Hello everyone,
This is my first post on this forum, although I have been a long-time member, learning a lot from your valuable discussions. I am seeking clarity on the topic of minimum wages, particularly regarding certain technicalities where I have encountered varying opinions but have not yet reached a satisfactory conclusion.
As we know, the government regularly issues Minimum Wage notifications that adjust for the Cost of Living across different types of employment. The notification specifies Basic and Variable Dearness Allowance (VDA), which together make up the minimum wage for each employment type and skill grade in a given state.
According to Section 2(h) of the Minimum Wages Act, 1948:
“Wages means all remuneration, capable of being expressed in terms of money, which, if the terms of the contract of employment (express or implied) were fulfilled, would be payable to a person employed in respect of his employment or of work done in such employment, and includes house rent allowance...”
From this, I understand that "wages" is a summation of Basic + Allowances, including HRA, with certain exclusions.
Now, considering a salary structure for a private company, for example:
Basic: ₹13,500/-
HRA: ₹1,000/-
Other Allowances: ₹1,000/-
Gross Salary: Basic + HRA + Other Allowances = ₹15,500/-
Here, is the "Gross Salary" equivalent to the "Wages" as defined in the Act? (Question 1)
Further, let’s assume that the Government Notification for the relevant industry specifies:
Basic: ₹11,500/-
VDA: ₹2,500/-
Total Minimum Wage: ₹14,000/-
I've come across two different interpretations regarding compliance with the minimum wage requirements:
Opinion 1: Since the Gross Salary (i.e., ₹15,500/-) is higher than the Total Minimum Wage (₹14,000/-), everything is in order and can be processed.
Opinion 2: The Basic component must be at least equal to Basic + VDA specified in the notification, i.e., ₹14,000/-. Only then can we add a minimum of 5% for HRA, with the remaining amount allocated to other allowances, in order to be legally compliant.
Could you please help me understand which opinion is legally correct, with reference to the relevant Acts, rules, or any judicial precedents?
NOTE: PF amount is calculated on Basic + Other Allowances (For the scenario)
Your insights and guidance would be highly appreciated.
Thank you.
Best Regards,
Azhar
From India, Wada
This is my first post on this forum, although I have been a long-time member, learning a lot from your valuable discussions. I am seeking clarity on the topic of minimum wages, particularly regarding certain technicalities where I have encountered varying opinions but have not yet reached a satisfactory conclusion.
As we know, the government regularly issues Minimum Wage notifications that adjust for the Cost of Living across different types of employment. The notification specifies Basic and Variable Dearness Allowance (VDA), which together make up the minimum wage for each employment type and skill grade in a given state.
According to Section 2(h) of the Minimum Wages Act, 1948:
“Wages means all remuneration, capable of being expressed in terms of money, which, if the terms of the contract of employment (express or implied) were fulfilled, would be payable to a person employed in respect of his employment or of work done in such employment, and includes house rent allowance...”
From this, I understand that "wages" is a summation of Basic + Allowances, including HRA, with certain exclusions.
Now, considering a salary structure for a private company, for example:
Basic: ₹13,500/-
HRA: ₹1,000/-
Other Allowances: ₹1,000/-
Gross Salary: Basic + HRA + Other Allowances = ₹15,500/-
Here, is the "Gross Salary" equivalent to the "Wages" as defined in the Act? (Question 1)
Further, let’s assume that the Government Notification for the relevant industry specifies:
Basic: ₹11,500/-
VDA: ₹2,500/-
Total Minimum Wage: ₹14,000/-
I've come across two different interpretations regarding compliance with the minimum wage requirements:
Opinion 1: Since the Gross Salary (i.e., ₹15,500/-) is higher than the Total Minimum Wage (₹14,000/-), everything is in order and can be processed.
Opinion 2: The Basic component must be at least equal to Basic + VDA specified in the notification, i.e., ₹14,000/-. Only then can we add a minimum of 5% for HRA, with the remaining amount allocated to other allowances, in order to be legally compliant.
Could you please help me understand which opinion is legally correct, with reference to the relevant Acts, rules, or any judicial precedents?
NOTE: PF amount is calculated on Basic + Other Allowances (For the scenario)
Your insights and guidance would be highly appreciated.
Thank you.
Best Regards,
Azhar
From India, Wada
For the purpose of payment of remuneration wages means the total amount agreed. In your example, it is Rs 15500. Legally an employer is actually BOUND to pay only the statutory minimum wages notified, any amount paid over and above the notified minimum wages, ie, Rs 14000 in your example, can be considered as remuneration falling outside the scope of wages. But depending upon the scope of wages under various Acts, you have to consider which wages should you take for deciding the qualifying wages. For example, for calculation of bonus, you can take the notified minimum wages. For deciding the contribution payable to ESI, you have to take the gross pay as per contract of employment. The same is applicable for EPF also. But under EPF there is a component called HRA which is excluded from the scope of wages. Though the same should be interpreted to be house rent allowance paid as a compensatory allowance to those who reside in leased houses, most of the employers exclude it from EPF qualifying wages. The EPF authorities also do not interfere in it.
In the case of computation of gratuity also what is relevant is the gross salary. The Payment of Gratuity Act defines wages as total amount with the exemption of commission, overtime allowance, house rent allowance and similar other allowance. Please understand that there is no allowance called "other allowance" but there can be allowances to meet certain objectives, like education allowance ( allowance paid to an employee to compensate the cost of education of his children), hill allowance (allowance paid to an employee posted in hill areas to compensate some costs in hilly terrain where the climate may be very cold and without blankets or sweaters one can not survive or the transportation would cost high in such places etc) city allowance (to compensate the additional costs of living in cities) etc. The HRA is also a compensatory allowance paid only to those who reside in leased houses. If you see the exclusion part of wages (like commission, overtime, bonus, HRA ) you will find that these are based on some conditions like commission is based on some results, overtime depends on overtime working, bonus depends on profitably, etc and the amounts of which are not fixed in the appointment or contract of employment. Simply, what will qualify for gratuity is the amount of wages agreed as per appointment order/ contract of employment.
From India, Kannur
4248In the case of computation of gratuity also what is relevant is the gross salary. The Payment of Gratuity Act defines wages as total amount with the exemption of commission, overtime allowance, house rent allowance and similar other allowance. Please understand that there is no allowance called "other allowance" but there can be allowances to meet certain objectives, like education allowance ( allowance paid to an employee to compensate the cost of education of his children), hill allowance (allowance paid to an employee posted in hill areas to compensate some costs in hilly terrain where the climate may be very cold and without blankets or sweaters one can not survive or the transportation would cost high in such places etc) city allowance (to compensate the additional costs of living in cities) etc. The HRA is also a compensatory allowance paid only to those who reside in leased houses. If you see the exclusion part of wages (like commission, overtime, bonus, HRA ) you will find that these are based on some conditions like commission is based on some results, overtime depends on overtime working, bonus depends on profitably, etc and the amounts of which are not fixed in the appointment or contract of employment. Simply, what will qualify for gratuity is the amount of wages agreed as per appointment order/ contract of employment.
From India, Kannur
@Madhu T K
So to summarise what you have mentioned: (Please correct me if I am wrong)
Gross salary is considered for determining compliance with the Minimum Wages Act as long as it meets or exceeds the statutory minimum. As long as the total remuneration (gross pay) exceeds the statutory minimum, it's compliant, regardless of how allowances are distributed. For statutory contributions like PF and ESI, different interpretations of "wages" are applied based on what components are included or excluded by the respective Acts.
Interpretation of Wages Under Different Acts:
The interpretation of "wages" changes based on the specific Act.
1. For PF (EPF) Contributions: Gross pay is taken, but HRA is usually excluded from the scope of wages for PF calculations. This exclusion happens even though HRA is not explicitly recognised by authorities, and employers generally exclude it without much interference.
2. For ESI Contributions: The gross pay (as per the contract) is considered, meaning everything except statutory exclusions is included.
3. For Gratuity Calculation: The Payment of Gratuity Act excludes certain components, including HRA, commission, overtime, etc. It considers the wages as agreed upon in the employment contract, excluding allowances that are compensatory or not fixed.
House Rent Allowance (HRA):
HRA is specifically meant to compensate for rented housing costs and is excluded from PF and gratuity calculations. It’s not considered a fixed part of the salary that counts towards these calculations.
From India, Wada
So to summarise what you have mentioned: (Please correct me if I am wrong)
Gross salary is considered for determining compliance with the Minimum Wages Act as long as it meets or exceeds the statutory minimum. As long as the total remuneration (gross pay) exceeds the statutory minimum, it's compliant, regardless of how allowances are distributed. For statutory contributions like PF and ESI, different interpretations of "wages" are applied based on what components are included or excluded by the respective Acts.
Interpretation of Wages Under Different Acts:
The interpretation of "wages" changes based on the specific Act.
1. For PF (EPF) Contributions: Gross pay is taken, but HRA is usually excluded from the scope of wages for PF calculations. This exclusion happens even though HRA is not explicitly recognised by authorities, and employers generally exclude it without much interference.
2. For ESI Contributions: The gross pay (as per the contract) is considered, meaning everything except statutory exclusions is included.
3. For Gratuity Calculation: The Payment of Gratuity Act excludes certain components, including HRA, commission, overtime, etc. It considers the wages as agreed upon in the employment contract, excluding allowances that are compensatory or not fixed.
House Rent Allowance (HRA):
HRA is specifically meant to compensate for rented housing costs and is excluded from PF and gratuity calculations. It’s not considered a fixed part of the salary that counts towards these calculations.
From India, Wada
Exactly. Wages shall mean the total amount agreed as per contract of employment. It is with reference to certain contributions and payments by the employer that we have different treatment. Allowances which are fixed and mentioned in the contract of employment shall also be part of wages whereas those allowances which do not have specific/ quantifiable amount shall only be outside the scope of wages.
From India, Kannur
From India, Kannur
Hi Azhar, I would suggest, if you are placed in Maharashtra, simply adopt the structure notified in the Notification of the Maharashtra govt.published from time to time and increase marginally whenever the notification stipulates increases in components which I hope will satisfy the statutory obligation w.r.t. Basic pay & DA. In case, If your contracted total emoluments(as per the offer letter) of the employees concerned is well covered within then let it be like basic pay, VDA etc. Supposing the notified MW is less than the contract total emoluments then add additional allowances (like special pay, special allowance etc), to arrive at the total agreed emoluments. I think this would satisfy the legal obligations & other norms. Accordingly you can define your policy frame work.
From India, Bangalore
From India, Bangalore
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