How Should Employers Respond to State Notifications Ignoring HRA in Minimum Wages?

Judgment on Minimum Wages and VDA

Please find attached a copy of the judgment by the Hon'ble Supreme Court in the case of Airfreight v. State of Karnataka. The Supreme Court has clearly held that in cases where an employer is paying a total sum higher than the minimum wages fixed under the Act, including the cost of living index (VDA), they are not required to pay VDA separately. However, these higher wages should be calculated as defined in Section 2(h) of the Act (copy attached). Section 2(h) of the Minimum Wages Act 1948 defines wages as all remuneration capable of being expressed in terms of money and includes house rent allowance (HRA) (copy attached).

However, despite the specific provision in the Minimum Wages Act 1948 and the clear judgment of the Hon'ble Supreme Court, almost all State Governments have issued Gazette Notifications fixing only Basic Wages and Dearness Allowance as Minimum Wages, ignoring HRA.

Moreover, the recent order of the EPF Tribunal (copy attached) is also very specific that the fixation of wages/allowances is between the employer and employee. The EPF authorities can only demand PF contributions on the Basic and DA fixed as per the EPF & MP Act 1952.

Therefore, in view of the recent amendment to the Payment of Bonus Act 1965, employers should take this up through their representative forums/federations and challenge the notifications of the respective State Governments issued under the Minimum Wages Act 1948. This would ensure that a minimum bonus of Rs 7000/- could be paid without reference to the minimum wages. The revised fixation of wages and allowances could also help employers in restricting costs towards many other payments like gratuity, etc.

I would be thankful if you could inform me of your detailed and considered views on the above.

Regards, N Nataraajhan

[Phone Number Removed For Privacy Reasons]

Sakthi Management Services

Sorry, I am not able to understand what exactly is the clarification sought in your post. The definition of the term wages under Section 2(h) of the Minimum Wages Act, 1948, refers to the inclusive components that constitute the minimum wages fixed and periodically revised under the Act. It is not necessary for all such components to be prescribed in the minimum wages fixed for the scheduled employments. What is important is that the sum total of the industry wages, irrespective of the scale or nomenclature of the components other than the excluded ones, should not be less than the minimum wages fixed by the appropriate government for that scheduled employment.

So, the non-inclusion of HRA as a distinct component in the rates of minimum wages cannot be viewed as an act of non-compliance with the definition of wage under the Minimum Wages Act, 1948, and the ratio decidendi of the Apex Court's decision in the Air Freight Corporation case as well.

If HRA is also included in the rate of minimum wages as you suggested, you will probably have to pay more than the minimum bonus of Rs. 7000, as the added HRA component may raise the minimum wages invariably in all scheduled employments.

Regards,
[Username]

Thank you for your prompt and detailed response. The definition of "wages" in the Minimum Wages Act 1948 clearly states that HRA is part of MW. However, when we separate MW into Basic, DA, and HRA, PF officials have raised objections to this division. There have been numerous High Court judgments following the controversial circular issued by the EPFO in 2011. Only recently, there has been some clarification after the latest ruling by the EPF Appellate Tribunal.

When notifying the MW, if the State Government could specify that any elements explicitly included in the definition of "wages" such as Basic, DA, HRA, etc., are part of MW, it would bring more clarity and ensure proper compliance with the Act.

Since HRA is considered part of MW, its inclusion should not exceed the total MW, and HRA should not be seen as an additional payment on top of MW.

Regards,

N. Nataraajhan

[Phone Number Removed For Privacy Reasons]

[Email Removed For Privacy Reasons]

The controversial circular of the EPFO is an example of how, at times, enforcement authorities tend to cross "the Lakshman Rekha" in their excess enthusiasm. My suggestion to challenge it went unheeded by employers for various reasons.

Determination of Wage and Its Components

The determination of wages, their scales, and structure is a subject of collective bargaining between the industrial employer and employees. This process is based on several factors such as demand and supply, profitability, regional imbalances, bargaining power of employees, and productivity. Therefore, introducing certain components that aim to raise only the money wages rather than real wages, causing an indirect burden on the employer, is a universally accepted convention in wage and salary administration.

When the definition of wage is clear in particular legislation to serve its purpose, it is not necessary for the enforcement authority under that legislation to adopt an extended and liberal definition of the same term from different legislation meant for another purpose.

Regards,
Nataraj

Dear All,

Please find attached a copy of an article in LLR regarding the applicability of the High Court judgment on the stay of retrospective effect of Bonus for the year 2014-15 all over India.

Regards,
N. Nataraajhan
HP: +91 94835 17402
Sakthi Management Services

Applicability of High Court Orders across India on the retrospective effect of Payment of Bonus (Amendment) Act, 2015.

https://lnkd.in/eHf-w-j

Please let me know if you need further assistance.