Understanding Basic Pay: What Labor Laws Say About Calculation Rules and Company Decisions

Hi Everyone, I have two questions and would appreciate your guidance:

1) Are there any specific rules in labor law for calculating basic pay?

2) Can a company independently decide the percentage of basic pay, such as 40% of the total salary or a fixed amount like 25,000, whichever is lower?

I'd be grateful for your input on this.

As per current legislation, the following are the responses:

1) No such legislation exists to calculate the Basic Pay, but it is advisable to consider the Basic wages not lower than the scheduled Minimum wages.

2) You can consider 40%, but plan to have Basic as mentioned above.

If the Code on Wages is implemented, then the entire scenario will change.

Hi Jeevarathnam, thank you for your response.

The minimum wage in Maharashtra is ₹14,700/-, and for skilled employees in our company, I’m considering setting the basic pay at ₹25,000/-. I believe this will meet the requirement, and there should be no compliance obligations, correct?

Hi Jeevarathnam, Thank you for your response.

The minimum wage in Maharashtra is ₹14,700 for skilled employees in our company. I'm considering setting the basic pay at ₹25,000. I believe this will meet the requirement, and there should be no compliance obligations, correct?

It is better for employers to adhere to the wage & DA structure category-wise published from time to time by the government of the state where your unit is located. If your unit is in Maharashtra, then you have to follow Maharashtra government's notification. You are free to offer higher than the notified rates. For the present, the available notification is attached. You can verify the latest notification, if any, available from your sources for adoption. You are also free to define and add various other allowances other than those listed in the MW notifications as per your convenience.

Dear,

There is only the Minimum Wages Act and Rules regulating wages where the basic or VDA regulates. There is no other legislation for the private sector. In the public sector, they follow the central Government pay commission rules.

To dispel all doubts from an audit/inspection point of view, I suggest following rules similar to those of the central government.

Krishna Rao