Are We Meeting Minimum Wage Laws if Gross Pay Exceeds the Basic Requirement?

Dear Sir, I have many employees who receive basic wages lower than the minimum wages applicable in our state, but their gross pay is higher than the minimum wages. Therefore, I want to clarify whether the minimum wages only include the basic salary/wages or if the total gross amount should be equal to or greater than the minimum wages.

Example Salary Structure

For example, an employee (Semi Skilled-A) has the following salary structure:
- Basic: 4500 (Less than the Minimum wages i.e., 4977.17 in Haryana)
- HRA: 1800
- Conveyance allowance: 360
- Compensatory allowance: 72
Total Gross = 6732

We pay 6732 - (12% PF) - (1.75% ESI) = Net Pay.

I would like to understand if we need to revise the salaries of all employees and pay the arrears, or if the current approach is correct and no revision is necessary. I would appreciate it if you could provide an Act or any evidence to support your answer so that I can address this matter with our management effectively.

Thank you

Supreme Court Judgment on Minimum Wages Applicability

In the following case, CASE NO.: Appeal (civil) 4259 of 1999, PETITIONER: AIRFREIGHT LTD., RESPONDENT: STATE OF KARNATAKA AND ORS., DATE OF JUDGMENT: 04/08/1999, BENCH: D.P. WADHWA & M.B. SHAH, reported in 1999 Supp. (1) SCR 22, it was held by the Honourable Supreme Court as follows:

It is held that:

1. The appellant-company would be covered by the expression "shops" and/or "commercial establishment" as it is carrying out various systematic commercial activities with a profit motive and also sells services on a retail basis.

2. The Notification issued under the Act prescribing minimum wages applies to all kinds of shops and commercial establishments - big or small - and that payment of more than prescribed minimum rates of wages is not relevant for deciding its applicability. It cannot be stated that as they are paying more than the prescribed minimum wages, the Act or the Notification would not be applicable. For determining whether they are paying minimum rates of wages or not, the amount paid for the value of items which are excluded under Section 2(h) of the Act is not to be taken into consideration.

3. The minimum rate of wages fixed under the Act is remuneration payable to the worker as one package of a fixed amount. In cases where the minimum wage is linked with the cost of living index, the amount paid on the basis of dearness allowance is not to be taken as an independent component of the minimum wages but as part and parcel of the process of computing the rates of minimum wages which are to be determined after taking into consideration the cost of various necessities.

You can access this judgment on the website of the Honourable Supreme Court of India. This judgment clarifies the issues raised by you.

Regards

Definition of "Wages" Under the Minimum Wages Act

Please see the definition of the term "wages" as defined in section 2(h) of the Minimum Wages Act. The definition in sections 2(h)(i), 2(h)(ii), 2(h)(iii), 2(h)(iv), and 2(h)(v) states that the following are not included in the definition of the term "wages":

- Section 2(h)(i): Value of any house accommodation, supply of light, water, medical attendance, and any other amenity excluded by the Government from the definition of wages.
- Section 2(h)(ii): Contribution paid by the employer to any pension fund or provident fund or any scheme of social insurance.
- Section 2(h)(iii): Travelling allowance or travelling concession.
- Section 2(h)(iv): Any sum paid to the employee to defray special expenses because of the nature of his employment. One example of this is the "batta" paid to drivers of buses or taxis or tourist taxis.
- Section 2(h)(v): Gratuity.

According to section 2(h), house rent allowance is included in the definition of the term "wages".

Analysis of Your Salary Structure

Now, according to your post, you pay the following:

- Basic - 4500 (Less than Minimum wages i.e., 4977.17 in Haryana)
- HRA - 1800
- Conveyance allowance - 360
- Compensatory allowance - 72
- Total Gross = 6732

The minimum wages fixed according to you is Rs. 4977.17.

To decide whether you are paying minimum wages as fixed by the Government from among the various components of your salary structure, those components which are included in the definition of the term "wages" in section 2(h) have to be added. They are:

Basic Rs. 4500 + House rent allowance Rs. 1800 = Rs. 6300.

Conveyance allowance and compensatory allowance cannot be included because they are not included in the definition of wages as defined in the first part of section 2(h). Rs. 6300 is more than the minimum wages notified. Therefore, there is no need to revise the salary to comply with the minimum wages notification.

I have assumed that Rs. 4977.12 is inclusive of the dearness allowance if any notified by the Government.

With regards,

Dear Mr. Mohd Arshad Barkaati, as a clarification to my last post in this thread, I am posting this message. In case the government has notified that dearness allowance should be paid in addition to the basic pay and has also indicated the amount to be paid as dearness allowance, please add up the basic pay notified by the government and the dearness allowance notified by the government. Let this total be referred to as "A". Then, add up the basic pay paid by you and the house rent allowance paid by you. Let this total be referred to as "B".

If "B" is equal to or greater than "A", then there is no need to revise the salary structure. However, if "B" is less than "A", then "B" must be increased to the level of "A".

With regards,

Please let me know if a Delhi-based company has posted an employee in another state, whether the minimum wages of Delhi or the other state will be applicable.

Thank you.

Regards

Dear Pritha Pandey, the minimum wage is fixed for specific employments. If you could specify the employment, I will be able to respond to you.

With regards,