As of now, the terms "wage" and "salary" denote the monetary consideration paid for the physical/clerical /supervisory/intellectual services rendered by a workman/employee as per the terms of the contract of employment. It can be based on the work done in a given time or the time spent under the disposal of the employer to do the work. The name of this monetary consideration differs by convention according to the classification of the payee or the nature of the work performed i.e., in respect of manual labor or blue-collar employees, it is "wages" whereas in respect of all other works or white-collar /yellow-collar/gold-collar employees, it is "salary". Whatever the name be, in general, its a single package of compensation for the work done. However, when the process of paid-employment became wide spread and the employment relationship also turned out to be more formal and systematic, the single package of compensation for work began to be bifurcated into direct and indirect benefits. The change in the locality-specific feature of labor to that of migratory coupled with the enactment of social security labor legislations followed by wage determination through the process of collective bargaining eventually resulted in the bifurcation of the single package of wages into basic and allowances. In collective bargaining process, while the workmen try to get more in all aspects, employers try to minimize their indirect commitments like contributions to EPF, ESI, Gratuity, bonus etc. This is the reason for structuralisation of wages/salary.
Therefore, no hard and fast rule nor any straight-jacket formula of universal application can be found. Better you try to follow the industry cum regional standards.
To be precise, I would submit that basic pay is the price paid for the actual labor while the allowances are the compensations towards the incidental expenses incurred by the employee in connection with his employment in the establishment. It would automatically imply that the percentage of the basic should not be less than the overall percentage of allowances. When certain components like dearness allowance that could be counted for indirect benefits are there in the wage or salary structure, their combined percentage with that of basic can range between 60% to 70% to the gross.
Mr. Umakanthan.M has given basic explanation.
In my opinion --wages are as per State Govt Notifications and break down of the wages is not necessary .
For others ,suggest follow the norms in vogue in your organisation, otherwise there are number of posts on this issue and you may follow them.
“20. As stated above minimum wage must provide not merely for the bare subsistence of life but for the preservation of the efficiency of the worker and so it must also provide for some measure of education, medical requirements and amenities of himself and his family. While fixing the minimum wages, the capacity of the employer to pay is treated as irrelevant and the Act contemplates that rates of minimum wages should be fixed in schedule industries with a dual object of providing sustenance and maintenance of the worker and his family and preserving his efficiency as a worker. So it is required to take into consideration cost of bare subsistence of life and preservation of efficiency of the worker and for some measure of education, medical requirements and amenities. This cost is likely to vary depending upon the cost prevailing in the market of various items. If there are inflationary conditions prevailing in the country, then minimum wages fixed at a particular point of time would not serve the purpose. Therefore, Section 4 contemplates that minimum wages fixed at a particular point of time should be revised from time to time. Section 4 postulates that minimum wages fixed or revised by the appropriate Government under Section 3 may consist of basic rates of wages and special allowance at a rate to be adjusted at such intervals in such manner as the appropriate Government may direct to accord as nearly as practicable with a variation in the cost of living index number applicable to such workers; alternatively, it permits the fixation of basic rate of wages with or without cost of living allowance and the cash value of the concessions in respect of supplies of essential commodities at concessional rates where so authorised; or in the alternative it permits an all inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of concessions, if any. The purpose of Section 4 is to see that minimum wages can be linked with increase in cost of living so that increase in cost of living can be neutralised or all inclusive rates of minimum wages can be fixed. But, from the aforesaid Sections 3 and 4, it is apparent that what is fixed is total remuneration which should be paid to the employees covered by the schedule and not for payment of costs of different components which are taken into consideration for fixation of minimum rates of wages. It is thus clear that the concept of minimum wages does take in the factor of prevailing cost of essential commodities whenever such minimum wage is to be fixed. The idea of fixing such wage in the light of cost of living at a particular juncture of time and of neutralising the prices of essential commodities by linking up scales of minimum wages with the cost of living index is provided for in Section 4 but V.D.A. is part and parcel of wages. Once rates of minimum wages are prescribed under the Act, whether as all inclusive under Section 4(1)(iii) or by combining basic plus dearness allowance under Section 4(1)(i) are not amenable to split up. It is one pay package. Neither the scheme nor any provision of the Act provides that the rates of minimum wages are to be split up on the basis of the cost of each necessities taken into consideration for fixing the same. Hence, in cases where employer is paying total sum which is higher than minimum rates of wages fixed under the Act including the cost of living index (VDA), he is not required to pay VDA separately. However, that higher wages should be calculated as defined in Section 2(h) of the Act.
Section 2(h) specifically provides that value of the following items is not required to be computed for finding out whether employer pays minimum wages as prescribed under the Act:-
(i) the value of any house, accommodation, supply of light, water, medical care, or any other amenity or any service excluded by general or special order of the appropriate Government
(ii) any pension fund or provident fund or under any scheme of social insurance
(iii) any travelling allowance or the value of any travelling concession
(iv) any sum paid to any person employed to defray special expenses curtailed on him by the nature of his employment or
(v) any gratuities payable on discharge.
21. But while deciding the question of payment of minimum wages, the competent authority is not required to bifurcate each component of the costs of each item taken into consideration for fixing minimum wages, as lump sum amount is determined for providing adequate remuneration of the workman so that he can sustain and maintain himself and his family and also preserve his efficiency as a worker. Dearness Allowance is part and parcel or cost of necessities. In cases where the minimum rate of wages is linked up with V.D.A., it would not mean that it is a separate component which is required to be paid separately where the employer pays a total pay package which is more than the prescribed minimum rate of wages.”
Therefore, there is no need to show bifurcation of wages into Basic /DA where the total wages being paid are more than minimum wages notified under the Minimum Wages Act, 1948.
Normally employer keeps 40% of CTC as Basic; 50% as HRA and some % as Conveyance and the balance as Special allowance
Industrial Law Consultant, Meerut