Are Employers Unfairly Splitting Minimum Wages? Let's Discuss How to Tackle This Issue

Dear Friends,

It has been noted that some of our HR personnel/Management are following wrong practices.

I conducted audits at more than 1100 export houses/multinational companies all over India, Bangladesh, Nepal, China, and found that approximately 5% of factories are using the wrong practice of bifurcation/splitting of minimum wages into basic+HRA or Basic+HRA+Conveyance or other segments.

This is absolutely unacceptable. The reason behind it is to save employer money in terms of PF deduction, leave encashment, bonus calculation, gratuity calculation, etc.

I visited a garment export house situated at Okhla Phase-1, New Delhi and found that they split minimum wages into basic+HRA rather than bifurcated into Basic+DA (as per Delhi govt notification). For example, one employee was getting Rs. 4000 monthly, and his salary was split into basic (Rs. 2400) + HRA (Rs. 1600). The PF deducted from the employee was Rs. 288, and the employer gave Rs. 288, whereas the actual amount of PF should have been 480 from the employee and 480 from the employer.

The employer has saved Rs. 192 by using an illegal way. The company employs 1500 employees in its group and is saving a significant amount through this method. The same impacts bonus, gratuity, etc.

One thing to keep in mind is that minimum wages should not be less than the minimum wages. We have received a notification from the PF office stating that the bifurcation of PF is not allowed; it should be deducted at least on minimum wages.

Let's join hands to remove illegal practices in your area. Your contribution towards employee benefits will be appreciated.

Best Regards,
Sajid Ansari

Dear Sajid,

I too agree with you, but there is a lacuna in our law that is the reason people are taking benefit. In some states like UP, companies cannot take this benefit as they have defined that this will be basic and this will be DA, and this will be total. However, now most of the companies have stopped this practice.

Regards,
J S Malik

Dear Mr. Sajid,

As mentioned in the last paragraph of the article titled "Wrong Practice by HR: Bifurcation of Minimum Wage," you stated that you have received a notification from the PF office regarding this matter. I kindly request you to please do me a favor by forwarding a copy of the same.

Thank you,

S.N. Mishra

But what does the Minimum Wages Act say? Wage = basic + DA + HRA is also included in minimum wages. So, we can bifurcate this into three parts. I feel nothing is wrong in this. Am I correct.

Dear Friends,

It has been noted that some of our HR personnel/Management are following wrong practices. I have conducted audits at more than 1100 export houses/multinational companies all over India, Bangladesh, Nepal, China, and found that approximately 5% of factories are using the wrong practice of bifurcation/splitting of minimum wages into basic + HRA or Basic + HRA + Conveyance or other segments. This is absolutely unacceptable.

The reason behind it is to save employer money in terms of PF deduction, leave encashment, bonus calculation, gratuity calculation, etc.

I visited one of the garment export houses situated in Okhla Phase-1, New Delhi, and found that they split minimum wages into basic + HRA rather than bifurcated into Basic + DA (as per Delhi government notification). For example, one of the employees was getting Rs. 4000 monthly, and his salary was split into basic (Rs. 2400) + HRA (Rs. 1600), and the PF deducted from the employee was Rs. 288 & employer given Rs. 288, however, the actual amount of PF was Rs. 480 from the employee and from the employer side Rs. 480. The employer saved Rs. 192 by using an illegal way. The company employs 1500 employees in its group and is saving a significant amount this way. The same effect applies to bonus, gratuity, etc.

One thing to keep in mind is that minimum wages should not be less than the minimum wages. We have received a notification from the PF office stating that the bifurcation of PF is not allowed; it should be deducted at least on minimum wages. Let's join hands to remove illegal practices in your area; your contribution towards employee benefits will be appreciable.

Best Regards,
Sajid Ansari

Dear Sajid,

Thank you for providing such useful information. I would like to request you to kindly forward me a copy of the notification stating that the PF contribution cannot be less than the minimum wages.

I would greatly appreciate it if you could email me a copy of the same on a priority basis at my email address akshaygrg@gmail.com. This would greatly assist me and enable me to demonstrate that I am in compliance with all statutory requirements.

I am looking forward to your kind cooperation.

Thank you.