Are Fluctuating Monthly Wages Legal? Understanding PF & ESI Compliance for Daily Wage Workers

Dear Sir/Madam,

One person's daily wages are Rs. 400.

His February 2023 Wage Month's Salary is Rs. 400 x 28 = Rs. 11,200.

His March 2023 Wage Month Salary is Rs. 400 x 31 = Rs. 12,400.

His April 2023 Wage Month Salary is Rs. 400 x 30 = Rs. 12,000.

In this case, daily wages of Rs. 400 remain constant for all days in a month. However, monthly wages fluctuate as they go up and down month by month.

We do not fix his wages based on monthly salary.

The question arises whether this practice complies with the PF & ESI Act and whether monthly wages must remain constant, or if daily wages should be kept constant.

Thank you.

Understanding Wage Calculation

The primary calculation is the monthly wages, and daily wages are derived by dividing the monthly wages by 26. So, in calculating wages for the month, the full payment for the month remains constant irrespective of the number of working days in the month.

Practical Application

To give a practical view in this regard, keep the monthly full wages constant throughout the period. For absence or deduction for any number of days, use the daily wages derived from such monthly wages.

Dear Sir,

When we are going to generate the UAN Card, we must fill in the Monthly EPF Wages as on joining mandatorily and correctly. Once the Monthly EPF Wages as on joining are entered incorrectly, the employer (and/or PF Office) cannot correct them.

Calculating Monthly EPF Wages

If one person's daily wages are Rs. 400 per day, what will be the Monthly EPF Wages as on joining?

Options for Monthly EPF Wages

Which one of the following should the employer fill in as the Monthly EPF Wages as on joining:

Option (a): Rs. 11,200 p.m. (28 Days Wages)

Option (b): Rs. 12,400 p.m. (31 Days Wages)

Option (c): Rs. 12,000 p.m. (30 Days Wages)

Option (d): Rs. 10,400 p.m. (26 Days Wages)

Minimum Wages Act Compliance

Are you covered under the schedule of the Minimum Wages Act 1948? If so, you are required to follow the notified minimum wages, and it has to be fixed as per the monthly wages. Even otherwise, an employee present on all days in the month is entitled to get the full wages irrespective of the number of working days in the month as per the Payment of Wages Act 1936. Trying to derive monthly wages as a multiple of daily wages is erroneous legally, and you can be prosecuted for willful violation of the law.

I think the query is about the legality of changing wages based on the number of days worked or the number of paydays in each month. There is no illegality in it. The daily rate of wages is not a crime and is followed in many industries. It is natural that, depending upon the paydays, the salary may change, and the EPF or ESI authorities will not question it. There is no dispute over the treatment of weekly off days either because you are paying for the entire month, which includes weekly off days. Therefore, there is no non-compliance in your system as long as your daily rate of wages, i.e., Rs. 400 per day, is not less than the minimum wages notified by the government.

Salary/Wages Calculation Methods

Salary/wages may be on a daily basis or a monthly basis. In the case of a daily rate, the employee's monthly wages are calculated by multiplying the number of days worked by the daily rate. PF, ESI, etc., will be based on the total monthly earnings.

Determining Daily Rate from Monthly Rate

When considering a monthly rate and determining the daily rate, there is no specific guideline under labor laws. For calculating gratuity and minimum wages to find the daily rate, the monthly rate should be divided by 26. However, various organizations use different methods for other purposes, such as dividing daily wages by 30 or the actual number of days in a particular month.

There is no harm in following any of the above methods, except when calculating gratuity and minimum wages.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] www.usdhrs.in

Dear T. Thirumurugan,

Where is the ambiguity? If the daily wage rate is fixed at Rs. 400/-, the worker will be paid for the number of days worked rather than the number of days in the month because weekly offs are not compensated for daily-rated employees. The average number of working days in a month is 25, 26, and sometimes 27. You must confirm that your industry fits within a scheduled employment category and that the sum of Rs. 400 is not less than the MW applicable to your organization.

I hope your question has been adequately addressed.

Regards,
Suresh