How Do I Calculate Variable Dearness Allowance and Stay Updated with CPI for My Staff?

Hi!

I want to calculate Variable Dearness Allowance as it is an important component of the salary for our field staff. Can you please guide me on the method of calculating the same? Also, do I need to register my company to get the latest Consumer Price Index points? If yes, where should I register? I need to update the VDA every quarter. Please shed some light on how I should proceed.

Regards, Reshma

Hi Reshma,

"I want to calculate Variable Dearness Allowance as it is an important component of the salary for our field staff."

Well, Reshma, I just did an analysis of the VDA for the workers of our organization's factory and would like to share some views on the same.

MINIMUM WAGES ACT, 1948

Background

A tripartite Committee, "The Committee on Fair Wage," was set up in 1948 to provide guidelines for wage structures in the country. The report of this Committee was a major landmark in the history of the formulation of wage policy in India. Its recommendations set out the key concepts of the 'living wage,' 'minimum wages,' and 'fair wage' besides setting out guidelines for wage fixation.

Article 39 states that the State shall, in particular, direct its policy towards securing (a) that the citizen, men and women equally shall have the right to an adequate livelihood and (b) that there is equal pay for equal work for both men and women.

Article 43 states that the State shall endeavor, by suitable legislation or economic organization or in any other way, to give all workers, agricultural, industrial, or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure, and social and cultural opportunities.

Enactment of the Minimum Wages Act

Historical Backdrop

- The initiative started with the resolution placed by one Shri K.G.R. Choudhary in 1920 for setting up Boards for the determination of minimum wages in each industry.
- The International Labour Conference adopted in 1928 Convention No. 26 and Recommendation No. 30 relating to wage-fixing machinery in trades or parts of trades.
- On the recommendation of the Standing Labour Committee and Indian Labour Conference, a Labour Investigation Committee was appointed in 1943 to investigate the question of wages and other matters like housing, social conditions, and employment.
- A draft bill was considered by the Indian Labour Conference in 1945.
- The 8th meeting of the Standing Labour Committee recommended in 1946 to enact a separate legislation for the unorganized sector including working hours, minimum wages, and paid holidays.
- A Minimum Wages Bill was introduced in the Central Legislative Assembly on 11.4.46 to provide for the fixation of minimum wages in certain employments. It was passed in 1946 and came into force with effect from 15.3.48.

Under the Act, Central and State Governments are appropriate Governments to

(a) notify scheduled employment
(b) fix/revise minimum wages

The Act contains a list of all these employments for which minimum wages are to be fixed by the appropriate Governments.

There are two parts of the Schedule. Part I has non-agricultural employments whereas Part-II relates to employment in agriculture.

Criteria for notification of scheduled employment

The appropriate Government fixes the minimum wage in respect of only those scheduled employments where the number of employees is 1000 or more.

Fixation/revision of minimum wages

Norms

The norms include those which were recommended by the Indian Labour Conference in its session held in 1957.

(i) 3 consumption units for one earner.
(ii) Minimum food requirements of 2700 calories per average Indian adult.
(iii) Clothing requirements of 72 yards per annum per family.
(iv) Rent corresponding to the minimum area provided for under the Government's Industrial Housing Scheme.
(v) Fuel, lighting, and other miscellaneous items of expenditure to constitute 20% of the total Minimum Wages.

Other parameters

(i) "Children education, medical requirement, minimum recreation including festivals/ceremonies and provision for old age, marriage, etc. should further constitute 25% of the total minimum wage." This judgment was delivered by the Supreme Court of India in 1991 in the case of Reptakos Brett and Co. Vs. its workmen.
(ii) Local conditions and other factors influencing the wage rate.

Methods for fixation/revision of minimum wages

Fixation

Section 3 empowers the appropriate Government to fix the minimum rates of wages in the scheduled employments.

Revision

Revise the Minimum rates at an appropriate interval not exceeding five years.

Procedure for Fixation/Revision

In Section 5 of the Minimum Wages Act, 1948, two methods have been provided for fixation/revision of minimum wages. They are Committee method and Notification method.

Committee Method

Under this method, committees and sub-committees are set up by the appropriate Governments to hold inquiries and make recommendations with regard to the fixation and revision of minimum wages, as the case may be.

Notification method

In this method, Government proposals are published in the Official Gazette for information of the persons likely to be affected thereby and specify a date not less than two months from the date of the notification on which the proposals will be taken into consideration.

After considering the advice of the Committees/Sub-committees and all the representations received by the specified date in the Notification method, the appropriate Government shall, by notification in the Official Gazette, fix/revise the minimum wage in respect of the concerned scheduled employment and it shall come into force on the expiry of three months from the date of its issue.

Variable Dearness Allowance (VDA)

It was recommended in the Labour Ministers' Conference held in 1988 to evolve a mechanism to protect wages against inflation by linking it to the rise in the Consumer Price Index. The Variable Dearness Allowance came into being in the year 1991. The allowance is revised twice a year, once on 1st April and then on 1st October. In the State Sphere, 26 States/Union Territories have provisions for Variable Dearness Allowance, at present.

Enforcement Machinery

The enforcement of the provisions of the Minimum Wages Act in the Central Sphere is secured through the officers of Central Industrial Relations Machinery.

In so far as the State Sphere is concerned, the enforcement is the responsibility of the respective State Government/Union Territory.

Hence, it started with good intentions to provide for decent wages for workers. Field staff who come in the Management Cadre usually left out as they are comparatively well remunerated.

However, as a functional head, you must analyze whether it is relevant to your organization and remember one thing - it is based on CPI 1991 series which is updated every month and usually doesn't go down and has the potential to be a risk when it comes to maintaining the costs within the Budgets! In my analysis, I found that it had increased by 92% in a span of four years. Therefore, I am in the process of converting the same into Fixed D.A., which would be a herculean task!

"Can you please guide me on the method of calculating the same? Also, do I need to register my company for getting the latest Consumer Index points? If yes, where should I register? I need to update the VDA every quarter."

You would get the data from any union offices like Mumbai Labour Union or MCCI or B.M.C as well.

Here the difference between the two reading is taken for calculation. For instance, with the hypothetical example as below:

Sep '07 - 13200 points
Oct '07 - 13400 points

The difference 200 points is multiplied by the factor as decided between the parties (company and Union) to pay 2.5 per ten points hence it would be 200*2.5/10 = Rs 50 per day. If the person has worked for 26 days - he would be paid VDA of Rs 50 * 26 = 1300 in the wages for Oct '07.

Hope that clarifies some issues.

Best Regards,

Rajat Joshi

Thanks, Rajat. I got to know the basics, but how will I come to the CPI points. Which website should I log in to, or do I need to register anywhere? Also, is it different state-wise, or is it common at an all India level.

Dear M. Peer Mohamed Sardhar,

It's not really specific. Anyways, I really appreciate your prompt response and cooperation. If possible, please try to provide some more information.

Regards,
RC

Mr. Mohammad,

Do you have any record that could provide information about the latest minimum wages in Uttar Pradesh, notification of changes in VDA, along with CPI? If yes, please provide the same and oblige me.

Thanks and regards,
Purshottam Saini

Dear Mohomad,

Please tell me how you collect information for half-yearly revised VDA. Could you also inform me if we have the option to change or increase VDA?

Waiting for your reply.

Nilesh K

Wage Revision and Inflation

Considering the living cost and all, wage revision is being done once every five or ten years. However, inflation increases day by day, and subsequently, the value of money decreases. To compensate for this, we have to wait until the next wage revision, which is not practical. That is why the Dearness Allowance (DA) is introduced.

Understanding Price Indices

The devaluation of money can be assessed through the Wholesale Price Index and the All India Consumer Price Index (AICPI). The difference between these two is that the price variation of all commodities is considered for the Wholesale Price Index. In contrast, the AICPI is based on a particular consumer, namely the industrial worker, and even on some specified commodities and services called the "Basket of Goods."

Calculation of Industrial DA

Based on the AICPI, industrial DA is paid; it varies in quarters commencing from January, April, July, and October. For January, the AICPI will be the average of the previous September, October, and November. Similarly, for April, it will be December, January, and February; for July, it will be March, April, and May; and for October, it will be June, July, and August, respectively.

When the money devaluation is fully compensated, it is called full DA neutralization. The formula for full DA neutralization is: (Total points - Base points) / Base points (in percentage). The AICPI was introduced in India in 1960 and revised in 1982 and 2001. AICPI of 2001 multiplied by 4.63 gives the AICPI of 1982, and AICPI of 1982 multiplied by 4.93 gives the AICPI of 1960. For DA calculation, the AICPI of 1960 is accepted as the base.

Wage Settlements in India

Currently, in India, there are mainly two terms of wage settlements: Wage Settlements of 1.1.1997 and 1.1.2007. The base point on 1.1.1997 is 1708, and on 1.1.2007 is 2884.

Example Calculation

I shall quote one example, i.e., the calculation of AICPI for July '10. This is equivalent to the average of the previous March, April, and May, which are recorded as 170, 170, and 172 (Base year 2001). Multiply by 4.63 and round, we get 787, 787, and 796 (Base year 1982). Multiply by 4.93 and round, we get 3880, 3880, and 3924 (Base year 1960). Find the average of these three and round, we get 3895.

DA Calculation for Different Scales

- DA for 1.1.97 scale: Total points - 3895, Base points - 1708, Total - Base = 2187. Percentage is 2187 / 1708 x 100 = 128.0 (Correct to one decimal).
- DA for 1.1.2007 scale: Total points - 3895, Base points - 2884, Total - Base = 1011. Percentage is 1011 / 2884 x 100 = 35.1 (Correct to one decimal).

I shall insert an Excel sheet for IDA calculation effective 1.10.2008. You may extend the rows further as necessary and just enter the three indexes towards the year 2001 in the green column. The results will appear in yellow, and red is used for static information.

Regards,

ABBAS.P.S, Secretary, ITI Employees' Association, ITI Limited, PALAKKAD - 678 623, KERALA, INDIA.

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AICPI (base 2001) can be obtained from the following site: Labour Statistics Page 2

Casual employees (Muster Roll employees) in Mizoram have not enjoyed VDA. Please tell me how to calculate VDA for different skilled categories (i.e., unskilled/semi-skilled/skilled-I/skilled).

With regards,

Lalnunmawia

I have learned how to calculate VDA from the above passage. However, my problem is the calculation for various skill levels. Is the rate of VDA the same for various skill levels (i.e., Unskilled, Semiskilled/Skilled I/Skilled II)?

Please reply.

Lalnunmawia

I have learned how to calculate VDA from the above passage. However, my problem is the calculation for various skill levels. Is the rate of VDA the same for various skill levels (i.e., unskilled, semiskilled/skilled I/skilled II)?

Please reply.

Lalnunmawia
Email: mamawiakhiangte@gmail.com

Dear Lalnunmawia,

There may not be any difference in terms of trade or skill. Earlier, the Department of Public Enterprises had categorized DA in terms of salary, i.e., 50%, 60%, 75%, 100%, etc. But to provide full neutralization of DA to all, it is now made uniform.

Abbas.P.S

I want to calculate Variable Dearness Allowance as it is an important component of the salary for our field staff. Can you please guide me on the method of calculating the same?

Consumer Price Index Registration

Do I need to register my company to get the latest Consumer Price Index points? I need to calculate the VDA every year from 01-04-2013.

Current Year Calculation

This year (01.10.2012 to 31.03.2013 = 917-847 = 70 points), the present minimum wage is 70 points. I have a percentage formula. Please clarify.

Regards,
Prasad

I need to know the VDA for the automobile industry. And also, I want to register to get monthly updates. Please guide.

Dear Reshma,

Please find below the current CPI Press Release at PRESS RELEASE.

Thank you.

How to Calculate VDA by Series 2001=100 and Convert to 1982=100 Series

Please let me know how to calculate VDA by series 2001=100 and convert it to the 1982=100 series. What is the formula for this in Mumbai, Maharashtra, for the engineering industry? Please send an attachment if calculated for the periods from July 2014 to December 2014 and January 2015 to June 2015. I have the example below, but I'm not sure if it is correct because it does not match the D.A. amount of the 1982 series.

Variable D.A. Calculation from 01-07-2014 to 31-12-2014

The committee members' demand is given below:

Consumer Price Index for Local (Jan-14 to Jun-14 Average)

- MUMBAI: 244, 246, 247, 250, 253, 257, Average: 250
- NAGPUR: 266, 265, 265, 270, 274, 276, Average: 269
- NASIK: 244, 243, 244, 246, 250, 253, Average: 247
- PUNE: 246, 248, 248, 250, 253, 252, Average: 250
- SOLAPUR: 256, 256, 256, 256, 257, 255, Average: 256
- JAGAON: 260, 260, 254, 262, 263, 257, Average: 259
- NANDED: 263, 266, 272, 254, 252, 279, Average: 264
- AURANGABAD: 260, 266, 264, 274, 268, 267, Average: 267
- KOLHAPUR: 255, 257, 248, 250, 257, 251, Average: 253
- AKOLA: 223, 223, 213, 200, 204, 236, Average: 217

Total: 15184, Average for 6 months: 2531, Average for 10 locations: 253. So, CPI 256 is the average of 10 locations for 6 months from Jan-14 to Jun-14. The linking factor for converting the 2001 series to the 1982 series is 5.18 for the Mumbai Centre, which also covers Murbad.

Therefore, 253 x 5.18 = 1311. The 1982 Series CPI is 1311 - base index of 501 = 810. Then, 810 x 4.10 (neutralization factor) = 3321. Please help me and reply.

Regards, Ramesh Gujre

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