So long as the gross salary paid is above the statutory minimum wages payable, the employer is said to comply with the legal requirements, and there is no significance for various components. However, keeping the basic wages constant and adjusting the other allowances according to the market is unfair and can be challenged.
Salary Structure and VDA
In a salary structure where VDA is present, it is increased based on the Consumer Price Index every month, quarter, or at least every six months (in Tamil Nadu, it is adjusted to the Consumer Price Index once a year), and the employee will get the cost of living compensated to an extent. The basic reasons for salary revision every year are:
1. Rewarding the performance of an employee
2. Compensating the increase in the consumer price index or the cost of living.
Earlier and even now in companies where collective bargaining is present and PSUs, these two purposes are served with an increase shown in the basic salary and variable dearness allowance. In the absence of VDA as a component of salary, there should be some component wherein the factor to compensate for the increase in CPI is reflected. It can be either in the Basic salary itself. However, companies that claim to be employee-friendly do not increase the basic salaries of their employees but will increase some 'other allowances' just to defeat the law which says that contributions like Bonus, PF, Gratuity, etc., are payable on Basic salary and Dearness Allowance only. Though it is a wrong interpretation of the Act and judgments concerning such Acts, we will have to raise a lot of questions before justice is ensured.