Navigating Wage Adjustments: Should Principal Employers Pay Increased Basic Arrears?

Work Order and Wage Adjustments

A Work Order (WO) was issued to the contractor based on the estimate of the present basic wage for two years, stating that no increase in Variable Dearness Allowance (VDA) and statutory wages will be given for the WO period as per the tender. However, in the interim, the government announced a new basic amount (an increase) for the protection of minimum wages. As a principal employer, do we have to provide increased basic arrears or not?

Certainly, 'YES', because it is the ultimate responsibility of the principal employer to ensure payment of wages under section 21(4) of the CLRAA, 1970. Wages mean the statutory minimum rates of wages as applicable from time to time.

Dear Member,

When we issue any work order (WO) with a comprehensive nature or a fixed price, as a principal employer, we should consider a tentative amount for expected rate revision or cost hike, especially in the case of large manpower contracts.

Work Order Approval in MNCs

In multinational corporations (MNCs) or big companies, WO approval is processed based on the L1 pattern only, where the minimum wage (MW) revision point is not considered. To achieve L1 targets, contractors often consider existing wages with optimized statutory benefits, which is not a recommended practice.

Addressing Rate Revisions

To address this issue during the WO processing, it is advisable to consider approximately a 5% rate revision. However, special comments should be included stating, "The revised rates will be applicable after prior approval." The signing authority must ensure that the hike is related to MW hike factors only.

I handle over 100 contracts in which I consider about a 5% hike related to MW, increase in manpower, unexpected overtime, etc. When processing the bills, I ensure that the actual cost aligns with norms and is pre-approved by the appropriate authority.

Calculating Cost Factors

In your current situation, you should first calculate the existing cost factors plus any upcoming expected cost hikes. Based on this calculation, you can issue an amendment to the WO.

I hope the above information fulfills your requirements. Senior staff, please feel free to suggest additional inputs.