Navigating Salary Increments for a Young Manufacturing Company: Seeking Advice on Legal and Practical Aspects

Dear Seniors/HR Fraternity,

I'd like to start this discussion today as we have approached the end of April '12, where we'd have decided on what salary hike to be given to our employees. I'd like to take your valuable comments to understand how I can proceed with salary hikes for my manufacturing company in Tamil Nadu, which employs about 47 people. The company was started 2 years ago and has already given an increment once. Although the company is still not doing well and will need some more time to break even, we have decided to give increments to our workers and staff. I'd need your kind suggestions on the following:

1. Is an increment mandatory every year as per the Factories Act or Minimum Wages Act? In our case, our company is only 2 years old and is yet to see its profits. Do new companies have an exemption to give salary increments like we have an exemption for bonuses for a period of 5 years for startups?

2. What is the normal salary increment in the manufacturing industry in your region and how is it determined?

3. The average salary in our company is Rs. 10,000 for workers with 10 years of experience. If we wish to give an increment, how should it reflect on the salary components like basic, DA, HRA, etc., in a way that doesn't burden the company?

Please provide your valuable suggestions.

Thanks,

RK

Increment and Legislation

1. Increment is not mandatory under any legislation.

The Factories Act

2. The Factories Act is about working conditions, safety, welfare, and leave facilities, and is not about wages.

Minimum Wages Act in Tamil Nadu

3. The Minimum Wages Act ensures minimum wages for scheduled employments. In Tamil Nadu, it has two components: Basic and Dearness Allowance (DA). Dearness Allowance is revised once a year in April. After the revision in April 2012, the minimum wage in Tamil Nadu for unskilled workers is about Rs 5500. I do not remember the exact amount.

Wage Increase Recommendations

4. If your basic plus DA is above the minimum wage level, you do not need to increase wages, whether you make a profit or not. However, morally, we have a responsibility, and I normally recommend a revision as follows:

- Some increase towards inflation. If you are paying Rs 10,000, then make it a practice to give an increase of at least 50% of the minimum wages DA, which is equivalent to Rs 175 for this year, for all workers and staff effective 1st April.

- Introduce a performance appraisal system and increase based on evaluation. For a company of your size, you can categorize people into A, B, and C, and give an increase of Rs 100 for C, Rs 200 for B, and Rs 300 for A. This will work out to a 2.5% to 5% increase, which is low. In a good year, you can revise by 10% to 15%, and in a normal year, you can increase by 2.5% to 5%. Also, you must plan for a 20% to 30% increase once every three years to cope with market trends.

Regards,
T. Sivasankaran