I have explained the definition of wages as per different labor codes ( all have same definition) ) in this forum several times. However, once again explaining the same as below:-
1. Wages as defined has no relevance with contribution to PF, ESIC, Bonus calculation, gratuity calculation etc. Once wages ( Basic & DA ) is determined, contribution will be on the basis of the same. For determination of Basic & DA, CONTRIBUTION TO PF, ESIC ETC HAS NO EFFECT. Today the cap for PF contribution is 15K, ESIC 21K, Bonus eligibility cap 21 K etc. Tomorrow all of them will change with the years to go as a natural increase. Where the Basic and DA will be less than 15K after restructuring of wages as per new codes, then PF contribution will be on BASIC + DA + Other allowances as per Apex court verdict subject to cap of 15K. Gratuity as on date paid on the basis of last drawn Basic and DA which will continue even after implementation of wage code. I have came across with two situations - in one case at Odisha the labor officer instructed to pay gratuity on minimum wages as the Basic & DA was less than minimum wages prevailing at that time of payment which was appeared to me logical but not on gross salary. Another case where the gratuity scheme is with Vesuvius India Ltd ( MNC ) is up to 10 years of service the gratuity will be paid on 15 days basis, > 10 years but < 20 years of service - 21 days basis and for 20 years and more service on the basis of 26 days with no upper limit. But the calculation on the basis of Basic only not on monthly gross.
I hope all Indian organizations are paying gratuity on the basis of last drawn basic & DA not on monthly gross even after the verdict of Apex court regarding PF contribution. There is no harm in paying more gratuity if the organization has capacity to pay. Any payment of gratuity beyond the calculation of PG act will be taxable.
2.It is true that in the definition of wages no where it is mentioned that Basic & DA will be 50% ( of what ?). What is mentioned that if the payment made to employee under clause (a) to (i) of the exclusion list if more than 50% of all the remuneration calculated under this clause, then the excess amount above 50% will add back to Basic & DA.
Now what is all the remuneration calculated under the clause is Basic & DA and the allowances under (a) to (i) of the exclusion list. In the above paragraph as mentioned in the definition of wages it is crystal clear that 50% will be allowances including Emploer's PF contribution, OT etc. and automatic (100 - 50 ) = 50% will be basic and DA of all the remuneration calculated under this clause. It is simple arithematics.
3. As on date the PF contribution is paid on most of the allowances excepting few, ESIC contribution on monthly gross except conveyance allowance, Bonus eligibility on the basis of Basic & DA - not on monthly gross and Gratuity on the basis of last drawn Basic and DA not on monthly gross. After implementation of Labor codes, the liability of PF & Gratuity will be more for employers.
4. My personal view is until there is any specific court verdict about the calculation of the Gratuity, all the employers in India will follow the existing practice except very few organizations who may pay Gratuity beyond the statutory method/limit.
Restructuring of the existing remuneration package will be must for majority Indian organizations to avoid any future complications. There are many opinions about the new labor codes - likings and dis-likings which in future will be resolved through different court cases.
I personally feel that all labor laws are made for broadly two reasons - welfare, social security measure etc. as India is considered as welfare state and another for control, discipline, rules & regulations, health & safety etc. That is why most of the court verdicts are in favor of employees. Even 240 days/190 days work in the 5th year for payment of gratuity is a outcome of the same. Employees are always weaker section of the society than employer - therefore, such court verdicts are always welcome.
If any of the above explanation is appeared as misinterpretation, requesting to come forward and post proper interpretation for the knowledge of myself and other members.
S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531
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