Is It Legal to Offset Minimum Wage Hikes by Raising Basic Wages for Industrial Workers?

Can we avoid giving an increase in industrial workers' VDA/hike of minimum wages by setting higher basic wages for industry workers (above the minimum wage rate)? That would be legal pursuant to the Minimum Wages Act. Kindly comment. Thanks.

Understanding Minimum Wage Obligations

As long as the 'worker' falls under the definition of the Payment of Wages Act by virtue of the work that he/she does, it doesn't matter even if the basic wage is Rs.30,000/- per month. It is still mandatory to provide a minimum wage greater than or equal to what is applicable for your industry/location. The reference for the worker definition is the "Payment of Wages Act."

On a more humane side, the reason why a minimum wage is recommended by the government is that statistics show that in order to survive and have two meals, a roof over the head, and basic healthcare, one needs to be paid a minimum wage per day. Without this, it's not possible to survive. As humans, this is the bare minimum consideration we should give to our fellow human beings.

Hope this clarifies your doubt.

Warm Regards,
Deena J

Understanding Minimum Wage Laws

Minimum wage laws state that wages paid should be higher than the minimum wages specified in the notifications. The notification includes both basic pay and Dearness Allowance (DA). Therefore, your basic pay and DA combined must exceed the current minimum wages notification. The notification is updated every six months, so you need to ensure your pay remains above that threshold each time.

If you choose to set your basic pay higher than what you expect the minimum wage to be in the following year, you may not need to provide salary increments until that level is surpassed.

Understanding Salary and VDA Compliance

The problem is not with the answers but with the question. My understanding of the question is: Can we fix a salary above the minimum wages without any VDA so that there is no need to adjust the VDA periodically? Is that correct? If so, please read what Saswata Banerjee has said. He has rightly mentioned that there is nothing illegal if you provide only a basic salary, provided it is above the minimum wages.

For example, if the minimum wages are Basic Rs 5000 and DA Rs 9000, and you give your workers Rs 9000 as a basic wage with no DA, then legally you are said to comply with the Minimum Wages Act requirements. However, the VDA is normally revised over time, say once in 6 months, a year, or even every month (as in Kerala) by linking it to Consumer Price Indices. When the DA is increased, you would be paying short of the statutory salary. Therefore, while fixing a salary without VDA, you will have to provide a cushion so that an increase in the VDA will not be a problem.

Continuing the above example, if the increase in the DA as per the pattern followed is Rs 600, then you can fix a salary of Rs 10000, which will normally protect against the increase in DA as well.

Regards, Madhu.T.K

This is a very good platform. I thank the Cite Team.

Dear Madhu.T.K, thank you very much for what you have mentioned; it is a very good interpretation pursuant to labor laws. However, someone may expect from the creator of the law that "rates as defined by the Minimum Wages Act must be an entitlement of all workmen engaged in production, and an increase in DA should become a right to get increased (DA) by law."

As a result, minimum wages should be expected to be applicable to all industry workers as per the Minimum Wages Act, and any sum being paid in excess of that should be considered as a separate allowance beyond Basic + DA. The purpose of saying this is:

1. Every production workman should be covered under the Minimum Wages Act.
2. Production workmen should get Basic + DA as per the Minimum Wages Act only, as defined by the Government from time to time.
3. Any increase/efficiency allowance increase needs to be kept outside the limit of the Minimum Wages Act.

Alternatively, there is a need to request the Government to amend the Minimum Wages Act to compute minimum wages with respect to the years of experience of any workman. For example, Workman A has 10 years of experience, and Workman B has 1 year of experience. In such a case, minimum wages need to be differently decided for both workers with respect to the years of service/experience.

The Minimum Wages Act should be applicable to industry/production/manufacturing or to any employee whose salary is below the Minimum Wages Act at the time of an increase in DA.

Kindly, you may put your comments if you feel it fits.

Minimum Wages and Service Duration

Normally, all notifications pertaining to minimum wages will have a provision for an increase in the basic wages depending upon the service of the workmen. Accordingly, the minimum wages of an employee who has been in service for 5 years or 10 years will not be the same as that of a fresher.

Minimum Wages Across Sectors

Minimum wages have been notified not only for manufacturing industries but for almost all sectors. Accordingly, there are minimum wages for employees working in shops, commercial establishments, hotels, IT and ITES services, domestic services, etc. The number of scheduled employments may differ from state to state, but most of the states have covered the important industries.

Components of Minimum Wages

Though minimum wages comprise a basic wage and a dearness allowance varying according to changes in cost of living indices, there is no need to consider these two components separately. In Airfreight Ltd Vs State of Karnataka (1999 LLR1008), the Supreme Court held that if the company is paying more than the minimum wages, then the company is considered to comply with the requirements of the Minimum Wages Act, and there is no need to pay Variable DA separately. The only thing to be ensured is that the amount you pay should not be less than the sum of basic and DA at any point in time.

Regards, Madhu.T.K

Minimum Wage Revision and Applicability to Union Employees

We have permanent employees under a union in the engineering industry, and they have salaries above the minimum wage, i.e., Rs. 5704.70 + 2898.70 (D.A) = 8603.40. Contract workmen have a salary of 3130 + 2898.70 (D.A) = 6028.70 as of 01/03/14. On 3rd March 2014, as per notification, the minimum wages were revised as follows, and the basic was as below: basic - 6000 + D.A 1624 (as per notification dated 22/04/14 for the period 03/03/14 to 30/06/14) = 7624 (Unskilled).

The same revision was applied to the contract workmen who were below the minimum wages (3130 + 2898.70 = 6028.70). We paid them 6000 + 1624 = 7624. According to the settlement with the permanent employees, they were only liable for the increase part and the difference part of the special allowance declared by the government. Hence, this Rs.1624 rise in D.A was not given to them, which was within the six-month period from 03/03/14 to 30/06/14, as we could not determine the difference in D.A since the D.A was revised with the new series 2001 = 100, and the previous D.A of the old series was 2898.70.

As per the notification dated 06/08/14, the D.A for the period 01/07/14 to 31/12/14 was declared as Rs.1652. The rise to be given would be Rs.1652 - 1624 = 28. The contract workmen accepted this, but the permanent union employees did not. They demanded Rs.1624 from 03/03/14 and Rs.28 from 01/07/14, totaling 1652.

I want to know whether the Rs.1624 rise between the six-month period i.e., 03/03/14 to 30/06/14, is applicable to union employees who are above the minimum wages and what the D.A amount for the period 01/07/14 to 30/06/14 should be for the union employees.

The Rs.1624 rise in D.A was only to minimize the wages and not applicable to workers above the minimum wages. This is not clear. Please clarify and help.

Regards, Ramesh Gujre

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