Understanding Wage Calculations: Should Extra Days Affect Monthly Pay and ESI?

Hello experts, consider the following situation. I'm paying a factory worker 18,000 for a month.

Per day wage calculation

If 26 days are to be considered as the base for month calculation, the per day wage is calculated as follows: (18,000/26 = 692).

Payment for March

Now, for the month of March, should I be paying him 692 x 27 (31 days - 4 Sundays) = 18,684, which is higher than the agreed amount?

Consideration of additional days

So my question is, if my attendance is above the base days, should those days be taken into consideration for the per day wage?

Inclusion in ESI

If 18K is gross, then should any amount above that be included in ESI?

Monthly Salary Calculation

If you are paying a monthly salary, it stays the same whether the month has 28, 30, or 31 days.

Per-Day Rate for Leave Without Pay (LWP)

The per-day rate would be used mainly to compute the cost of LWP to be deducted from the salary. Therefore, you don't have to pay extra for March even though it has 5 Sundays.

Calculating Daily Pro-Rata Amount for Salaries

If you are paying a monthly salary to employees, usually the daily pro-rata amount is taken into consideration for Leave Without Pay (LWP), overtime, etc. If $18,000 is the monthly gross, it is for a month and not for 28 days, 30 days, or 31 days. For the average daily wage, you may use the logic [Gross/Total Days]. Also, weekly offs are anyway payable. So, the daily wage comes into the picture only when LWP or OT is there.

Dear Colleague,

It is understood from your write-up that you are a factory. In the case of a factory, the per day wages are calculated by dividing by 26, as you rightly mentioned. Keep this very simple:

- If you have daily wage employees, then you have to pay the per day wages multiplied by the number of days worked.

- If you have monthly wage employees, then keep the consolidated pay as it is for every month, and it will not fluctuate. Say 18K is a constant figure. If the worker works for 26 days, he will get this salary, and 4 weekly offs are obvious. Despite 28 days, 29 days, 30 days, or 31 days, the salary will not change, and it will be 18K only. In factories, the weekly off is not a paid day. It is only a week holiday. The salary, in any case, will not exceed 18K for your working.

In the case of PF Contribution and ESI Contribution by the employer, it is over and above 18K, as per the narrated instance.

Salary Calculation Standards

Salary payable is fixed. If monthly, it is exclusive of the weekly off and holidays in general. Therefore, the standard remains the workdays excluding offs. In general, 26 days or 27 days, and 25 days in February are considered as standard for calculating per day wages. Statutory deductions are also to be considered while defining the salary per month.

Monthly Rated Employee Wage Calculation

When an employee is monthly rated, why do we divide their wage by the number of working days instead of the total number of days in that particular month?

In my opinion, for a monthly-rated employee retained at Rs. 18,000 salary per month who has 2 days absent in the month of March, the calculation should be: 18,000/31*29 = 16,838.70 and not 18,000/26*24 = 16,615.38 as suggested above.

Regards

Calculating Monthly Wages

The answer by Dr. P. Shiva Kumar and Sh. P. K. Sharma, read together, provides the right solution. To simplify, divide the gross salary (Rs. 18,000) by the number of days in a month to determine the per-day wages for monthly wage employees. To calculate the wages for a particular month, multiply this amount by the number of paid days, considering present days, weekly offs, holidays, etc.

Adv. NEERAJ AGARWAL
Labour Law Consultants & Advisors
LEGAL WAYS LLP

Hello, thank you all for the valuable inputs. I've gone through other posts on the site regarding daily wage calculation. There are a lot of mixed answers.

To arrive at the daily rate

Some say they consider the number of working days as the base to divide the gross for a given month (which varies according to the month, like in February we have 28-4 = 24 working days, in March it could be 31-5 = 26).

Some say they consider 26 as standard as the base for all months (more in line with the act or in the context of the factory).

Some say they divide the gross by the number of days of a month (not in line with labor acts). So, there is a lot of confusion.

From the discussion in this thread, can we summarize the following points?

1. For a daily wage worker, his gross should be divided by 26 to arrive at the per-day cost payable to him (more in line with the act). So if 2600 is his gross, then the amount to be paid per day should be 100/-.

Then irrespective of the month, whether it is 31, 30, or 28 days, we pay him for the number of days he worked on all working days. So even if he works for 27 days because there would be a month of 31 days with 4 Sundays, that results in 27 working days...then will he get 2700 or 2600?

For February, he would work for 28-4 = 24 days...then should he get 2600 or 2400?

2. Let's say I don't talk about the monthly figure as I mentioned 18,000. I simply hire the labor, telling him I am going to pay him 500 per day.

Then I pay him for all workdays irrespective of the base of 26 days. Is it legal?

Or do I need to tell him per month 15,000 and per day 15,000/26 = 577/- instead of 500 per day?

In the above case, he works all the days and is entitled to get 15,000, do I need to deduct all contributions like PF, ESI and pay him the remainder net figure?

3. Is there anything like a monthly wage employee in the context of a factory? I believe we calculate per-day wage and pay the aggregate at the end of the month.

Apart from labor people, there could also be management workforce in a factory, and is it legal if I decide their base month as 30 days specific to them and 26 days for labor?

Overall, a whole lot of confusion lies around labor-centric payroll rather than the corporate payroll process. Can we have a simplified view on this?

Thanks.

Chirag Mehta.