Understanding Minimum Wage in HR: Is HRA Included and How Does It Affect PF and Bonus?

Dear Friends,

I want to know the definition of the Minimum Wage Act that actually prevails in HR. Additionally, I would like to know if HRA is part of the Minimum Wage or not.

If yes:

1) Is PF deducted from the Minimum Wage (Inclusive of HRA)?
2) Is Bonus calculated based on the Minimum Wage or Basic Wage?

As per the current Act, bonus is calculated based on the Basic Wage.

Please reply.

Sandeep Goyal

Dear Sandeep,

As per the Minimum Wages Act, minimum wages include House Rent Allowance (HRA). However, different judgments have been made in this regard. Consequently, the PF department has issued circulars stating that PF deductions should be based on minimum wages without any bifurcation to avoid circumventing PF regulations. Additionally, bonuses are calculated based on basic pay plus Dearness Allowance (DA).

Thank you.

J. S. Malik

Dear Sandeep Goyal,

HRA is not a part of Minimum Wages. You can bifurcate minimum wages into Basic + DA only. PF is deducted on minimum wages (Basic + DA), not on HRA. Bonus is calculated on the basic wage. Hope this will meet your requirement.

Regards, Pankaj Chandan

Hi all,

HRA is part of minimum wages. PF is deducted on Basic + VDA only. Bonus is calculated on Basic but maximum on Rs 3500.

Dear Sandeep,

By virtue of sec. 4 read with sec. 11, it sheds light on elaborating the definition of minimum wage, stating that it includes only Basic pay, including Dearness Allowance. Regarding Provident Fund (P.F.), the act is a separate and complete code not linked with the M.W. Act, having its own definition under section 2(b).

Secondly, Bonus should be calculated on the basic salary inclusive of D.A., as per sec. 2(21) of the said act. Furthermore, under sec. 12, a company can calculate the bonus up to 3500 even if an individual's salary exceeds 3500.

Regards,
KIRAN KALE

Dear Super Moderator (JS Malik),

With reference to your input on PF deduction, you mentioned that the PF department has issued circulars stating that PF should be deducted based on minimum wages without any bifurcation to avoid PF avoidance.

Could you please provide us with details of the circular issued by the PF department? If you have a scanned copy of this circular, kindly send it as an attachment.

Regards,
Kamal Prasoon

Dear kprasoon,

The opinion given by Mr. Malik is perfectly right and supported by several judgments. Once the path has been illuminated for you, help yourself in performing the journey. One should not burden the guide to carry the person all the way to the destination. The matter has been discussed, with documentary evidence, several times on CiteHR. Please search using the "research" option at the top of the page.

Warm regards.

Dear Mr. Raj Kr. Hansda (Super Moderator),

Thank you for your reply with well-decorated literary terms.

Let me introduce myself first. I am Kamal Prasoon Sinha, an HR Generalist & Administration Professional with 12.6 years of core HR/IR experience. I am currently working as Manager (Unit Head), HR & Admin with an engineering/electronics manufacturing organization in Pune.

Now let's come to the point. In my response to the input given by Mr. JS Malik, I had requested any circular issued by the PF Dept. When I use the term PF Dept, I am referring to the central authority of PF Dept in New Delhi and not any Regional PF Commissioners whose jurisdiction is limited to that particular region/state and not the whole country.

I have reviewed the documents/circulars uploaded at CiteHR and found circulars issued by Regional PF Commissioners of a few states (2 or 3) on the bifurcation of minimum wages for PF contribution. However, I did not find any circular/notification/clarification issued by the PF head office in New Delhi or details of any such decision taken by the Central Board of Trustees of EPFO.

To the best of my knowledge, the PF head office has not issued any circular regarding PF calculation on minimum wages.

I agree with Mr. Malik that there are judgments of high courts in two or three states and also of the Apex court in this regard. However, a notification from the central authority of PF Dept in New Delhi is also required.

The usual practice is that whenever a judgment from high courts/apex court is made, the affected ministry/dept/unit issues a separate notification regarding that judgment.

For instance, after the Apex Court judgment on PF contribution on Leave encashment, the PF head office promptly issued a clarification on the matter addressed to all Regional PF Commissioners. Yet, on the current matter (bifurcation of minimum wages for PF contribution), no such circular/notification/clarification has been issued.

I would appreciate your further input on the matter.

Regards,

Kamal Prasoon Sinha

Dear Kprasoon,

Thank you for the information and introduction.

Generally, the Central Board of Trustees or even the Executive Committee do not issue any circular for mass consumption; such tasks are delegated to the CPFC or RPFCs.

Since the Minimum Wages Act 1948 is an entirely separate statute administered separately, and The EPF & MP Act, 1952 a different Act, under which legal provisions have been made for the EPFO organization; it stands to reason that such circulars cannot be issued, suo moto, by the Central Board of Trustees or even the Executive Committee; who, in any case, generally do not issue any circular. Such administrative tasks are delegated to the Addl. Central PF Commissioner (Compliance) or Regional PF Commissioner (F & A) who sit in the Corporate Office, New Delhi.

Under such circumstances, where there are different laws/Acts involved which are administered by different government authorities, court rulings are the best source for such information and action therein.

Since you are so keen on this matter about circulars, you can find out more from your Pune location itself by contacting the RPFO at Pune; where the concerned officers also act as Public Information Officers (under the Right to Information Act 2005):

Shri N.K.Sakpal, RPFC II,
Post Box No. 226, IInd Floor, Pune Cantonment Board Building, Golibar Maidan, Pune - 411 001
Email: ro.pune@epfindia.gov.in
Phone: 020-26402120/26454231

Shri S. Padmanabhan, RPFC I, IInd & IIIrd Floor, Pune Cantonment Board Building, Near Golibar Maidan, Pune - 411 001
Email: ro.pune@epfindia.gov.in
Phone: 020-26444039
Fax: 020-26456145

In any case, my humble submission was to help you in searching for the information you require. It seems my appeal has gone unheeded. However, I do hope that this time, I am not compelled to post a rejoinder again.

Warm regards.

Are employees under central minimum wages entitled to HRA? If yes, how much?

Understanding the Inclusion of HRA in Minimum Wages

The definition of "wages" under Section 2(h) of the Minimum Wages Act, 1948, clearly and explicitly states that HRA is included. Moreover, the Supreme Court in Airfreight Ltd v. State of Karnataka & Others also mentioned that wages payable should be calculated as defined in Section 2(h) of the Minimum Wages Act. Until both the EPF Act and Minimum Wages Act are suitably amended, it would be better to pay VDA as fixed by the Government and Basic + HRA to comply with minimum wages payment.

Regards,
N. Nataraajhan
Sakthi Management Services
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