Is Including VDA in Salary Legally Required When Notified by State Government?

Dear Seniors,

Our state government has also notified the VDA along with the minimum wages. Please clarify, since VDA is notified by the state government, whether it is legally mandatory to include the VDA component in the salary structure or not?

Regards,
Rachna

Understanding the Role of VDA in Wage Structures

It is not statutorily mandatory to have the component of VDA in the industry wage structure. However, what is important is that the sum total of the actual wages paid to an employee or workman holding a particular post or designated job in a scheduled employment under the Minimum Wages Act, 1948, should not be less than the sum total of the minimum wages fixed under the Act.

As per the Minimum Wages Act, 1948, the minimum wages once fixed should be periodically revised, not exceeding a period of five years. You are well aware that within a span of five years, the hike in the price level will have a negative impact on the value of money. This important factor has to be taken into account by the Appropriate Government while fixing and revising the rates of minimum wages due to the predominantly unorganized nature of employment prevailing in the scheduled employments.

That's why the component of VDA is introduced by linking it to the Cost of Living Index. If you don't have the component of VDA in your industry wage structure, it is your statutory obligation to ensure that the sum total of your industry wages always remains equal to the sum total of the minimum wages fixed by the Government.

Regards,
[Username]

Understanding Wages and Salary Definitions

The terms "wages" and "salary" have been defined under various labor enactments differently, depending on the overall objective of each legislation. These definitions include certain components as part of "wages" and exclude others for the purpose of computing the benefits they intend to confer on the employees covered by them. One cannot help it because wage or salary is the monetary consideration, as well as part of other considerations computable in terms of money, for the services rendered by the employee. From time immemorial, it has been a product of demand and supply only. Hence, there is also variation arising out of the inclusion and exclusion of certain components and the practice of segregating the entire remuneration into basic wages, basic pay, or basic salary and allowances. Allowances are always related to the nature and duration of the employment.

Juxtaposing Industry Wages and Minimum Wages

Therefore, while juxtaposing industry wages and minimum wages, the employer has to be more cautious about the following aspects:

(a) To arrive at the parity of the sum total of the industry wages and the minimum wages, only those components included in the definition of wages under section 2(h) of the Minimum Wages Act, 1948, should be taken into account for inclusion.

(b) Even then, such inclusion should not result in the deprivation of the quantum of any social security benefits like gratuity, EPF, etc.

Dear sir,

Since DA is not a statutory component, employers may take advantage of this to minimize EPF and bonus contributions. Frankly speaking, is this depriving employees of their benefits?

Your views, please...

Dear Rachna,

Dearness Allowance is included in the salary or wages under the Payment of Bonus Act, 1965. It is also taken into account to compute the last drawn wages under the Payment of Gratuity Act, 1972 for the purpose of gratuity. Section 6 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 includes Dearness Allowance and Retaining Allowance in the percentage of the contribution to the EPF.

Thank you.

Though Umakanth sir has explained the wages concept in various aspects in relation to the concerned Act(s), and even rightly interpreted by you, DA is considered a part of Wage/Salary under the PF and Bonus Act. You have not mentioned the state name. In some states, DA is a compulsory part of the Minimum Wages Structure under the Minimum Wages Act, while in others, it is at the employer's discretion whether to include DA or not.

If in your case, DA is not a compulsory part, then I would also suggest not including this under the Salary structure. You can include other heads (HRA, Conveyance, Uniform Allowance, Special Allowance, etc.). This will minimize costs towards Bonus & EPF, as many companies are now focusing on cost optimization. You can opt for the same.

Fellow members can shed more light on the matter.