Is It Mandatory for Basic Wages to Match Minimum Wages? Seeking Clarity from HR Peers

Dear All,

I am working with an NBFC. Recently, we received instructions from the labor commissioner regarding the wage breakdown. According to them, the basic wages should be equal to the minimum wages.

Is it necessary for basic wages to be equal to minimum wages?

Regards,
Uday

Dear Udaysingh,

Could you please upload a copy of the instructions?

Thank you.

Dear Uday,

Has he given these instructions in writing? If yes, please upload it. Yet, there are no clear instructions from any government body that Minimum Wages should be based on the Basic wage.

Thank you.

Dear Sir,

Thank you for your response. However, they have not provided written instructions. In the last meeting, ALC informed us that minimum wages can only be divided into Basic+HRA in a 70:30 ratio.

Regards,
Uday

Minimum Wages and Basic Wages

The Minimum Wages Act provides the state government with the authority to notify minimum wages, which it does every six months. The minimum wages notification states that the basic and special allowance (DA) should be above a certain amount. Therefore, the minimum wages are equal to the basic, not the gross.

Yes, looking at the provisions of both acts, the basic (assuming you do not have DA or special allowance) needs to be equal to or above the minimum wages. There have been some judgments by a particular high court stating that the intention of the legislature was not this but to ensure the total payment is above minimum wages. However, that judgment is not ratio decidendi for Karnataka. And in any case, do you really have the time and money to fight it out in court?

Dear Uday, the minimum wage fixed under the Minimum Wages Act, 1948, has to be considered as a single package for the purpose of comparison with the actual industry wages paid, despite the components in the structures of both scales. However, the components excluded from the term "wages" under section 2(h) of the MW Act, 1948, which are present in the industry wage structure, should not be taken into consideration when determining the parity between the two rates. This principle was established in the judgment of the Supreme Court in Airfreight Ltd., vs State of Karnataka and Others (1999 LLR 1008). In essence, the total of the minimum wages should be equal to the total of the industry wages, excluding the excluded items.

Regarding the suggestion of the ALC on the bifurcation of the minimum wages

It may be his personal opinion. If I recall correctly, the higher judiciary recently emphasized that the executive should not modify the legislation passed by the Legislature, as seen in a case concerning the executive instructions of the EPFO on computing EPF contributions strictly based on the minimum wages set. Wages are determined by the demand and supply of labor in the job market through collective bargaining. The definition of "wages" varies from one Act to another depending on its purpose. This is why the Supreme Court concluded that minimum wages essentially constitute a unified package, regardless of their components.

Thank you.

Dear Saswata Banerjee Sir,

Thank you for your kind consideration. As you wrote, "The minimum wages notification says that basic and special allowance (DA) should be above a certain amount. So the minimum wages are equal to basic, not gross." Could you share any such notification in which it has been declared? It will be really helpful for me.

Regards,
Uday