Is It Legal to Split Minimum Wages for Fresh Workmen? Seeking Guidance on HRA and Contributions

Dear Team,

Minimum Wage Structure for Fresh Workman

Can we establish the following structure for the minimum wage of a fresh workman? For instance, if the minimum wage is 10,000/-:

- Basic: 6,000
- HRA: 2,400
- Con: 1,600

As HRA is not considered a part of wages, and there is no case law or guidance prohibiting the splitting of minimum wages. Even in the Air Freight case, it was acknowledged that all components of wages constitute minimum wages, and there is no requirement to pay Variable Dearness Allowance (VDA) if the wages exceed the minimum wage. In one decision, the Haryana court also ruled in favor of splitting the minimum wage.

Considerations for PF and ESI Contributions

- As per PF wages, we can deduct the contribution on Basic + Con.
- For ESI contribution, it is based on Basic + HRA.

I kindly request your valuable guidance. Please assist me in referencing a relevant case law to support my response.

Supreme Court Ruling on Wage Components

In Airfreight India vs. State of Karnataka, the Supreme Court has stated that as long as the total wages paid are more than the minimum wages set by the government, any components the employer includes in wages are acceptable. It is not necessary for wages to include a component called Variable Dearness Allowance. However, in cases such as determining contributions to PF, calculating bonuses, gratuity, etc., the entire salary should be considered as wages. It is important that compliance includes taking into account all allowances and total wages, rather than only basic wages for statutory payments.

You cannot split the minimum wages into different components other than the notified wages of ₹10,000/-. The basic wages shall remain ₹10,000/-. The company can pay other allowances above the wages, but for all purposes of EPF, ESI, E C, and F&F calculation, the basic wage is ₹10,000/-. Unscrupulous employers may change the format to gain monetarily, taking advantage of the workforce's ignorance. Keep in mind that the basic + DA + VDA should be equal to or more than the minimum rate of wages.

Minimum Wage Structure and Statutory Benefits

The entire minimum wage prescribed for the position should be considered under the monthly fixed Basic if there is no DA component as part of the salary structure. The Basic will be considered for statutory benefits calculation such as PF, Gratuity, and Leave Encashment.

As we know, every state government periodically notifies schedules of minimum wages applicable in various sectors/industries. For example, the website of the Government of Karnataka publishes the minimum wages split into Basic, DA/VDA, etc., which can be seen in this link: https://karmikaspandana.karnataka.go...ear+2024-25/en. (Please check the respective government's websites appropriately for guidance).

According to this notification, the quantum is specified industry-wise under different heads, and therefore, these stipulations should be adhered to. An employer may be free to pay their employees more than the specified amounts.