Confused About Adjusting Basic Salary with Minimum Wage Changes in Punjab? Need Advice!

Dear Seniors,

Please advise on the topic. I have been confused for a long time and have not found any suitable or appropriate solution. In Punjab State, the minimum wage was Rs. 7623.50 (as of 01-09-2017).

Suppose the salary of an employee is Rs. 10000, with the breakup as follows:
- BASIC: Rs. 7650 (more than MW)
- HRA Allowance: Rs. 1350
- Conveyance Allowance: Rs. 500
- Washing Allowance: Rs. 500
- Total: Rs. 10000

Now, the minimum wage has been increased to Rs. 7852.17 (effective from 01/03/2018). Some say that since you are paying Rs. 10000, which is more than MW, you do not need to change the basic as per MW. Others suggest that you have to change the Basic as per MW. If we change the Basic salary, ESI & EPF figures are affected due to changes in MW twice a year. Should we change the basic salary as per minimum wages?

Please suggest the best optimum solution. I am awaiting your reply and advice. Kindly provide any documents available for justification. Thank you in advance.

Dear Gaurav, the answer to your question has already been provided several times in this portal, and you may refer to them. There is no mention in your post about the component of V.D.A in your State Minimum Wages.

Compliance with Minimum Wages

As per the ratio decidendi of the judgment of the Supreme Court of India in the Airfreight Case, if the sum total of the industry wages minus the excluded components from the definition of the term wages under the MW Act, 1948, is equal to the sum total of the statutory minimum wages, it is perfect compliance. For example, the monthly Washing Allowance in your industry wage structure cannot be treated as wages as per Sec.2(h) of the MW Act, 1948. I think that your industry wages are based on a long-term settlement or unilaterally revised by your management with the acceptance of the employees. However, minimum wages are revised by the appropriate government once in 5 years with a periodical hike in D.A being linked to one or another Cost of Living Index. Incidentally, both the revisions may not be identical in time.

Maintaining Parity Between Industry and Statutory Wages

Therefore, keep those components of the MW rates as they are while revising the others in your industry wage structure to maintain continuous parity between the industry wages and the statutory minimum wages. This would avoid differences in terms of components as well as other statutory commitments like ESI, EPF, Bonus, and Gratuity.

When it comes to the terminal benefit of gratuity, the Payment of Gratuity Act, 1972 is a comprehensive code in itself. Every special law has definitions specific to certain general terms used within it. We must adhere to the particular definition provided in the Act in relation to any term defined for the Act's purpose, without further interpretations deviating from the originally assigned meaning of that term.

Definition of Wages Under the P.G Act, 1972

Section 2(s) of the P.G Act, 1972 defines the term: "'wages' means all emoluments earned by an employee while on duty or on leave as per the terms and conditions of employment, paid or payable in cash, including dearness allowance but excluding bonus, commission, house rent allowance, overtime wages, and any other allowances." Therefore, when considering a wage structure with various components under the employment contract or any other law, only the basic pay and dearness allowance should be considered as wages for gratuity computation. In cases where wages are a consolidated sum without separate components, the entire consolidated amount must be taken into account.

Thank you.

Best regards, [Your Name]

Question is still unsolved? I also searched other posts on this matter but did not find any final conclusion. Please confirm if the basic pay is less than the minimum wage. Is it okay or not? Or should the basic pay be equal to the minimum wage? Gratuity and special allowance are out of the questions asked. Please reply only on the matter of basic pay and minimum wages. TIA

Dear Gaurav,

I think that you have to reread my answer. I've clearly explained what the parity between the statutory minimum wages and the industry wages is when they have components which are different both in types and scales. Similarly, my mention about bonus, gratuity, subscription to ESIC, EPFO, etc., is not irrelevant or out of the question as the difference or dissimilarity in basic as well as D.A between the two scales would lead to unnecessary industrial disputes eventually.

Dear All,

Please find attached a copy of the Punjab Govt's Gazette Notification specifying that the entire Minimum Wages fixed by the Govt should be treated as Basic Wages. In this case, the Minimum Wages notified by the Punjab Govt from time to time shall be considered for all statutory payments like PF, Gratuity, Bonus, etc.

Regards,
N. Nataraajhan
Email: natraj@sakthimanagement.com