Dear Members,
I'm working in a private leather tannery in Tamil Nadu, and I'm posting this question to seek guidance regarding the salary structure of my company. When the Government Orders (G.O's) are passed by the Tamil Nadu Government for the revision in minimum wages or Dearness Allowance (DA), the company is making changes to components of the salary, but the gross salary remains the same. I would like to know if this is legally correct or not.
For example, the previous salary components were:
- Basic+DA: 13,000
- Bonus: 1,400
- Leave Encashment: 714
- Other Allowances: 1,886
After the Government Order, the salary components were changed to:
- Basic+DA: 14,000
- Bonus: 1,400
- Leave Encashment: 588
- Other Allowances: 1,012
Here, the gross salary remains the same; only the components are affected.
I'm asking this question for my legal awareness.
Thank you for sharing your knowledge and expertise with us.
Best Regards,
Shameem
From India, Chennai
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I'm working in a private leather tannery in Tamil Nadu, and I'm posting this question to seek guidance regarding the salary structure of my company. When the Government Orders (G.O's) are passed by the Tamil Nadu Government for the revision in minimum wages or Dearness Allowance (DA), the company is making changes to components of the salary, but the gross salary remains the same. I would like to know if this is legally correct or not.
For example, the previous salary components were:
- Basic+DA: 13,000
- Bonus: 1,400
- Leave Encashment: 714
- Other Allowances: 1,886
After the Government Order, the salary components were changed to:
- Basic+DA: 14,000
- Bonus: 1,400
- Leave Encashment: 588
- Other Allowances: 1,012
Here, the gross salary remains the same; only the components are affected.
I'm asking this question for my legal awareness.
Thank you for sharing your knowledge and expertise with us.
Best Regards,
Shameem
From India, Chennai
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When basic salary and dearness allowances change, the bonus and leave encashment, which are based on the basic and DA part of salary, should change. You cannot reduce these. The revised salary does not offer any increase in bonus or through leave encashment. When the bonus is a certain percentage (say 8.33% or any percentage between 8.33% and 20%) of basic and DA, an increase in Basic and DA should only increase the bonus, and it will never reduce or remain constant. Similarly, leave encashment is also based on the basic and DA at the time of encashment. However, other allowances, being outside the purview of statutory minimum wages, can be reduced, but it is a clear violation of industry standards and against business ethics.
There are two reasons why an employee should be given a salary increase: first, to compensate for the increase in the cost of living, and second, to reward the performance of the employee. The former is met by increasing the dearness allowance, which is done by the government itself by adjusting the DA according to changes in the Consumer Price Index. The change in the DA will be uniform for a particular industry and a particular locality because the effect of price change will be common for all people. The latter is to be done by the employer, and under normal circumstances, they will increase the basic salary or any allowance like a performance allowance. The amount of increase will depend on the performance, and accordingly, good performers will get a good increase. When the government revises the minimum wages, they will bring in new basic wages applicable to the industry. This is done once in five years or even after that.
In your case, the employer, in order to comply with the legal requirements, has increased the DA part but has reduced the other allowances to make the end result negligible. This is unfair.
From India, Kannur
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4483There are two reasons why an employee should be given a salary increase: first, to compensate for the increase in the cost of living, and second, to reward the performance of the employee. The former is met by increasing the dearness allowance, which is done by the government itself by adjusting the DA according to changes in the Consumer Price Index. The change in the DA will be uniform for a particular industry and a particular locality because the effect of price change will be common for all people. The latter is to be done by the employer, and under normal circumstances, they will increase the basic salary or any allowance like a performance allowance. The amount of increase will depend on the performance, and accordingly, good performers will get a good increase. When the government revises the minimum wages, they will bring in new basic wages applicable to the industry. This is done once in five years or even after that.
In your case, the employer, in order to comply with the legal requirements, has increased the DA part but has reduced the other allowances to make the end result negligible. This is unfair.
From India, Kannur
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@Madhu.T.K, sir,
Thank you for your response in clarifying my doubt. For clarification, I have posted this issue that I learned about from a friend who works in the same field at another reputable organization.
Definitely! Due to these unfair practices, employees get exploited by employers. This could also be happening in many other private companies. Does the government confirm with private companies to ensure that they abide by the new orders related to wages? Won't they be checking that the gross salary is not getting affected despite the revision in the wages? This is not purely to complain about any company, but if this issue is brought to the attention of the government, they may issue orders so that the employees get fully benefited and this unfair practice can be eradicated.
Are there any possible ways?
One more thing I would like to share with you is that you mentioned in your response that "the bonus and leave encashment are based on the basic and DA part of the salary." Here, the company is calculating leave encashment as 4.2% of the gross salary. For example, if the gross salary is Rs. 20,000, then the leave encashment is Rs. 842, and if the gross salary is Rs. 30,000, then the leave encashment is Rs. 1260. Additionally, the bonus is fixed to an amount, irrespective of the gross salary. Is this practice correct?
From India, Chennai
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Thank you for your response in clarifying my doubt. For clarification, I have posted this issue that I learned about from a friend who works in the same field at another reputable organization.
Definitely! Due to these unfair practices, employees get exploited by employers. This could also be happening in many other private companies. Does the government confirm with private companies to ensure that they abide by the new orders related to wages? Won't they be checking that the gross salary is not getting affected despite the revision in the wages? This is not purely to complain about any company, but if this issue is brought to the attention of the government, they may issue orders so that the employees get fully benefited and this unfair practice can be eradicated.
Are there any possible ways?
One more thing I would like to share with you is that you mentioned in your response that "the bonus and leave encashment are based on the basic and DA part of the salary." Here, the company is calculating leave encashment as 4.2% of the gross salary. For example, if the gross salary is Rs. 20,000, then the leave encashment is Rs. 842, and if the gross salary is Rs. 30,000, then the leave encashment is Rs. 1260. Additionally, the bonus is fixed to an amount, irrespective of the gross salary. Is this practice correct?
From India, Chennai
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First of all, let me clarify that we have labor law enforcement officers in the state. Their duty is to ensure that no employee is paid less than the notified minimum wages. It is true that the employer can have different heads for the salary and need not necessarily be the same patterns with basic wage and dearness allowance and in the same amounts as prescribed, but what is to be ensured is that the total (gross) salary at any point of time should not be less than the basic and DA as prescribed by the government.
In your case, there is no increase in the gross salary. This is not fair, especially in respect of employees for whom minimum rates of wages are fixed. I can also say that in respect of managers, they should be following a more employee-friendly salary structure, and the same would be much above the minimum salary fixed for them. Please note that minimum wages are fixed not only for the workers but also for managers. From my experience, what I have observed is that managers are paid ten times more than the statutory wages but for those who really work, they humble to bring even parity to the one fixed by the state. This will make the workers discontent, and they will think of a possible way to get their rights by joining hands, the collective bargaining, by forming a trade union. Once a union is formed, then the entire blame will be on the workers. The employers will turn hostile and will do anything that they can do against the workers, let it be closure of the undertaking!
But the above situation will not arise in a locality where a good labor (law enforcement) officer is available. He will step in to action and see what are the actual benefits extended to the workers and if he identifies anything wrong and illegal, will book the employer and ask him to be fair. This will improve the industrial relations. At the company level also we shall have a person, Personnel Manager/HR Manager who can be sympathetic towards the employees and can advise the management of the pulses of the shop floor employees, their grievances, and probable disputes which may arise if not addressed and solved. He is expected to be a bridge between the employees and the employer, and his advice should be given value by the employer. Then more than half of the disputes could be solved.
Now coming to the matter of a bonus, I would say that a bonus is not a gift that the employer can offer on the occasion of Diwali or Pongal. It is a right for those whose salary does not exceed Rs 21,000 per month. There is a formula to calculate the bonus, and the employer should follow it. The rate of the bonus, which will depend upon the profitability of the organization, shall vary from 8.33% to 20% of basic wages and dearness allowance that an employee was paid during the last financial year. When the salary increases due to an increase in the DA, the bonus will also increase.
The same is the way of calculating leave encashment. Leave is actually for availing and not for encashment. As such, the practice of showing it in the salary lacks legal backing. When you say that it is part of the salary, it should be interpreted that no employee will be allowed to take leave but at the end of the year, the employer will pay cash equivalent of leave. Again, when you encash it, it should not be a fixed sum but it should be equal to Basic wage and DA. Suppose if you encash 15 days' leave, the employee should get wages equal to 15 days and that should not be less than the 15 days' daily average of basic and DA. For an employee with a salary of Rs 20,000, the daily average wage should be Rs 769 and this should be multiplied by the number of leaves encashed. For example, if an employee surrenders 10 leaves, he should get Rs 7,690 and so on. You cannot fix the leave encashment without reference to the number of leaves. What is the relevance of 4.2% is not understood.
From India, Kannur
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In your case, there is no increase in the gross salary. This is not fair, especially in respect of employees for whom minimum rates of wages are fixed. I can also say that in respect of managers, they should be following a more employee-friendly salary structure, and the same would be much above the minimum salary fixed for them. Please note that minimum wages are fixed not only for the workers but also for managers. From my experience, what I have observed is that managers are paid ten times more than the statutory wages but for those who really work, they humble to bring even parity to the one fixed by the state. This will make the workers discontent, and they will think of a possible way to get their rights by joining hands, the collective bargaining, by forming a trade union. Once a union is formed, then the entire blame will be on the workers. The employers will turn hostile and will do anything that they can do against the workers, let it be closure of the undertaking!
But the above situation will not arise in a locality where a good labor (law enforcement) officer is available. He will step in to action and see what are the actual benefits extended to the workers and if he identifies anything wrong and illegal, will book the employer and ask him to be fair. This will improve the industrial relations. At the company level also we shall have a person, Personnel Manager/HR Manager who can be sympathetic towards the employees and can advise the management of the pulses of the shop floor employees, their grievances, and probable disputes which may arise if not addressed and solved. He is expected to be a bridge between the employees and the employer, and his advice should be given value by the employer. Then more than half of the disputes could be solved.
Now coming to the matter of a bonus, I would say that a bonus is not a gift that the employer can offer on the occasion of Diwali or Pongal. It is a right for those whose salary does not exceed Rs 21,000 per month. There is a formula to calculate the bonus, and the employer should follow it. The rate of the bonus, which will depend upon the profitability of the organization, shall vary from 8.33% to 20% of basic wages and dearness allowance that an employee was paid during the last financial year. When the salary increases due to an increase in the DA, the bonus will also increase.
The same is the way of calculating leave encashment. Leave is actually for availing and not for encashment. As such, the practice of showing it in the salary lacks legal backing. When you say that it is part of the salary, it should be interpreted that no employee will be allowed to take leave but at the end of the year, the employer will pay cash equivalent of leave. Again, when you encash it, it should not be a fixed sum but it should be equal to Basic wage and DA. Suppose if you encash 15 days' leave, the employee should get wages equal to 15 days and that should not be less than the 15 days' daily average of basic and DA. For an employee with a salary of Rs 20,000, the daily average wage should be Rs 769 and this should be multiplied by the number of leaves encashed. For example, if an employee surrenders 10 leaves, he should get Rs 7,690 and so on. You cannot fix the leave encashment without reference to the number of leaves. What is the relevance of 4.2% is not understood.
From India, Kannur
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My heartfelt gratitude for sharing your knowledge.
Regarding the leave policy, the company grants only 2 leaves per month – 1 casual leave and 1 earned leave. If an employee does not take leave in a given month, these 2 leaves are not carried forward to the next month. Consequently, a total of 12 casual leaves and 12 earned leaves are provided annually.
Could you please clarify whether this leave policy is in compliance with the legal requirements?
From India, Chennai
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Regarding the leave policy, the company grants only 2 leaves per month – 1 casual leave and 1 earned leave. If an employee does not take leave in a given month, these 2 leaves are not carried forward to the next month. Consequently, a total of 12 casual leaves and 12 earned leaves are provided annually.
Could you please clarify whether this leave policy is in compliance with the legal requirements?
From India, Chennai
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You wrote that "If an employee does not take leave in a given month, these 2 leaves are not carried forward to the next month." Is it that casual leave and earned leaves are 'carried forward to the next month'?
In a manufacturing process company, the only leave available is earned leave, and the same is credited once in a year, i.e., in January. The leave will be at the rate of one leave per 20 days worked in the preceding year. The leave not availed in a year shall be carried forward and get accumulated to a maximum of 30 days. In the event of encashment, the value of the surrender value of leave shall be equal to the number of leave encashed multiplied by the daily average of the wages, which should include basic wages and DA.
CL will not get encashed, but only EL will be encashed. As per law, the encashment is made only when the leave applied is refused or at the time the employee leaves the company. In practice, the employees who lose the leave due to the reason that the total leaves to the credit have reached 30 will be allowed to be encashed. In any case, encashment is made due to the reason that the employee has not taken any leave due to the employer's requirement. Since the leave is with pay, if he had availed leave, he would have received the payment and as such the days he remained on leave. The wages for the days he remained on leave will be the same wages for which he is eligible for that day. In a similar way, he should be paid wages for the days he is surrendering the leave at the same rate of wages (basic and DA at the rate on which leave is surrendered) as applicable at the time of such encashment.
From India, Kannur
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In a manufacturing process company, the only leave available is earned leave, and the same is credited once in a year, i.e., in January. The leave will be at the rate of one leave per 20 days worked in the preceding year. The leave not availed in a year shall be carried forward and get accumulated to a maximum of 30 days. In the event of encashment, the value of the surrender value of leave shall be equal to the number of leave encashed multiplied by the daily average of the wages, which should include basic wages and DA.
CL will not get encashed, but only EL will be encashed. As per law, the encashment is made only when the leave applied is refused or at the time the employee leaves the company. In practice, the employees who lose the leave due to the reason that the total leaves to the credit have reached 30 will be allowed to be encashed. In any case, encashment is made due to the reason that the employee has not taken any leave due to the employer's requirement. Since the leave is with pay, if he had availed leave, he would have received the payment and as such the days he remained on leave. The wages for the days he remained on leave will be the same wages for which he is eligible for that day. In a similar way, he should be paid wages for the days he is surrendering the leave at the same rate of wages (basic and DA at the rate on which leave is surrendered) as applicable at the time of such encashment.
From India, Kannur
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