Salary Breakdown Dilemma: How to Balance Basic Pay and DA with Minimum Wage Rules?

I have a doubt. For example, suppose an employee's salary is Rs. 20,000.00 per month. Should we keep the basic salary + dearness allowance (DA) as per the minimum wages requirement, or can we set it at 50% of the monthly salary?

Job location: Delhi

Regards,
Ankit Rao

Hi, as per your state guidelines on the Minimum Wages Act, your offer (Basic + DA) should exceed the minimum wage set by the act.

As you need to follow the minimum wages applicable to you, the latest judgment states that minimum wages can be split into allowances, but this is only for PF. In the appeal against the order of the EPF Authority under section 7A of the Act, the appellant stated that directing the appellant to deposit the dues is illegal as the EPF Authority has assessed the dues considering the allowances as ‘basic wages’.

The EPF Appellate Tribunal observed that the provident fund contribution is to be calculated on the basic wages and not upon the wages fixed under the Minimum Wages Act, as already settled by the Punjab & Haryana High Court in the case of APFC Gurgaon vs. M/s. G4S Security Services (I) Ltd., 2011 LLR 316. Fixation of wage structure is within the domain of the employer. Wages can be split into allowances. Hence, the order of the EPF Authority cannot sustain, and the appeal is allowed.

M/s. SSM Fine Yarns vs. RPFC, Madurai ATA No.734(13) 2010 decided on 7.2.2012

Wages under minimum wages mean gross wages, namely basic & other allowances. The allowances may or may not include DA. Few employers pay Basic+DA at a lesser rate than the applicable minimum wages but pay allowances and ensure that such gross wages are more than prescribed. This way, they reduce the burden of PF & gratuity. The Supreme Court has held that gross wages should be equal to or more than gross wages.

Organizations have their own norms of apportioning monthly gross into basic & allowances where there is no DA component. It can be 50 or 60% to basic & the rest into allowances. In Maharashtra & West Bengal, 5% or more should be apportioned for HRA (if the employee strength is 50 or more).

Hope this satisfies your query.

Regards,
Shrikant Prabhudesai

There is no hard and fast rule to fix 50% of the gross salary as Basic + DA. The Basic + DA should be equal to or more than the minimum wage prevailing in your state. Under any circumstance, it should not be less than the minimum wage.

The question is how to calculate DA based on the price index on the first of April of each financial year, which serves as the benchmark for the year. Provide illustrations for each case:

a. Wages @ 100 basic
b. Wages @ 50% basic + 50 @ DA
c. Wages @ 50% + 50% allowances other than DA