Understanding Salary Adjustments for Employees Earning Above Minimum Wage but Below Basic and DA Requirements

Dear Team,

One of my client's factories is engaged in Ghee production in Maharashtra. The factory is located in zone III, while the corporate office operates in zone I.

In Maharashtra, the basic salary for skilled workers in zone III is 10,440, with a DA of 675 for the factory. On the other hand, for the corporate office, which is governed by the "Maharashtra Shop and Establishments Act" and situated in zone I, the basic salary for skilled employees is 11,632, with a DA of 1,092.

The client intends to adhere to the minimum wages set by the Maharashtra government. According to my understanding, any employees currently earning less than the minimum wages applicable to their workplace zone must have their salaries adjusted to meet the minimum wage criteria. Additionally, it is essential to note that no splitting of the Basic and DA components for PF contributions will be permitted.

Query Regarding Salary Structure

I have a query regarding the salary structure for those employees who currently receive salaries higher than the government-prescribed minimum wages for their respective working zones. However, their Basic and DA components fall short of the minimum wage levels mandated by the government. Could you please provide guidance on this matter?

Thank you.

Dear Alka, this issue had already been settled by the Apex Court in the Airfreight Ltd case. For the purpose of deciding the remuneration paid under the contract of employment, you have to take wages in their entirety as a single package. For the purpose of determining parity between the industry wages or the wages under the contract of employment and the statutory minimum wages, you have to exclude from the industry wages all the excluded components mentioned in the definition of the term "wages" under section 2 (h) of the Minimum Wages Act, 1948. Thus, if the sum total of the industry wages minus its excluded components is equal to the sum total of the statutory minimum wages, it is okay.

Dear Alka,

The employees whom you deputize from your office, i.e., those existing in Zone I and transferring to the factory in Zone III, are eligible for the rate of Zone I.

The employees who do not fall under your office, i.e., those existing in Zone I and working in the factory in Zone III, are eligible for the rate of Zone III.

Your client will reimburse at the rate of Zone III but not at the rate of Zone I, as the latter is the statutory rate.

The client's request to pay according to minimum wages is legitimate and evident.

If you are certain that employees are being paid below the minimum wage, address this issue with your client.

Splitting minimum wages into components is unlawful. It is challenging to provide a definitive response without all the relevant details. It is advisable to discuss the matter with the labor inspector while having a copy of the payslip on hand.

Query Regarding Salary Structure

As per the query, what will be the salary structure for those employees who are getting a salary higher than the government-decided minimum wages in their working zone, but their Basic and DA are lower than the minimum wages set by the government for Basic and DA?

In my opinion, it will be necessary to adjust their Basic and DA to meet the minimum wages of the respective zones, and any remaining amount should be paid as HRA to ensure compliance.

S K Bandyopadhyay (Howrah, WB) CEO-USD HR Solutions

Computation of PF and Wage Structure

The computation of PF is now based on gross wages less HRA and certain specified allowances and overtime.

Further, under the new Code of Wages applicable from April 1, 2021, Basic + DA needs to be at least 50% of gross wages. You need to take that into account when deciding the structure of the wages.

Dear Alka,

Greetings for the day. First of all, it is important to understand that Minimum Wages are a statutory liability for employees and fall under the categories of Unskilled, Semi-Skilled, Skilled, and Supervisory Capacity, not for Management Representatives.

Secondly, the Salary Structure for employees receiving more than the Government-decided Minimum Wages should reflect their management capacity. I believe the salary structure for them should be as follows: Basic - 50% of the gross salary, HRA - 50% of basic for metropolitan areas or 40% for non-metropolitan areas, Conveyance - Rs. 1600/- (exempted from Income Tax), Medical Allowance - Rs. 2500/- (exempted from Income Tax), with the rest categorized under other allowances. However, it is crucial to remember that the Basic salary cannot be less than the minimum wages defined by the state government from time to time.

Thanks & Regards,

Sumit Kumar Saxena

Understanding Minimum Wages

Minimum wages mean the lowest wages that can be considered for a particular employment category. Anything above this can be adjusted in other heads of salary; however, statutory compliance calls for the inclusion of all the mandatory heads as applicable. Please ensure that IT is also given due care while managing the other heads for the salary. It would be appropriate to ensure that minimum wages are considered strictly when computing the salary structure.