How Do We Break Down Minimum Wages When the Official Letter Only Shows Totals?

Respected all, please help me understand how we can break up our minimum wage because the letter we received from the labor department only displays daily wages and monthly wages for unskilled, semiskilled, and skilled individuals, but it does not provide a breakdown of the wages. I have heard that minimum wages consist of basic pay plus DA, but I am not certain about it. Kindly guide me.

Understanding Minimum Wage Components

The minimum rates of wages will include a basic wage for different categories of workers and a dearness allowance that will keep changing according to changes in the consumer price index. The notification will state the basic wage only, and the dearness allowance will have to be calculated by us, taking into account the type of industry and the place of work. This means that the variable dearness allowance applicable to one kind of industry, such as establishments engaged in plywood manufacturing, may differ from those engaged in cotton textiles or hotels.

For each industry, a base index will have been fixed, and the dearness allowance would be an amount for each point above this base index point. Consequently, if it is notified that "Dearness allowance will have to be paid at the rate of Rs 8 for every increase in the consumer price index/cost of living index above 400 points," and the month's CPI is 750 points, then the DA will be Rs 2800. That is, 750 minus 400 multiplied by Rs 8.

Similarly, the price index of one city will differ from another city. Therefore, the CPI of city A may be 780, city B it may be 756, and so on, and consequently, the DA will also differ.

Regards,
Madhu.T.K

To add, it will be basic pay + DA + HRA. Then, add any other allowances if applicable. Could you please inform me of the city for which this calculation is needed? I have the breakdown for Kolkata.

Thanks
Regards

Advice on Breaking Down Minimum Wages

It is advised to break minimum wages into 60% (basic + DA) and 40% (allowances). This way, no labor office will challenge you.

Regards,
Vipul Parmar

Sir, you can't bifurcate the minimum wages because minimum wages = basic + DA. If you bifurcate the minimum wages, then the PF amount will be less, which will be incorrect as per the labor department, and employees will receive less deduction.

Thanks,
Ashish
[Phone Number Removed For Privacy Reasons]

Minimum wages attract the liability of PF, so you cannot bifurcate it except (Basic + DA). If you are bifurcating it, you are bound to pay PF on all components; otherwise, you will be a defaulter as per the provisions of EPFO & MP Act 1952.

Thanks,
Dheeraj

Understanding Minimum Wage Breakdown

Normally, the labor department shows daily wages and monthly wages for unskilled, semi-skilled, and skilled persons, which include the Basic and DA. These rates are notified every month, quarterly, or half-yearly as per Gazette Notification. You need not bifurcate these minimum wages.

For employment not included in the schedule, the lowest of the minimum wages applicable to the scheduled employment would apply.

Bifurcation of Wages

With regard to the bifurcation of wages, there is no such rule that if you allocate 60% as basic and DA and the rest, i.e., 40% in other allowances, no Labour Officer could question. Yes, they can question if the sum total of the amount paid as wages is less than the sum of basic + DA as fixed by the government. If you go through the verdict by the Apex Court in the 'Air Freight Courier and Cargo' case, you will find that if the employer is paying not less than the minimum wages in total, he is said to comply with the provisions of the Minimum Wages Act even if the basic wage is short of what is stated as payable or if he is not paying DA but is paying it under a different head like HRA or others.

PF Contribution on Minimum Wages

Regarding PF contribution payable on minimum wages, there is confusion that the EPF Organization cannot enforce minimum wages.

Regards,
Madhu.T.K

Now all the State Governments in India have been notified that minimum wages for unscheduled employees have been fixed. To obtain a copy of the Government Order (G.O.), please contact your local Labour Department.

Regards,
PBS KUMAR

Minimum Wage Components

The minimum wages notified by the respective governments consist only of Basic and DA components, which should not be altered in any case. Other allowances can only be add-ons. The basic pay is revised once every five years, while the DA portion is revised depending on consumer price variance every six months or one year, varying from state to state.

Options for Unscheduled Categories

As regards unscheduled categories, one of the following options may be exercised:

1. Same and similar nature of jobs performed in the industry.
2. A wage not less than the wage earned by the bottom-most regular worker in respect of contractual workers.
3. Wages arrived at through settlement with the Union.
4. Wages notified by the District Administration, if any.

Regards,
Josephraj

Minimum Wages Rates: (Delhi)

- Unskilled: Rs. 5278.00 inclusive of DA
- Semiskilled: Rs. 5850.00 inclusive of DA
- Skilled: Rs. 6448.00 inclusive of DA

Now, minimum wages and DA are inclusive effective Feb 2010.

Regards,
Kushal P.S. Mahur
Executive - Human Resources
[Phone Number Removed For Privacy Reasons]

PF will be calculated on Minimum Wages, Basic Pay, Take-home, or Gross Salary.

Regards,
Girish N Chaturvedi
[Phone Number Removed For Privacy Reasons]

That's not applicable for West Bengal (Kolkata). I faced a real challenge to show the letter which states that 'you can break the minimum wages'. The PF inspector was really harsh on us. What we do now is ensure that the minimum wage is higher than the wages received by the staff.

Thanks

You have shared a great amount of knowledge which commonly lacks among HR professionals. Sincere thanks to you, but still, the subject is not clear. Please note that the amount is not to be bifurcated.

3650/-

Mangesh Wakodkar

Understanding Minimum Wages

Minimum wages are declared by the government based on the Basic and the price index and are considered a complete package. There is no breakdown of the amount as declared. It is illegal to bifurcate it, as it is a lump sum figure and must be presented as it is.

If you wish to break it down, you can pay a little more than the minimum wages and show the breakdown as desired (the sum of Basic + DA in your wage breakdown must be more than the minimum wages).

Regards,
Mangesh Wakodkar

Your last sentence regarding the apex court is unclear. Could you please clarify whether it is considered a crime or acceptable if the total amount given to an employee is equal to or greater than the minimum wage set by the government, but the basic portion is less than the minimum wage?

Regards,
Samsheen

I have one confusion regarding the minimum wage revision. Actually, security also comes under revision as they are skilled, but they are already getting Rs. 7000 per month wherein the basic is 3300. But now, the minimum wage is 3600. Should we need to revise the basic to 3600 or not? My opinion is no as they are overall getting around 7,000, which is above the minimum wage. The minimum wage is the overall remuneration that the company has to pay. Please guide me and add your input... should it be revised or not?

Thank you. I agree with you! However, some employers keep on thinking of inventing ways to cheat their poorest employees of their rightful dues.

Warm regards,

Thank you for your correct opinion. Instead of giving additional salary in the form of other allowances, typical Indian employers would attempt to deceive the most vulnerable workers out of their rightful earnings by splitting the MINIMUM WAGES into imaginary salary categories like HRA, etc.

Serious punitive measures need to be implemented against such employers, including imprisonment, in addition to fines and compensation for the workers; otherwise, this blatant violation of labor welfare will persist.

Action should be taken not only against the employer (including the Occupier and factory manager) but also against the HR personnel responsible for compliance and the Labor Welfare Officers. Unless strict actions are taken, some HR professionals will continue to inquire about and seek solutions for such unlawful requests as "bifurcating the minimum wages." No one is willing to consider why Minimum Wages should be further divided when the competent government has already SET it?

Warm regards.

Minimum wages are determined by the government based on the Basic and the price index and constitute a complete package. There is no breakdown of the sum as declared. It is illegal to split it. It is a lump sum amount and must be presented as is. If you wish to itemize, pay slightly more than the minimum wages and display the breakdown as desired (Basic+DA in your wage breakdown must exceed the minimum wages).

Determining Basic Salary in Organizations

Nothing has emerged as far as the basic salary is concerned in the above discussion. How can the basic salary be determined in any organization? Is there any ruling of the Apex court that the basic should not be less than a certain percentage?

I have been told by an official of the EPF department that the basic salary should not be less than 95% of the minimum wage prevailing in the state. As far as the EPF Act is concerned, it is probably silent on the subject. Is there anybody who can provide their authority on the matter?

Thanks,
L M Sharma

Has an official of your EPF department explained to you how and on what basis it should be 95%? Should you accept anything told by anyone without scrutiny?

The term "Minimum Wages" is a legal term in the Minimum Wages Act, 1948, and it is complete within itself. No bifurcation or breakdown of this amount is permissible.

It is the prerogative of the Government to fix the minimum rate of wages, as defined under Section 4 of the Minimum Wages Act, 1948; and once the Government fixes such rates, these cannot be bifurcated. These rates must be called and known as Minimum Wages for all purposes.

Section 4: Minimum Rate of Wages

(1) Any minimum rate of wages fixed or revised by the appropriate Government in respect of scheduled employments under section 3 may consist of:
(i) a basic rate of wages and a special allowance at a rate to be adjusted, at such intervals and in such a manner as the appropriate Government may direct, to accord as nearly as practicable with the variation in the cost of living index number applicable to such workers (hereinafter referred to as the "cost of living allowance"); or
(ii) a basic rate of wages with or without the cost of living allowance, and the cash value of the concessions in respect of supplies of essential commodities at concessional rates, where so authorized; or
(iii) an all-inclusive rate allowing for the basic rate, the cost of living allowance, and the cash value of the concessions, if any.

(2) The cost of living allowance and the cash value of the concessions in respect of supplies of essential commodities at concessional rates shall be computed by the competent authority at such intervals and in accordance with such directions as may be specified or given by the appropriate Government.

Regards,

I agree with you in totality on this: "The term Minimum Wages is a legal term in the Minimum Wages Act, 1948, and it is complete within itself. No bifurcation or breakup of this amount is permissible."

What one fails to understand is the obsession that certain companies and their HR have with bifurcating even this minimum wage further. It is saddening to read about these companies, and one feels sorry for the plight of poor workers.

Can such companies be called "progressive and good" or "exploiters of labor and penny-pinchers"? If they are so obsessed with a "salary structure," why can't they have their Basic Pay STARTING MUCH HIGHER than the absolute MINIMUM prescribed by the Government?

The standing and the standard of a company can be known immediately from the MINIMUM BASIC PAY that they pay to their LOWEST-LEVEL of workers. What to say if it is even LOWER THAN THE MINIMUM WAGES!

I think it is either an insult or compulsion to work in such a company. I hope HR professionals will keep this fact in mind when talking or boasting of their companies.

When I joined a giant manufacturing company as a Management Trainee at the beginning of my career, during our Training in HRM, we were told to omit studying the Minimum Wages Act 1948 because it's not applicable! The company pays much, MUCH HIGHER SALARY AND BENEFITS to its lowest level of worker than what is prescribed as the Minimum Wages in the Act.

It is simply outrageous and disgusting to note that in companies and the "Organised sectors," the workers get less BASIC PAY than the Minimum Wages prescribed - thanks to our own "creative" HR Professionals (or HR non-Professionals) who instead of guiding the Management with their professional advice, do things expected from people with no dignity and professional pride!

Warm regards.

Understanding Minimum Wage Components

Minimum wages, i.e., Basic + D.A., are fixed by the respective State Government. D.A. is variable and changes every six months. On the total of Basic + D.A., 5% HRA needs to be paid. So, Basic + DA + HRA are the main direct components of minimum wages. In addition to these, indirect components include PF, ESI, Bonus, Leave, etc. Employers are required to pay this much minimum wage.

Regards,
Hemant Nadgauda

Understanding Minimum Wages and DA

The minimum wages fixed by the concerned state government are inclusive of DA, and there is no statutory law that mandates you to pay DA separately. However, you should not pay less than what the minimum wage has been fixed by the state government. I myself had faced the same problem in the past.

Regards,

I agree with Madhu; the law is not clear on how much you should allocate to the DA and basic components. Most places I have seen have a typical breakdown of Basic, DA, and HRA. However, as a best practice, it's advisable to keep the minimum wages intact (BASIC & DA) and provide PF benefits on them. By the way, there is ongoing litigation (the Group 4 Security vs. Department of PF) concerning the bifurcation initiated by the PF department, which suggests that the PF amount should be paid on the minimum wages.

Clarification on Minimum Wage Breakdown

The law is very clear when it comes to the minimum rate of wages. The rate of minimum wages is a lump sum amount and cannot be bifurcated.

Dear Senior, as per EPFO enforcement office guidelines, the basic pay should be at 60%, including (basic + DA). However, I have not received any notification regarding this. If there is any notification available, please forward it to me.

Thank you,

Regards,
Dharamveer
[Email Removed For Privacy Reasons]

Dear all, I have some valuable information on PF and the bifurcation of minimum wages. Since the issuance of this bifurcation notice, I have been trying to find an answer to my query. I kindly request all of you to look into it and please respond if possible.

We are all aware that:

- Minimum wages consist of basic + DA. (As per the above comment, you can also include HRA, but if not added, it's not an issue).

- According to the notification, you cannot bifurcate minimum wages as it results in lower PF contribution. Therefore, PF should be paid based on minimum wages only.

Please note that there is another important fact that the PF ceiling for contribution is Rs. 6500. If your salary exceeds Rs. 6500, you are not required to contribute to PF. Now, the Delhi government has revised minimum wages effective from April 2011, where only the unskilled category will earn less than Rs. 6500, which is Rs. 6422. This means PF can be calculated based on Rs. 6422.

Questions Regarding PF Calculation

1) Other categories will earn more than Rs. 7000 as minimum wages (for semi-skilled it is 7098). So, what should we do in this scenario? Should we pay PF based on the ceiling of Rs. 6500 or based on the minimum wages of Rs. 7098?

2) If you pay PF based on the minimum wages, which is now higher than the ceiling, then where is the exemption from PF? You cannot exempt employees who are earning more than Rs. 6500 as their basic salary. Please clarify.

Considerations for PF Calculation

Additionally, consider the following:

What if you allocate the entire amount of minimum wages under one category (basic) only? Does it make a difference if PF has to be calculated on the entire amount? What is the necessity to divide it into basic and DA and compute PF on two separate heads? As it is only HR personnel who are aware that PF is calculated based on Basic+DA, a common individual only knows that it is calculated on the basic salary.

I am eagerly looking forward to responses from the seniors in the forum. Your assistance is greatly appreciated.

Regards,
Saunee

Hi, please tell me how to break up Basic, DA, HRA, Conveyance, and other allowances for Delhi and Noida.

Dear Pallavidas07 and others,

Concerns About Wage Breakdown Practices

Why does your company want to break up even the prescribed MINIMUM WAGES into such components as "HRA + Conv & other allowances"? Is your company not in a position (financially) to ADD these components from their own resources? What is the intention? If you are not able to provide these, then why DEPRIVE the workers of THEIR RIGHTFUL CLAIM ON PF CONTRIBUTION (by reducing their Basic Pay)? Such an exploitative attitude is shameful, to say the least.

As conscientious HR professionals, and to gain professional respect, we should not endorse or recommend such unethical acts (even though it may not strictly be illegal). Kindly think over these issues.

Regards.

My query is:

1. Inclusion of DA in Minimum Wages

- Would it be fair to not include Dearness Allowance (DA) in minimum wages, as our organization does not include DA in the basic pay?

2. PF Deduction on Basic Amount

- If we pay an employee more than the daily wage rate, would it be fair to deduct Provident Fund (PF) only on the basic amount, excluding DA?

Regards

Dear Madhu T.K. Sir,

The government declares the minimum wages for the workers (for unskilled, skilled, office staff, etc.). Can we break up that minimum wage and deduct the PF at a lower rate? For Maharashtra state: what are the minimum wages? Please tell me in detail.

I think we have been discussing the same topic through these posts, which started sometime in 2011. Please go through the posts.

Understanding Minimum PF Contribution

Why do you want to fix the minimum PF? PF is payable on basic wages and dearness allowances, whereas the basic wage as per the EPF Act is the total wages. Therefore, there is no meaning in doing a bifurcation as you like. If HRA is excluded, that does not mean that you can pay, say, 5% basic salary and 95% for house rent allowance. It is just like saying that food and clothing will account for 5 percent of the cost of living and the rest, 95%, is for shelter!

Regards, Madhu.T.K

If I have a Gross salary of Rs 11,000, in which I bifurcate the salary structure as below:

- Basic (50% of Gross) = Rs 5,500
- HRA (50% of basic) = Rs 2,750
- Conveyance (20% of basic) = Rs 1,100
- Other Allowance = Rs 1,650

Concerns about Basic Salary and Minimum Wage

My question is that my basic is less than the minimum wage fixed by the government.

1) If I do PF calculation as per my salary structure basic, will there be any problem since it is less than the minimum wage?

2) Is it compulsory to fix basic as per the minimum wage, and then bifurcate the rest of the gross amount in the salary structure?

Minimum Wage Compliance and PF Contributions

As far as minimum wage compliance is concerned, there is no issue if you bifurcate the total amount. What is important is that the fixed part of the salary should be equal to or more than the basic + DA fixed by the government as minimum wages.

Many companies (even those that can bear a higher contribution to PF) contribute PF only on the basic salary. It is true that PF is payable on the basic wage only. However, what constitutes basic wages is very clearly defined in the EPF & Misc. Act as the total amounts received by an employee as per the contract of employment, excluding HRA. If you have agreed to pay your employee Rs. 11,000 as salary, this amount is the salary as per the contract of employment. Even if you have shown the salary by breaking down the total amount into basic, HRA, etc., what does not qualify for PF contribution is the HRA part, and for the remaining amounts, like conveyance and other allowances, you are obligated to pay PF.

As mentioned, many companies follow the practice of paying it on the basic pay set by the respective companies. The dispute regarding basic wages or PF qualifying wages is still under review by the Apex Court, and in a recent ruling by the Madras High Court, it has been stated that until the Supreme Court reaches a verdict, the PF authorities are required not to interfere in this matter. Therefore, for the time being, you can contribute PF based on your basic pay, Rs. 5,500.