Is My Salary Structure Compliant with Minimum Wage Laws in Uttar Pradesh?

Minimum Wage Compliance Query

I have a doubt as to whether or not the below structure is complying with the Minimum Wages structure. Case below:

Minimum Wage in Uttar Pradesh - Rs 5800
Basic - Rs 5800
Bonus - Rs 292

This makes the total payable salary Rs 6092.
Employee Contribution = Rs 803 (PF - Rs 696 and ESI - Rs 107)
Net Payable Salary to the employee = Rs 6092 - Rs 803 = Rs 5289

Now, the net payable salary (5289) has fallen below the Minimum wage level (5800).

So, is the above structure correct, or should I put Net Payable Salary as Rs 5800 and work my way up to calculate Basic and Bonus?

Minimum wage is the gross rate. Hence, deductions can be made to pay the net salary. Industry practice dictates that gross minimum wages are divided under heads such as basic, HRA, special allowance, and conveyance. This arrangement may be advantageous to both employees and employers. Employees' take-home pay will increase through this system.

Minimum wage is the lowest amount that must be paid to an employee in a day or month by the company. It is derived only from Basic + VDA. Other allowances such as HRA, Conveyance, or Special Allowance cannot be included.

If your minimum wage is Rs. 5800 (equivalent to Rs. 193 per day), then consider making the Basic salary (Basic + DA) equal to the gross salary (Rs. 5800) without showing any additional allowances. PF and ESI deductions can be made on the gross salary.

My suggestion is, since Uttar Pradesh revises minimum wages twice a year, you can consider increasing the salary to Rs. 5800 per month plus an additional Rs. 250 or Rs. 300 to avoid issues for the entire financial year. When increasing the employee's salary in April, remember to raise it by Rs. 250 or Rs. 300 along with the minimum wages to ensure no problems throughout the financial year and maintain consistency in appraisals or pay hikes.

Thank you.

You already have the answers from others here: minimum wages are computed on the gross of basic + DA. If your basic is 5800, then you have complied with the requirements of the law.

Bonus Payment Compliance

However, a bonus cannot be paid on a monthly basis. It will pose a problem. You will again be required to pay the bonus at the end of the year in line with the Payment of Bonus Act. Monthly payment does not qualify as a bonus.

I don't agree with the view of Sasawata Banerjee. In a number of companies, a bonus is being paid to the workers on a monthly basis as it avoids lots of complications. Instead of waiting for the reasons after the end of the financial year when the worker may not be working with the same contractor or for similar reasons, it's better that, in the case of contract labor, the bonus amount is paid along with the salary on a monthly basis.

Monthly Bonus and ESI Deductions

A bonus can be paid monthly, but remember it is subject to ESI deductions. As per ESIC, any payment made at intervals not exceeding two months shall attract ESI. Therefore, if the bonus is paid monthly, it will be treated as part of the salary and will attract ESI deductions. However, a bonus paid annually will not be subject to the ESI Act or deductions.

The wage structure you have adopted is correct. Permissible deductions from minimum wages are allowed under the Minimum Wage Act and the Payment of Wages Act.

Authorized Deductions Under the Payment of Wages Act

PF & ESI deductions are authorized deductions under the Payment of Wages Act, which are to be deducted from the gross salary. Considering the provisions of the Payment of Wages Act, there can be a 50% deduction from the wages. Such deductions must comply with the provisions of the Payment of Wages Act. Hope this will satisfy you.

Regards,
Avinash Kanoray

Hi all, This is Praveen. Generally, any earnings that an employee receives are considered income. However, for P.F. and ESI calculations, you should only consider their basic earnings, not the bonus amount. A bonus is paid by the company for goodwill and is not a component of wages. Therefore, you should deduct only from their basic earnings.

Basic wages are always calculated by adding a certain amount to the minimum wage. Therefore, you cannot consider the minimum wage as basic wages unless you add an additional amount to it. Only then can it be referred to as Basic Wages.

I have a tangential view, and I would like to hear your views on this matter. The minimum wage of any state is not the package that we offer to our regular staff. This package is then tailored to meet the legal stipulations and comply with the statutory compulsions to ensure that the law is met, yet the financial payout is kept to suit the budgetary constraints of the employer.

Opinion on Minimum Wage

It is my opinion that the worker must get the declared minimum wage as in-hand salary. All the ESI & EPF should be calculated over and above the minimum wage for fixing his gross salary. Thus, we ensure justice with a benign hand, and that also minimizes the market inflation at his level of pay.

This gives us a bit less business as a Service Provider, but it makes my worker loyal and dependable, reducing the turnover factor immensely. Even when he leaves me, he is always looking forward to joining the company again.

I welcome your views and criticism on my view and practice for the past 7 years of running my company. We pay the minimum wage to our worker in hand as his take-home salary and meet all the statutory payouts after that.

Regards,
Vikramjit Singh
Wg.Cdr. (Retd)
Proprietor
Azaad Enterprises Services & Consultancy