Understanding Minimum Wage Compliance: Should We Adjust Basic Pay or Is Gross Enough?

Minimum Wage Revision and Compliance Query

Minimum Wage has been revised significantly this time. The notification states a basic amount of 6,500 and a DA of 1,232, summing up to a total of 7,732. Currently, we have been paying a gross salary to our contractual staff that exceeds 7,732. However, this amount includes components like washing allowance and HRA, whereas the basic pay we have been providing is lower than what the new declaration suggests.

Do I need to revise the basic pay to ensure compliance? Or is it sufficient that the gross amount is higher than the specified figure, making no revision necessary.

Regards

You can check or refer to the Minimum Wages Act or the Payment of Wages Act. It's very clear that any allowances could be a part of your breakup. The basic salary can be bifurcated into any number of breakups to keep DA as actual. It's not necessary to keep the basic wages as per the gazette under the name of Basic. However, you have to ensure that PF is paid for Minimum wages. If your washing allowances are not a part of minimum wages, you have to increase the basic.

Does this mean that if cr. sal for my contractual staff is: basic = 5500 and gross = 8000, the MW gets revised to 7732 with the detail that basic will increase to 6500/-. I do not need to revise the current salary as my current salary (8000) is more than the new MW (7732), but ensure that PF is paid on 7732.

Yes, the minimum wage is the least you can pay your employees. A minimum of Rs. 7732 must be maintained in your payroll, and no one should be paid below that amount. In your case, you can review the structure and proceed accordingly.

Secondly, if you pay Provident Fund (PF) for the minimum wage, that is good. However, ensure that you do not reduce the existing benefits of any employee. This policy applies only to employees who are at the entry level. Please do not limit it to just the minimum wage, as this may be the only savings for some employees.

Thank you.

Just a quick thought, do you mean that for existing employees, I need to increase the basic salary to 6500/- from 5500/- even though the gross pay is already higher at 8000 than what has been specified in the new declaration (7732)?

Supreme Court Verdict on Minimum Wages and P.F. Contribution

As per the verdict given by the Honorable Supreme Court in the Airfreight case, the Minimum Wages constitute the amount inclusive of all allowances. So, you need not revise the salary. However, I disagree with the opinion that P.F. contribution is required to be paid on minimum wages.

The P.F. Act states that the contribution shall be paid on Basic + D.A. and not on allowances. There has been no amendment in that regard till today. The P.F. office had issued a circular directing contributions to be paid on Minimum Wages. However, this has been challenged, and several high courts have ruled that the circular is bad in law. Therefore, the P.F. Office has issued another circular keeping the previous circular in abeyance.

Currently, P.F. authorities cannot ask for P.F. contribution to be paid on minimum wages. If you have any doubts, feel free to ask me.

Regards,
Mukund Kulkarni
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Hi Mukund, now, PF authorities are asking us to pay PF for allowances except for HRA (which is also exempted up to 20%). We received a note from them, and we have paid PF for allowances as well.

It depends on your salary breakup, as we discussed earlier. If you have only basic and DA components, then yes, you have to increase the basic. If you have more components, split those by increasing the basic and reducing other components.

In simpler terms, it's about minimum wages and not about gross or fixed wages. Minimum wages are only applicable for employees who are receiving the lowest salary in your company. A person's salary should not be fixed below the specified minimum wage.

Regards