay it at flat rate or on graduated scale without linkage to CPI. However, the sum total of your wages should not fall short of the statutory minimum wages fixed.
25th July 2015 From India, Salem