Guidance on Wage Definition and Remuneration Queries
Would like to request seniors and experts for guidance on:
The first query is with respect to the definition of wages where I request an explanation of the interpretation of the second provision relating to equal remuneration. It states that "for the purpose of equality in wages for all genders, the emoluments specified under clauses (d), (f), (g), and (h) as mentioned above shall be included in the computation of wage."
Possible Remunerations in Kind
Secondly, we pay everything in cash. What could be the possible remunerations in kind provided by the employer? What will be the modalities for valuation for remuneration in kind, given that 15% of the total wages payable to him shall be deemed to form part of the wages of such an employee?
Overtime Entitlement for Managerial Employees
Thirdly, the definition of an employee has been provided to safeguard minimum wages, payment of wages, and bonuses. Would an employee employed in a managerial capacity be entitled to overtime as per COW 2019? Requesting the experts on the forum to kindly guide on the aforementioned queries, please.
Thanks
From India, Calcutta
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Would like to request seniors and experts for guidance on:
The first query is with respect to the definition of wages where I request an explanation of the interpretation of the second provision relating to equal remuneration. It states that "for the purpose of equality in wages for all genders, the emoluments specified under clauses (d), (f), (g), and (h) as mentioned above shall be included in the computation of wage."
Possible Remunerations in Kind
Secondly, we pay everything in cash. What could be the possible remunerations in kind provided by the employer? What will be the modalities for valuation for remuneration in kind, given that 15% of the total wages payable to him shall be deemed to form part of the wages of such an employee?
Overtime Entitlement for Managerial Employees
Thirdly, the definition of an employee has been provided to safeguard minimum wages, payment of wages, and bonuses. Would an employee employed in a managerial capacity be entitled to overtime as per COW 2019? Requesting the experts on the forum to kindly guide on the aforementioned queries, please.
Thanks
From India, Calcutta
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Interpretation of the second proviso to Sec.2(y):
I think it is imperative to discuss the general concept of wages before embarking upon the interpretation of the second proviso you have asked for. Universally, wages are determined by employers and employees through collective bargaining, depending on the factors of demand and supply of labor. Therefore, the State has no role in this matter other than a regulatory one based on the principles of equity and justice. Though the definition of the term 'wages' means the entire payout made to the employee by way of salary or remuneration under the contract of employment, the definition bifurcates such an entire sum into two heads: inclusive components and excluded components.
The included components are (i) Basic pay (ii) Dearness Allowance and (iii) Retaining Allowance, if any.
The excluded items are a total of 11 in number from (a) to (k).
Thus, this bifurcation enables the uniform application of the term under the Code for the purposes of timely payment of wages without any illegal deductions, fixation of statutory minimum wages, determination and payment of statutory bonus, elimination of disparity in wages based on gender bias, and settlement of claims against non-payment. Moreover, certain fringe benefits pertaining to the future in the form of social security to the working class have also to be determined from the wages currently payable only. Hence, the first proviso to the definition mandates an equal proportion of the inclusive and excluded components in the wage structure, and when the proportion of the sum of the inclusive components falls short of 50% of the gross, the shortfall shall be made good by adjusting against the excluded components enumerated under (a) to (i).
If we analyze the nature of the components listed under clauses (d) Conveyance Allowance, (f) House Rent Allowance, (g) remuneration payable under any award, settlement between the parties, or order of a court or tribunal, there cannot be any room for gender bias in respect of employees doing the same work or similar nature of work as contemplated u/s 3(1) of the Code. Therefore, in order to determine overall parity in terms of remuneration, these excluded components have also to be taken into consideration. That's what the second proviso to section 2(y) mandates.
Remuneration in kind restricted to 15% of the gross:
This is applicable to employments by the very nature of which food, accommodation, supply of electricity, water, etc., are provided by the employer and adjusted against the gross wages payable. For example, the Plantation industry and Hotel industry. To know the scales and other guidelines in this regard, we have to await the notifications to be issued by the appropriate Governments under the Rules.
In my opinion, despite the definition of the term "employee" u/s 2(k), managerial cadre employees are not entitled to overtime wages in view of the definitions of the term "worker" u/s 2(zzl) of the OSH Code 2020 and u/s 2(z) of the CoW, 2019 read with sec.27 of the OSH Code, 2020 which deals with extra wages for overtime work.
From India, Salem
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6108I think it is imperative to discuss the general concept of wages before embarking upon the interpretation of the second proviso you have asked for. Universally, wages are determined by employers and employees through collective bargaining, depending on the factors of demand and supply of labor. Therefore, the State has no role in this matter other than a regulatory one based on the principles of equity and justice. Though the definition of the term 'wages' means the entire payout made to the employee by way of salary or remuneration under the contract of employment, the definition bifurcates such an entire sum into two heads: inclusive components and excluded components.
The included components are (i) Basic pay (ii) Dearness Allowance and (iii) Retaining Allowance, if any.
The excluded items are a total of 11 in number from (a) to (k).
Thus, this bifurcation enables the uniform application of the term under the Code for the purposes of timely payment of wages without any illegal deductions, fixation of statutory minimum wages, determination and payment of statutory bonus, elimination of disparity in wages based on gender bias, and settlement of claims against non-payment. Moreover, certain fringe benefits pertaining to the future in the form of social security to the working class have also to be determined from the wages currently payable only. Hence, the first proviso to the definition mandates an equal proportion of the inclusive and excluded components in the wage structure, and when the proportion of the sum of the inclusive components falls short of 50% of the gross, the shortfall shall be made good by adjusting against the excluded components enumerated under (a) to (i).
If we analyze the nature of the components listed under clauses (d) Conveyance Allowance, (f) House Rent Allowance, (g) remuneration payable under any award, settlement between the parties, or order of a court or tribunal, there cannot be any room for gender bias in respect of employees doing the same work or similar nature of work as contemplated u/s 3(1) of the Code. Therefore, in order to determine overall parity in terms of remuneration, these excluded components have also to be taken into consideration. That's what the second proviso to section 2(y) mandates.
Remuneration in kind restricted to 15% of the gross:
This is applicable to employments by the very nature of which food, accommodation, supply of electricity, water, etc., are provided by the employer and adjusted against the gross wages payable. For example, the Plantation industry and Hotel industry. To know the scales and other guidelines in this regard, we have to await the notifications to be issued by the appropriate Governments under the Rules.
In my opinion, despite the definition of the term "employee" u/s 2(k), managerial cadre employees are not entitled to overtime wages in view of the definitions of the term "worker" u/s 2(zzl) of the OSH Code 2020 and u/s 2(z) of the CoW, 2019 read with sec.27 of the OSH Code, 2020 which deals with extra wages for overtime work.
From India, Salem
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Thank you very much for your detailed response, Sir. I have a question regarding the term 'wages,' which typically refers to the total compensation paid to an employee, including Basic pay, Dearness Allowance, Retaining Allowance, and other specified components as per the employment contract. However, there are certain exclusions outlined in the provided Provisos.
Additionally, there are numerous components and allowances, such as Children education allowance, refreshment allowance, Journals and periodical allowance, and Professional Allowance, that are neither explicitly included nor excluded but form part of the overall remuneration.
I would like to seek clarification on whether all these allowances should be added to the Basic Pay to calculate the total Wages, following which the 50% threshold check would be applied. Any amount exceeding the threshold would then be added to the Wages.
Thank you for your assistance and guidance on this matter.
Best regards
From India, Calcutta
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Additionally, there are numerous components and allowances, such as Children education allowance, refreshment allowance, Journals and periodical allowance, and Professional Allowance, that are neither explicitly included nor excluded but form part of the overall remuneration.
I would like to seek clarification on whether all these allowances should be added to the Basic Pay to calculate the total Wages, following which the 50% threshold check would be applied. Any amount exceeding the threshold would then be added to the Wages.
Thank you for your assistance and guidance on this matter.
Best regards
From India, Calcutta
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Dear AKM,
Your assumption regarding the entire payouts made to an employee in return for his services rendered under the contract of employment should be considered as wages is correct in the general context.
Definition and Contextual Application of Wages
On the contrary, any definition found in every law always coincides or syncs with the purpose and objectives of that particular law only. That's why the definition part of any law commences with a rider phrase "Unless the context otherwise requires."
Preamble of the Code on Wages, 2019
The preamble of the Code on Wages, 2019 states that this Code is an act to amend and consolidate the laws relating to wages and bonus and matters connected therewith or incidental thereto. 'WAGES' as set out above would, therefore, encompass all aspects such as mode and time of payment, deductions, fixation of minimum wages with different scales and components, and their effective implementation, equal wages for works of the same or similar nature without gender bias, disposal of claims arising out of non-compliance, providing for harmonious interpretation of the term concerning other benefits of employment like social security.
Furthermore, introducing the same or similar components into every wage structure is not feasible as industries and employments differ in nature. Hence, the definition should make a clear-cut division of all the payouts.
Kind regards
From India, Salem
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Your assumption regarding the entire payouts made to an employee in return for his services rendered under the contract of employment should be considered as wages is correct in the general context.
Definition and Contextual Application of Wages
On the contrary, any definition found in every law always coincides or syncs with the purpose and objectives of that particular law only. That's why the definition part of any law commences with a rider phrase "Unless the context otherwise requires."
Preamble of the Code on Wages, 2019
The preamble of the Code on Wages, 2019 states that this Code is an act to amend and consolidate the laws relating to wages and bonus and matters connected therewith or incidental thereto. 'WAGES' as set out above would, therefore, encompass all aspects such as mode and time of payment, deductions, fixation of minimum wages with different scales and components, and their effective implementation, equal wages for works of the same or similar nature without gender bias, disposal of claims arising out of non-compliance, providing for harmonious interpretation of the term concerning other benefits of employment like social security.
Furthermore, introducing the same or similar components into every wage structure is not feasible as industries and employments differ in nature. Hence, the definition should make a clear-cut division of all the payouts.
Kind regards
From India, Salem
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Convenience of Calculation
1. Decide the category of the employee first (US, SSK, SK, HSK) other than management staff.
2. Check the minimum wages of that category, which will be the minimum basic.
3. Decide other allowances and add all payable allowances other than ESIC, Premium to insurance - Mediclaim, Group personal accident insurance, Group LIC, etc.
4. Take 50% of that as basic. If it is more than the minimum wage, no issue, but if it is less than the minimum wage, fix the basic as the minimum wage.
5. Let us take an example of an employee with a CTC of 5,00,000/- per annum. CTC consists of Monthly gross, employer portion of PF, Statutory Bonus, LTA, Leave encashment & insurance premium to Mediclaim, GPAI, GROUP LIC.
6. Insurance premium amount is 20,000/- per annum - not to be considered for calculation.
7. 5,00,000 - 20,000 = 4,80,000/-. 50% of 4,80,000 = 2,40,000/- i.e. 20,000/- per month basic.
8. 2,40,000/- is, therefore, other items as mentioned above. Monthly value- 20,000/-.
9. Less co's contribution to PF 1800/- or 2400/- (as the case may be), statutory bonus @8.33% say 12,000/- per annum i.e. 1000/- per month, LTA @ 12,000/- per annum i.e. 1000/- per month, Leave encashment say 15 days i.e. 10,000/- per annum i.e. 833/- per month etc.
10. Therefore, monthly other allowances - HRA, CCA, CEA, Periodicals, etc. will be in this case 20,000 - (1800/2400) - 1000 - 1000 - 833 = (15367/14767) as the case may be.
11. In this above example, if any employee will have OT earning in a specific month that will disturb the 50% condition as it will add back to the other side of the basic. In that case, it may be considered 60% of the OT amount add back to basic and 40% to the other side. It will be required as the co's PF contribution, bonus, leave encashment, etc. value will change and add back to the other side.
12. The calculation will vary from Org to Org and in different category basis.
13. HR professionals must be very careful before restructuring their org's remuneration structure in the future.
S K Bandyopadhyay (WB, Howrah)
[Email Removed For Privacy Reasons]
From India, New Delhi
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1. Decide the category of the employee first (US, SSK, SK, HSK) other than management staff.
2. Check the minimum wages of that category, which will be the minimum basic.
3. Decide other allowances and add all payable allowances other than ESIC, Premium to insurance - Mediclaim, Group personal accident insurance, Group LIC, etc.
4. Take 50% of that as basic. If it is more than the minimum wage, no issue, but if it is less than the minimum wage, fix the basic as the minimum wage.
5. Let us take an example of an employee with a CTC of 5,00,000/- per annum. CTC consists of Monthly gross, employer portion of PF, Statutory Bonus, LTA, Leave encashment & insurance premium to Mediclaim, GPAI, GROUP LIC.
6. Insurance premium amount is 20,000/- per annum - not to be considered for calculation.
7. 5,00,000 - 20,000 = 4,80,000/-. 50% of 4,80,000 = 2,40,000/- i.e. 20,000/- per month basic.
8. 2,40,000/- is, therefore, other items as mentioned above. Monthly value- 20,000/-.
9. Less co's contribution to PF 1800/- or 2400/- (as the case may be), statutory bonus @8.33% say 12,000/- per annum i.e. 1000/- per month, LTA @ 12,000/- per annum i.e. 1000/- per month, Leave encashment say 15 days i.e. 10,000/- per annum i.e. 833/- per month etc.
10. Therefore, monthly other allowances - HRA, CCA, CEA, Periodicals, etc. will be in this case 20,000 - (1800/2400) - 1000 - 1000 - 833 = (15367/14767) as the case may be.
11. In this above example, if any employee will have OT earning in a specific month that will disturb the 50% condition as it will add back to the other side of the basic. In that case, it may be considered 60% of the OT amount add back to basic and 40% to the other side. It will be required as the co's PF contribution, bonus, leave encashment, etc. value will change and add back to the other side.
12. The calculation will vary from Org to Org and in different category basis.
13. HR professionals must be very careful before restructuring their org's remuneration structure in the future.
S K Bandyopadhyay (WB, Howrah)
[Email Removed For Privacy Reasons]
From India, New Delhi
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Thank you very much, Mr. Umakanthan & Mr. Bandopadhyay. The clarifications provided are enriching and helpful for understanding the new laws. Mr. Bandopadhyay has advised on the chronological steps to determine wages. To begin with, "Decide the category of the employee first (US, SSK, SK, HSK) other than Management staff."
However, the definition of an employee includes those employed in a managerial capacity. Apart from overtime, where the code specifies payment at twice the rate for employees with fixed minimum wages under the code, there is no indication that managerial staff are exempt from wage regulations.
Could you please clarify this understanding and shed some light on the matter?
Thank you and best regards.
From India, Calcutta
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However, the definition of an employee includes those employed in a managerial capacity. Apart from overtime, where the code specifies payment at twice the rate for employees with fixed minimum wages under the code, there is no indication that managerial staff are exempt from wage regulations.
Could you please clarify this understanding and shed some light on the matter?
Thank you and best regards.
From India, Calcutta
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Thank you for clarifying about the managerial staff. However, does it mean that we need not take cognizance of the definition for restructuring the wages (basic pay at 50% of allowances) even for workers (or employees other than management staff) in case the workers (employees other than management staff) are not falling/listed in skilled categories in schedule E?
Regards
From India, Calcutta
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Regards
From India, Calcutta
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The list as per Schedule E is a major guideline. Every organization has different job names and skill categories depending on technology. There are experts who can study any system and are able to identify employees with different skills, even if they may not match the Schedule E list. Therefore, the definition of wages will be applicable for both management staff and workers (employees other than management staff) irrespective of job description.
Thanks and regards,
S K Bandyopadhyay (Howrah, WB)
From India, New Delhi
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Thanks and regards,
S K Bandyopadhyay (Howrah, WB)
From India, New Delhi
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Right, sir. This is a valuable insight. Sir, taking the liberty to take the discussion forward.
Classifying Allowances as Wages under COW 2020
So far as classifying and considering remunerations/various allowances as "wages" under COW 2020 (those which are not among exclusions), should we not apply the guiding principles stipulated by the Hon'ble Supreme Court in The Regional Provident Fund vs Vivekananda Vidyamandir on 28 February 2019? As per which, the following allowances we may think of excluding while calculating wages under COW:
1. Allowances which are variable in nature;
2. Allowances which are linked to any incentive for production resulting in greater output by an employee; or
3. Allowances which are not paid across the board to all employees in a particular category; or
4. Allowances which are paid especially to those who avail the opportunity.
Though these principles were laid down in the context of "basic wages" defined under EPF & MP Act, 1952, the inclusive nature of the definition of basic wage under EPF & MP and wages under COW is largely similar in nature.
Request expert views on the above, please.
Thanks and Regards
From India, Calcutta
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Classifying Allowances as Wages under COW 2020
So far as classifying and considering remunerations/various allowances as "wages" under COW 2020 (those which are not among exclusions), should we not apply the guiding principles stipulated by the Hon'ble Supreme Court in The Regional Provident Fund vs Vivekananda Vidyamandir on 28 February 2019? As per which, the following allowances we may think of excluding while calculating wages under COW:
1. Allowances which are variable in nature;
2. Allowances which are linked to any incentive for production resulting in greater output by an employee; or
3. Allowances which are not paid across the board to all employees in a particular category; or
4. Allowances which are paid especially to those who avail the opportunity.
Though these principles were laid down in the context of "basic wages" defined under EPF & MP Act, 1952, the inclusive nature of the definition of basic wage under EPF & MP and wages under COW is largely similar in nature.
Request expert views on the above, please.
Thanks and Regards
From India, Calcutta
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Dear Akm_mish,
It sounds good that you have a lot of queries. I personally invite you to my office to discuss across the table as you are from Kolkata. My office is located near Nabanna. After one prior appointment, you may meet me if you think so.
However, my reply to your queries is as follows:
Supreme Court Award and Wage Code
The Supreme Court award was based on the existing definition of Basic under the PF Act. In my opinion, the Wage Code is framed considering the existing PF Act and Supreme Court Verdict. The objective of the lawmakers is to provide a proper definition of Wage (Basic & DA) without any ambiguity. Accordingly, the new definition of wages has been framed uniformly for all codes. There may be further interpretation in the future through case laws, etc. Let us wait for the same.
Definition of Wage under the Wage Code
In my opinion, after the implementation of the wage code, the definition of wage will be as I have already explained earlier, which I have noticed that other organizations like Deloitte, Tax Guru (ITAX), Mercer, etc., have been similarly explained wage under the wage code.
Thanks & Regards,
S K Bandyopadhyay (Howrah, WB)
From India, New Delhi
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It sounds good that you have a lot of queries. I personally invite you to my office to discuss across the table as you are from Kolkata. My office is located near Nabanna. After one prior appointment, you may meet me if you think so.
However, my reply to your queries is as follows:
Supreme Court Award and Wage Code
The Supreme Court award was based on the existing definition of Basic under the PF Act. In my opinion, the Wage Code is framed considering the existing PF Act and Supreme Court Verdict. The objective of the lawmakers is to provide a proper definition of Wage (Basic & DA) without any ambiguity. Accordingly, the new definition of wages has been framed uniformly for all codes. There may be further interpretation in the future through case laws, etc. Let us wait for the same.
Definition of Wage under the Wage Code
In my opinion, after the implementation of the wage code, the definition of wage will be as I have already explained earlier, which I have noticed that other organizations like Deloitte, Tax Guru (ITAX), Mercer, etc., have been similarly explained wage under the wage code.
Thanks & Regards,
S K Bandyopadhyay (Howrah, WB)
From India, New Delhi
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Notifiaction The Code On Wages - 2019.pdf