Navigating Client Demands: How to Justify a 26-Day Salary Calculation Over 30 Days?

Hi, Request your support to clarify the following:

We are a contracting company executing projects PAN India. We receive orders from major corporates, and these are then subcontracted to different contractors. We ensure that all subcontractors adhere to statutory compliances such as PF, ESI, PT, LWF, Minimum Wages, etc.

Subsequently, we submit our compliance documents to our clients. Recently, one of our clients has requested that we provide attendance and salary calculations for only 26 days instead of the standard 30 days. They have expressed that our current practice is incorrect and have suggested changing the HR personnel.

Could someone provide guidance on this matter? Is there any support to justify the 26-day calculation over 30 days? Are there potential issues that may arise in the future?

Thank you in advance.

Regards, Mary

It is true that as per the Minimum Wages Act, an employee shall be paid for 26 days. If the employee is paid monthly, the daily rate is found by dividing the monthly pay by 26. The overtime is calculated by dividing the monthly salary (whatever is the wages qualifying salary) by 26. Gratuity, anyway, is calculated on a daily salary arrived at by dividing the monthly salary by 26.

Acts providing for health, safety, and welfare

Acts that provide for the health, safety, and welfare of workers employed (such as the Factories Act, Shops and Commercial Establishments Act, etc.) state that after 6 days of work, the employee shall be given one full day of rest. Whether it is to be a paid day is not mentioned. But if the monthly rate is converted into a daily rate by dividing the former by 26, naturally, the payment for the weekly holidays would be ensured. Still, if the companies are ready to pay four days' salary for their weekly holidays, what is the big problem in it? Why should you change the Personnel Manager?

Impact on ESI and EPF benefits

When you show 26 days in ESI and EPF portals, the employee will lose certain benefits. Each month will account for four days' non-contributory periods, and that will result in around 52 days a year. This will probably reduce his pension. Similarly, for various benefits under ESI, the number of days worked should qualify. Moreover, in respect of regular employees, there exists a regular contract of employment which starts on the date of joining and extends until the date of leaving. It is not like, till Saturday he is an employee and on Sunday he is not an employee! If something happens to an employee on Sunday, the employer will disown all responsibilities, including EDLI payable by the EPFO.

Practical considerations for daily workers

In a practical scenario, in respect of workers engaged on a daily basis, the system of 26 days will work. But in respect of workers who are on your rolls, the 26 days will not work. They may be contract workers for the principal employer, but for you, they are your regular employees.

Hi, it depends on the nature of work or the employment relationship. If the employment is on a permanent basis, a weekly day off becomes compulsory. Therefore, you need to determine the nature of the employment (whether the work is full-time or piece-rate with flexible hours). Accordingly, an employee who consistently contributes to the employer should be granted a day of rest each week. In that scenario, processing the salary for 30 or 31 days would be ideal based on the month.

You need not be concerned as long as you are not paying less than the Minimum Wage because the statutory average wage (minimum wage) for a day is determined taking into account the weekly off, which is why the monthly wage is divided by 26 to reach a daily rate. You give earnings columns in your payroll such as Days worked, Weekly offs, Paid Holiday/s, Leave, Absent, and so on, and show total days as 28/29/30/31 depending on the month. This will account for PF NCP days and ESI for the average daily salary. This system is not objectionable to any Auditor.

Example of Wage Calculation

You can describe this in the following way. Example 1: If a worker's monthly income is Rs. 13,000, his daily average is 13,000/26 = 500. When you present the same monthly wage as 13,000 and subtract 1 day's salary in September, your monthly calculation is 13,000 x 29/30 = 12,566.67 (433.33 per day). Therefore, you will be deducting only Rs. 433.33 as against Rs. 500, and you will not be doing any injustice to your labor. However, according to the law, you must only pay Rs. 500 in overtime wages, not Rs. 433.33. You can display per-day salaries for OT calculations in the payroll system by dividing 26 by the Minimum Wage.

I hope the aforementioned system will assist you with statutory compliance.

Regards, Suresh

Hi Mary,

There is no non-compliance on your part. In this connection, please refer to Section 23(4) of the Minimum Wages (Central) Rules, 1950, excerpts of which are given below:

Quote: PROVIDED that where the minimum daily rate of wages of the employee as notified under the Act has been worked out by dividing the minimum monthly rate of wages by twenty-six, or where the actual daily rate of wages of the employee has been worked out by dividing the monthly rate of wages by twenty-six and such actual daily rate of wages is not less than the notified minimum daily rate of wages of the employee, no wages for the rest day shall be payable, and in case the employee works on the rest day and has been given a substituted rest day, he shall be paid only for the rest day on which he worked, an amount equal to the wages payable to him at the overtime rate.

Hi Mary, It seems like you're facing a specific request from your client regarding the calculation of attendance and salary. To address this situation, you can take the following steps:

Review Employment Agreements and Contracts

Ensure that your employment agreements with the subcontractors clearly define the terms of employment, including working days and payment terms. If there's no specific mention of the number of working days, consult legal counsel to understand your options.

Check Local Labour Laws

Verify the labor laws applicable in the regions where the projects are being executed. Different states in India may have varying regulations regarding working days, overtime, and minimum wage calculations.

Engage in a Discussion with the Client

It's essential to have open communication with your client. Understand their rationale behind the request for 26 days instead of 30. It's possible they have specific internal policies or compliance requirements that they are adhering to.

Consult with a Labor Consultant or Legal Expert

If you're uncertain about the legality or implications of adjusting the calculation, seek advice from a labor consultant or legal expert. They can provide guidance based on the specific laws and regulations in your region.

Documentation and Transparency

Keep detailed records of all communications with the client regarding this matter. This includes emails, meeting notes, and any official documents exchanged. This can serve as evidence of your efforts to comply with their request.

Consider the Practical Implications

Evaluate the impact of using a 26-day calculation on your subcontractors and your business. Ensure that it doesn't result in any legal or ethical issues for either party.

Propose a Solution

If it's feasible and legally compliant, propose a solution that aligns with both parties' needs. This could involve adjusting your HR practices or finding a compromise that satisfies your client's requirements.

Implement Changes Gradually

If you decide to make changes to your HR practices, do so gradually and communicate clearly with all stakeholders, including subcontractors.

Remember, it's crucial to consult with professionals who are well-versed in Indian labor laws and employment practices to ensure that you're making informed decisions. Always prioritize compliance with local regulations and maintain transparency in your business relationships.

Regards.