Dear Taisha-Prabhakar, Notwithstanding the etymological differences, pay, salary, or wages refer to the compensation or remuneration that can be computed in terms of money payable by the employer to a paid employee as per the terms of the contract of employment for the services rendered by him/her. It can be wholesome or bifurcated into basic and other allowances. Allowances are paid to meet certain specific heads of expenses likely to be incurred by the employed person on account of his/her employment as well as in the form of fringe benefits. Thus, the overall structure of wages/salary/remuneration can be wholesome or consolidated or divided into components such as basic, dearness allowance, house rent allowance, conveyance allowance, etc.
Factors Influencing Wage Determination
Generally, several factors influence the determination of the quantum/level of wages in an organization that hires the services of the employees. The most significant ones among them are (1) the capacity of the employer to pay out of the value addition contributed by the employees (2) remuneration in comparable industries in the region or in the same industry (3) cost of living (4) productivity (5) bargaining power of the workmen/trade union based on the demand and supply of labor (6) mandatory statutory regulations applicable to the industry.
Therefore, the emerging structure of the wages depends on the above factors. If it is a consolidated fixed sum, a certain percentage on the basis of which has to be compulsorily set aside as indirect statutory employment benefits such as contributions to ESI and EPF, gratuity, bonus, which will cost more than the same wages broken into components. Thus, the practice of dividing the entire salary/wages into components came into vogue in the field of wage and salary administration. The statutory regulatory measures of payment of wages, including authorized deductions thereof, fixation and enforcement of minimum wages, compulsory contributions both from the employer and employee to ESI and EPF, contribution to gratuity fund, and income tax concessions make the apportionment of wage/salary into several components inevitable.
Code on Wages, 2019
However, with a view to curbing the tendency to devise the salary structure into disproportionate components so as to deprive the working classes of the indirect employment benefits, section 2(y) of the Code on Wages, 2019, which is slated to come into force w.e.f 01-04-2021, defines the term wages in such a manner that the proportion of the sum of the components of basic, dearness allowance, and retaining allowance, if any, shall always remain 50:50 to the sum total of all other allowances and the eventual shortfall if any, in the former would be made good from the latter.
Therefore, the take is yours to devise the wage/salary structure of your employees according to the statute as well as future developments.