Minimum Wages Breakdown: Should It Be Just Basic or Split into Multiple Parts?

A company pays minimum wages to its employees by dividing it into two components - Basic and Special allowance. Could you please clarify whether minimum wages should consist of only the basic component or if they can be divided into two or three components?

Thank you.

Gross wages, including all allowances, are to be considered for calculation under the Minimum Wages Act compliance.

Please refer to the definition given in 2(h) of the Minimum Wages Act, 1948, which states that it includes all remuneration capable of being expressed in terms of money, plus house rent allowance. It can be split into more categories, but it must be ensured that the workers are not deprived of the recurring benefits prescribed by the Appropriate Government under other relevant Acts.

BS Kalsi, Member since August 2011

Considerations for Splitting Minimum Wages

There are many things that you should consider while doing so. Mostly, companies adopt this practice to reduce the burden of remitting the lump sum PF contributions. However, it is not a fair practice. There is a circular from EPFO which states, "splitting of minimum wages for the purpose of PF contribution is not permissible."

If you split the minimum wages into different subheads, you are essentially deducting some amount from the Basic and DA parts. By doing so, you are depriving your workers of the benefits of EPF. Hence, my sincere advice is to not split minimum wages.

I request professionals to shed some light on this topic.

Dear All,

As per my understanding, minimum wages cannot be split into components.

Regards,
Col. Rathi

Friends,

The Punjab & Haryana High Court, vide an order dated 20.7.2011 (copy attached), has permitted the splitting of minimum wages for PF. Similarly, the EPFA Tribunal, vide an order dated 30.11.2015 (copy attached), has also permitted splitting. However, it is understood that the matter is pending before the Supreme Court for a final decision.

Thanks

Dear sir,

Warm greetings,

If we split the minimum wages into different components, there is a shortfall in PF contribution. Therefore, my opinion is not to split the minimum wage.

Regards,
Siva

Dear sir,

Warm greetings,

Minimum wages are nothing but (Basic+DA), and PF contribution is generally considered on both (Basic+DA). So, in my opinion, minimum wages cannot be split into components.

Best regards,
Nihar Ranjan Swain.

Can anyone provide clarity on whether minimum wages can be split into different allowances so that the contractor pays a lower contribution to PF remittances?

For example, if Minimum Wage = Rs. 325/Day, the Total Wage for 26 days would be Rs. 8450/Month. Breaking it down further:
- Basic (@35% of Gross) = 2958
- HRA (@30% of basic) = 887
- Other Allowances = 4605

Therefore, the contractor would pay PF for Rs. 2958, amounting to Rs. 253.

The splitting of minimum wages should not be used to avoid or manipulate the EPFO. If the employee is of a permanent nature within the establishment, then HRA can be allowed as an allowance from MW. However, in the case of casual employments, gross consolidated wages are minimum wages and cannot be split. In gross Basic + HRA = Minimum Wages, anything paid over it may be taken in other allowances. But in no case can the EPF Wages be below 50% of gross wages (subject to a ceiling of 15000/- if maintained).

State Government's Role in Minimum Wages

The State Government is the appropriate authority to monitor, regulate, and control minimum wages. Barring a few exceptions, all state governments have notified a fixed amount, i.e., per day/month amount, as wages payable. For example, in UP, an unskilled laborer is to be paid a minimum wage of Rs. 277.47 per day.

In this situation, if you choose to bifurcate wages in your way, it will have multiple implications. Not only is it against and a violation of the Minimum Wages Act, but it is also legally objectionable from other provisions such as PF and bonus amounts being paid less. Similarly, where Basic and DA are two components of minimum wages, a few state governments are taking similar actions, always leading to similar situations. Apex court rulings will never guarantee to save one based on its own verdicts decided earlier. It would be prudent and more logical if we opt not to bifurcate the notified minimum wages.

Labor Laws and Penalties

One more factor we must keep in mind is that Labor Laws are a socially beneficial piece of legislation. So, labor welfare will always be the base factor in adjudicating and regulating such issues. Any short payment of wages has a ten times penalty that should also be understood. So, let's agree not to play with the notified rates as minimum wages.

Regards, RDS Yadav Labour Law Advisor

Minimum Wages and EPF Contribution

An appeal was filed by the appellant before the EPF Appellate Tribunal against the order dated 14.12.2012, passed by the EPF Authority under Section 7A of the Act, considering the minimum wages under the Minimum Wages Act. The EPF Appellate Tribunal observed that the employer has bifurcated the minimum wages into different heads like basic wages, house rent allowance, conveyance allowance, special allowance, skill allowance, etc. The employer has been paying EPF contribution only on the basic wages as provided under the EPF Act, excluding allowances.

The headquarters office of the EPFO, via circular dated 23.05.2011, has stated to ensure that the PF contribution shall be remitted on not less than minimum wages. Accordingly, the EPF Authority initiated proceedings under Section 7A of the Act, considering the minimum wages under the Minimum Wages Act and directed the employer to pay the contribution so determined.

The EPF Appellate Tribunal opined that minimum wages have not been defined under the EPF Act. Only basic wages are defined under the Act. The EPF Authority has no power to hold whether minimum wages amount to basic wages or not. While interpreting a provision of any Act, the Court only has to interpret the law and cannot legislate it. If a provision of law is misused and subjected to abuse of process of law, it is for the legislature to amend, modify, or repeal it, if deemed necessary. There is no compulsion to hold that the definition of 'minimum wages' under the Minimum Wages Act. The employer is liable to deduct PF contribution on basic wages as defined under Section 2(b) read along with Section 6 of the EPF Act and not on minimum wages as per the Minimum Wages Act. Hence, the impugned order is set aside. Appeal not allowed.

Please refer to:

- M/s. Chalet Hotel Pvt Ltd Vs. RPFC, Thane, ATA No.17(9) 2013, decided on 21.07.2014
- M/s. A.K. Manpower Services Vs. RPFC, Mumbai ATA No.606(9), 2011, decided on 27.07.2011
- M/s Delight Services Vs. RPFC, Indore, ATA NO. 743(8)2010, decided on 26.11.2015

Thanks & Regards,

V Shakya

HR & Labour Law Advisor

Splitting Minimum Wages: Legal Considerations

Many have shared their views on both judicial pronouncements and what is considered fair. Please consider splitting up only if your company is either facing a financial crisis or has a long-standing practice of dividing minimum wages into various components. The details provided clearly indicate the reader's assessment, and it may be considered an attempt to deceive, which could be detrimental to the services or the High Court order.

This approach will not help as each case is unique before the authority under Section 7A of the EPF Act. Splitting minimum wages is deemed acceptable as per the Supreme Court decision in the case of Air Freight Cargo Bengaluru vs. The Government of Karnataka and others.

Query on Minimum Wages and PF Deductions

I have a query regarding this. If PF is deducted on Basic Plus DA, and Minimum Wages are also based on Basic and DA (which are revised every six months or so), correct me if I am wrong. Then why are employers breaking/bifurcating Basic? Isn't bifurcating Basic a violation of the Minimum Wages Act? Since they are not paying the Minimum Wages (i.e., if we calculate bifurcated Basic PLUS DA, excluding HRA and other components, it will be less than what is declared by the Government) and only to pay less PF, for the employees who work for the employer's benefit is not practically correct.

Please correct me if I am wrong.

Thank you.

Regards, Smita

No law can be considered by way of personal opinion. I know the government has inserted such an act just to provide benefits to employees. However, the act, such as EPF, doesn't define the definition of minimum wages. Minimum wages are not basic plus DA. As per the definition of minimum wages under section 2(h), minimum wages mean all remuneration inclusive of HRA. Hence, minimum wages may be divided into certain allowances to ensure that any employee should not receive wages/salary inclusive of all allowances less than minimum wages.

Now, regarding your query for EPF contribution, minimum wages can be bifurcated into certain allowances because minimum wages are not defined in the EPF act. Contribution shall be made as per section 2(b) of the EPF act, not based on minimum wages. Furthermore, the Supreme Court has also permitted bifurcation in the case of air freight cargo. The EPF tribunal has also permitted bifurcation in some cases as mentioned in my earlier post. Therefore, there is no doubt that minimum wages can be bifurcated for EPF contribution.

Thanks & Regards,

V. Shakya

HR & Labour Law Advisor

My Dear ANONYMOUS friend,

I have already clarified in my earlier mail that an employer is not allowed to split the minimum wage fixed by the state governments to deprive the workers of the social security benefits available to them under various Acts, viz, ESI, PF, etc. Any such splitting of minimum wages will be illegal and wrong where the contribution of ESI, PF, etc., is reduced.

BS Kalsi,
Member since August 2011

Minimum wages can be split as per various orders of EPF Tribunal.

Dr. P. Willington Jebaraj