How Do I Standardize Basic Salaries in a Proprietor-Based Company with Varied Percentages?

I joined a proprietor-based company as an HR executive, where I found that employees had different basic salaries with no uniformity. For example, it could be 20% for some and 30% for others. It may vary from person to person, such as 15.75% or 14%. This means that salaries may be represented as Rs 300, Rs 1000, or Rs 1500. Now, they have asked me to design the appointment letter considering that basic amount and also design the gross salary of new employees. However, the 12% on the basic salary should not exceed Rs 150. In this situation, how do I determine the minimum percentage to consider when calculating the basic salary, given that one person's salary is Rs 7500 and another's is Rs 14000 per month? I am confused about what I should do.

As per the Minimum Wages Act, we need to provide the basic pay to the employees. Please discuss with your management and advise them to change the basic pay of the employees.

Thank you.

The basic wage should be higher than the minimum wage set by your state's labor act. However, you are only considering 40% or 50%, which would fall under the minimum wage act.

Thank you.

The basic/DA salary/wages cannot be less than the Minimum Wages in terms of the Notification issued by the State Government. In the state of West Bengal, the MW Notification stipulates that the entire amount, i.e., minimum wages as declared, is basic & DA. To be on the safer side, it is advisable to follow the MW Act as well as the MW Notification. Most small companies show a lower basic/DA salary/wages with the intention of paying a reduced amount of the employer's PF contribution @13.61% because the PF contribution is calculated on basic/DA.

You may bring this matter to the attention of your top management and help them understand the legal position to avoid future litigation/liabilities.

Regards,
Sibabrata Majumdar
Management Consultant Legal & HR
[Email Removed For Privacy Reasons]

Mr. S. Mujamdar's observation is very timely since some managements do not ensure to cover minimum wages even after adding basic plus DA, especially for lower-level employees. When labor and PF authorities inspect, they have found violations, i.e., a deficiency of minimum wages even after adding both basic plus DA, and have penalized the employer. Hence, it is safer to check and fix basic plus DA slightly above the minimum.

Regards,

Fixation of Basic Pay

There is no hard and fast rule for the fixation of Basic Pay in the Act. One should pay the minimum wages fixed by the Government. Basic Pay is fixed by the company according to their policies. There is no minimum level fixed in any act. However, according to the position in the company or cadre, they will fix the Basic Pay. Normally, it will be 50%. However, in some cases of field or marketing jobs, the basic pay will be less, and the allowances are more.

Regards

Understanding Salary Design and Minimum Wage Compliance

If your management states that 12% of the basic salary should not exceed Rs. 150, it implies that the basic salary should not be above Rs. 1250, translating to Rs. 41.66 per day. This indicates that your employer is requesting you to design the salary below the minimum wage guidelines. Please try to convince your management; otherwise, you might encounter significant issues.

Regards

As per your query, I want to suggest that you can follow the below break-up for the appointment letter:

- Basic: 40%
- HRA: 20%
- Conveyance: 20%
- Other Allowances: 20%

Warm Regards,
Satish Rajput
Ambala