Minimum Wage Concerns: Will Switching to 30-Day Salary Calculation Cause Issues?

Dear seniors,

Good evening. Recently, I have joined a company, and starting from 15th March 2017, ESIC is applicable. The company is basically a showroom and falls under the Shops and Establishments Act.

Salary Calculation Method Change

Up until now, they have been dividing the total salary by 26/27 days instead of calculating based on the number of days in a month to meet the minimum wage requirements. However, they have now agreed to switch to the concept of using 30/31 days in the calculation. This adjustment results in the total salary falling below the minimum wage requirements.

Concerns Regarding Minimum Wage Compliance

My question is, will there be any issues from the minimum wage perspective if we switch to the 30-day concept? Please advise on the potential problems that may arise.

Thank you.

Kishwar

You have to find out whether your employees are engaged as per the appointment letter on a daily wage basis or a monthly salary basis. For monthly-rated employees, pay salary as mentioned in the applicable minimum wages notification. To determine daily wages for monthly-rated employees, divide the gross salary by the total number of days in the respective month.

Methods of Calculating Daily Wages

There are two legal ways to calculate daily wages. One, by dividing the declared wages by 26 days; and two, by dividing wages by the actual days of the month. In the case of the former, weekly off days will not be paid; in the case of the latter, the weekly off days will have to be paid.

Legal Considerations Under the Industrial Disputes Act

Now, the Industrial Disputes Act is applicable to your showroom. If you change the method of calculation of wages for employees, you will be required to issue a notice of change 21 days prior to effecting the change as provided under section 9A of the Act. Generally, no employee of the showroom will raise an industrial dispute, but you need to be legally correct on this aspect.

Cost Implications of Overtime Payment

If you are required to pay overtime at double the rate of wages, then the second way will save your costs.