Curious About Minimum Wage and Basic Salary Percentages in India? Let's Discuss!

Dear Seniors, I would like to know what the relation is between the minimum wage and the percentage of the minimum basic wage. Please also let me know how the minimum wage, which is upgraded from time to time, changes the minimum percentage of the basic salary.

Basic Salary Range

As per my knowledge, the basic salary may range between 40% - 60%. Is there any law that defines the percentage of the minimum or maximum basic salary in India?

Thanks in advance!

There is no law that defines the percentage of the minimum or maximum basic salary in India. Moreover, it depends on management. The government revises Minimum Wages every six months, and employers should keep in mind that their employees' basics should be more than what the government fixes and revises from time to time. This is only for the basic; the rest of the components are decided by management decisions and company policies.

Thanks,
Sakshi

Let me make a correction that Minimum Wages are not revised every six months but are normally revised after every five years. At the same time, dearness allowance, which is a component of minimum wages, is revised. This revision need not necessarily occur every six months but may take place every month depending upon the increase or decrease in cost of living indices.

Understanding Minimum Wages

Minimum Wages are the bare minimum wages payable to an employee to survive. We know that every day the prices of essential commodities are increasing. Therefore, the government cannot fix a wage for five years because a wage fixed now may become negligible after a year or two. It is with a view to avoiding such situations and to account for the cost of living that Dearness Allowance, which is variable according to changes in the consumer price index, is made a component of statutory minimum wages.

Regards,
Madhu.T.K

Thank you for your reply, but I am still in a state of confusion. Recently, the government of Delhi revised the minimum wage to Rs. 310 per day (Rs. 8,060 per month for 26 days). Could you please correct me if I am wrong? You mentioned that the government revises the D.A. component of the minimum basic wage based on consumer price indices, which automatically increases the minimum wage.

With the new revision, is an employer also required to adjust the basic salary of their graduate employees to Rs. 8,060 and consider this amount as the base for PF & PS calculations? In my company (Pvt. Ltd.), the employer only provides a basic salary without D.A. Do we also need to raise the basic salary to Rs. 8,060 for a graduate employee?

Regards, Kusum

WAITING FOR YOUR ANSWER..........

If you do not give DA but the total salary paid is not less than the minimum wages fixed, it is okay. You need not pay anything extra like DA. With regard to PF contribution, if the minimum wages are Rs. 8060, you need not pay a contribution on that amount because as per PF schemes, you can restrict your contribution on a salary of Rs. 6500. The direction to pay a contribution at least on minimum wages does not mean that it should be paid on the actual salary if it is above Rs. 6500.

Regards,
Madhu.T.K

Dear experts,

Can I consider my basic pay as 100% of salary (without any allowances)? Is it legal or not? Please advise.

Could some expert please clarify the original question of the thread as it is also giving me a headache at my organization level?

Example of Minimum Wage in U.P.

Taking the example of U.P. where the minimum wage is 7300 as of today.

Case 1: Basic Salary Calculation

Is it legal to keep the basic salary as 50% of the above amount, i.e., 7300/2 = 3650? And then do all the necessary PF deductions, etc.

So the salary becomes:
Basic: 3650
HRA: 3650
EPF deduction employee = 12% * 3650 = 438/-
Employer share = 438
ESIC Employee Share = 1.75% * (100% of Gross i.e., 7300) = 127.75
ESIC Employer = 4.75% * (100% of Gross i.e., 7300) = 346.75
Total in-Hand salary of the worker = Basic + HRA - EPF Share of the employee - ESIC Share of the employee
Total in-Hand salary of the worker = 3650 + 3650 - 438 - 127.75 = 6734.25 Rs/-

Is it fine?

Also, please answer the main question:
Is it legal to keep the basic salary as 50% of the above amount, i.e., 7300/2 = 3650? And then do all the necessary PF deductions, etc.

Please note that in reference to Section 4 under the MW Act, it mentions that minimum wages may be inclusive of basic pay and a special allowance on which it is based. Though in practice, we concentrate on the basic pay in private concerns, we do not have DA. In a few companies, the Special Allowance is a component in wages, while in others, they do not have any SA. Therefore, in response to your query, I would like to clarify that:

1. If the MW is 7500/-, then the following will be its structure:
a. Basic - 7500/-
b. HRA - (7500*50/100) = 3750/-
c. PF - Employee= 900/-, Employer= 1002/- (Basic*13.36%)
d. ESIC - Employee= 197/-, Employer= 534/-
e. Total in hand = 10547/-

If you follow this structure, then it can be considered as compliant.

Dear Pradipta Nath Sir,

I highly appreciate you for taking out time to reply to my query. Can I not keep the basic salary as 3750 in case the MW is 7500 and do all deductions on this basic, or do I have to compulsorily keep 7500 itself as the basic and do necessary deductions?

Anticipating your kind reply.

Thanks,
Atul

Understanding Salary Components and Compliance with Minimum Wage Laws

It is not mandatory for your salary to include a component like Dearness Allowance (DA). In the case of Airfreight Ltd vs. State of Karnataka, the decision was that if the total salary paid to employees is more than or equal to the basic salary plus DA of the state government-notified wages, the establishment is considered to comply with minimum wage requirements, and there is no need to pay DA. Therefore, if your state's minimum wage is Rs 7500 and you have a basic salary of Rs 3750 with the rest paid as HRA or another component, you can do so, provided this other component is available to the employee while on duty or leave and is not linked to any output or performance.

Keeping basic wages at a low level would certainly reduce your (employer's) liability towards various contributions and payments like PF, Bonus, Leave encashment, or Gratuity. However, in all these Acts, the definition of wages is almost the same: the amount as per terms of service. What the employee has agreed upon as remuneration for the service he renders is the salary, and for him, it is Rs 7500 and not Rs 3750. It is not justifiable to pay Rs 3750 per month for keeping the employee alive (FOOD) while paying the same amount, Rs 3750, for his SHELTER. Please pay something for his clothing also, so that it will be clear that we take care of his Roti, Kapda, and Makaan!

Clarification on PF and Basic Wages

Regarding the PF's view, it is true that HRA is excluded from PF. However, what constitutes basic wages is clearly defined in the Act as "all emoluments which are earned by the employee while on duty or on leave..." but does not include dearness allowance, HRA, Overtime wages, etc. This does not mean that only your Basic salary would qualify for PF contribution, although for the time being, you can defend saying that HRA is excluded. In reality, the basic wage is the base of the wage below which it should not fall under any circumstances. That is why the Apex Court of India rightly said that a company which does not pay the bare minimum wage has no right to exist.

Gratuity and ESI Contributions

When we pay Gratuity, it is not merely the low Basic wages that will be considered, but it will be the minimum wages that will form the base for the calculation of gratuity. Therefore, even if you fix a low basic wage, your calculation of gratuity should be on the minimum wages.

When it comes to ESI contribution, again, it is the gross salary that will qualify for the contribution.

Regards,
Madhu.T.K

From the above discussion - shall we clarify whether basic wages should be the same as minimum wages? I need to convince my management, as I have encountered the same problem. Is there any notification stating that "Minimum wages and basic salary must be the same"? Please share.

Thanks & Regards,
Nilesh
nilesh.bhandari@nelsongp.com