One of the officers in A.P. Labour Department has been taking into consideration the payment of contribution of the employees deducted by the management under EPF Act from the ECR statement and preferring claims under Sec. 20 of Minimum Wages Act. Fortunately, the gross is higher than the Minimum rates of wages payable to the workers in the State of A.P. On seeking clarification, the said officer is referring to Sec. 6 of EPF Act and states EPF department activity is confined only to that extent of recovery shown as basic and special allowances shown in the records and if the recovery is in congruence to the sum total shown in the records their action ceases. It is not their duty whether the management is deducting EPF on the A.P. State declared minimum wages.
But, it is asserted by the Labour official that the extent the management has considered for the contribution from the wages of the workers under EPF can be taken by him the extent of Minimum rate of wage the management is paying to each of the workers and he is not required to consider whether the gross wage is more than the Minimum rate of wage as it contained many more components which cannot be considered as the components of Minimum wages, which are considered defray expenses, which do not help keeping the sustenance and maintenance of the worker and his family and preserving his efficiency as a worker.
In his calculation of Minimum wages he considers the components illustrated under Sec. 4 of the Minimum wages Act but not Sec. 2(h) of the said Act. He also provides clarification on the difference between the two provisions of the said Act. When I approached some of the other officers of the same department, they are considering the whole gross wage and not preferring Claim if the gross is found more than the Minimum wages. When I referred the land mark judgment provided by the officers of the same department i.e. Air Freight Courier Vs. Govt. of Karnataka of 1991 he interpreted that this judgment is not to consider the whole wage as Minimum rate of wage so that the whole wage if found grater than the Minimum rate of wage of the State to exempt the management from preferring Claim under Sec. 20 of the Act.
The judgment emphasizes that the components of Minimum wages shall not be considered separate as Basic and VDA but one pay package and they are not amenable to split up and if the sum total of the two is found more than the minimum rates of wages no claim is required to be preferred. He, further, stated that in the same judgment the Supreme court also stated that the components which cannot be considered for computing Wage under Sec. 2(h) should also not to be considered for calculation of Minimum wages. The reason he explained to consider the component of recovery of EPF of employees that Sec. 6 of EPF Act speaks about the components of Basic, DA, Retaining allowance and Cash value of food concession.
Since the later two are not applicable to my establishment I was demanded to cover at least the entire Basic and DA revised by the Govt. of AP under EPF Act, which are the primary components of Sec.4 of Minimum wages Act but not the whole Gross wage. According to him the component covered under EPF enactment is less than the Minimum rate of wage i.e. Basic and DA revised by the Govt. of AP though the gross is more than that, which included the components stated to be excluded under Sec. 2(h) of the Act. What should I do? Shall I face the proceedings instituted by the Labour department for non-payment of Minimum rates of wages even though I pay more than the Minimum rates of wages in terms of Gross?
From India, Chennai
10But, it is asserted by the Labour official that the extent the management has considered for the contribution from the wages of the workers under EPF can be taken by him the extent of Minimum rate of wage the management is paying to each of the workers and he is not required to consider whether the gross wage is more than the Minimum rate of wage as it contained many more components which cannot be considered as the components of Minimum wages, which are considered defray expenses, which do not help keeping the sustenance and maintenance of the worker and his family and preserving his efficiency as a worker.
In his calculation of Minimum wages he considers the components illustrated under Sec. 4 of the Minimum wages Act but not Sec. 2(h) of the said Act. He also provides clarification on the difference between the two provisions of the said Act. When I approached some of the other officers of the same department, they are considering the whole gross wage and not preferring Claim if the gross is found more than the Minimum wages. When I referred the land mark judgment provided by the officers of the same department i.e. Air Freight Courier Vs. Govt. of Karnataka of 1991 he interpreted that this judgment is not to consider the whole wage as Minimum rate of wage so that the whole wage if found grater than the Minimum rate of wage of the State to exempt the management from preferring Claim under Sec. 20 of the Act.
The judgment emphasizes that the components of Minimum wages shall not be considered separate as Basic and VDA but one pay package and they are not amenable to split up and if the sum total of the two is found more than the minimum rates of wages no claim is required to be preferred. He, further, stated that in the same judgment the Supreme court also stated that the components which cannot be considered for computing Wage under Sec. 2(h) should also not to be considered for calculation of Minimum wages. The reason he explained to consider the component of recovery of EPF of employees that Sec. 6 of EPF Act speaks about the components of Basic, DA, Retaining allowance and Cash value of food concession.
Since the later two are not applicable to my establishment I was demanded to cover at least the entire Basic and DA revised by the Govt. of AP under EPF Act, which are the primary components of Sec.4 of Minimum wages Act but not the whole Gross wage. According to him the component covered under EPF enactment is less than the Minimum rate of wage i.e. Basic and DA revised by the Govt. of AP though the gross is more than that, which included the components stated to be excluded under Sec. 2(h) of the Act. What should I do? Shall I face the proceedings instituted by the Labour department for non-payment of Minimum rates of wages even though I pay more than the Minimum rates of wages in terms of Gross?
From India, Chennai
Dear Kesavapanda,
I am sorry that your post confuses me.
Section 2(h) of the Minimum Wages Act,1948 defines the term wages as all remuneration that can be converted in terms of money payable as per the contract of employment and includes house rent allowance. At the same time, the definition specifically excludes THE VALUE of certain amenities mentioned in clauses (a) and (b) of item (i) and the amounts paid towards certain heads mentioned in items (ii),(iii),(iv) and (v) of section 2(h).
Section 4 of the Act deals with the components of the rates of minimum wages to be fixed u/s 3 of the Act as follows:-
It may comprise of -
(i) A basic rate of wages and cost of living allowance (D.A) linked to Cost of Living Index
OR
(ii) A basic rate of wages WITH or WITHOUT the cost of living allowance AND the cash value of the concessions in respect of supplies of essential commodities at concessional rates where so authorized.
OR
(iii) An all inclusive rate comprising of all the above three.
Juxtaposing the definition u/s 2(h) and the componential structure u/s 4 of the Act, we can conclude the statutory minimum wages would mean all remuneration including basic, D.A,H.R.A and all other allowances payable as per the terms of the contract of employment minus the the excluded items. That's why the hon'ble Supreme Court held that the parity between the statutory minimum wage and the industry wage should be ascertained by deleting the excluded items of sec.2(h),if any from the industry wages. It is clear that any contribution made by the employer on behalf of the employee to any Pension Fund,Provident Fund or any scheme of Social Insurance will not form part of the wages for the purpose computation of minimum wages under the MW Act,1948. But if you deduct the employee's contribution from his Gross wages and pay it over to the concerned authority, it becomes an authorized deduction. Whether the officer objects to such deduction under the pretext it reduces the gross?
Expecting your clarification with copy of any inspection order received from the officer.
From India, Salem
I am sorry that your post confuses me.
Section 2(h) of the Minimum Wages Act,1948 defines the term wages as all remuneration that can be converted in terms of money payable as per the contract of employment and includes house rent allowance. At the same time, the definition specifically excludes THE VALUE of certain amenities mentioned in clauses (a) and (b) of item (i) and the amounts paid towards certain heads mentioned in items (ii),(iii),(iv) and (v) of section 2(h).
Section 4 of the Act deals with the components of the rates of minimum wages to be fixed u/s 3 of the Act as follows:-
It may comprise of -
(i) A basic rate of wages and cost of living allowance (D.A) linked to Cost of Living Index
OR
(ii) A basic rate of wages WITH or WITHOUT the cost of living allowance AND the cash value of the concessions in respect of supplies of essential commodities at concessional rates where so authorized.
OR
(iii) An all inclusive rate comprising of all the above three.
Juxtaposing the definition u/s 2(h) and the componential structure u/s 4 of the Act, we can conclude the statutory minimum wages would mean all remuneration including basic, D.A,H.R.A and all other allowances payable as per the terms of the contract of employment minus the the excluded items. That's why the hon'ble Supreme Court held that the parity between the statutory minimum wage and the industry wage should be ascertained by deleting the excluded items of sec.2(h),if any from the industry wages. It is clear that any contribution made by the employer on behalf of the employee to any Pension Fund,Provident Fund or any scheme of Social Insurance will not form part of the wages for the purpose computation of minimum wages under the MW Act,1948. But if you deduct the employee's contribution from his Gross wages and pay it over to the concerned authority, it becomes an authorized deduction. Whether the officer objects to such deduction under the pretext it reduces the gross?
Expecting your clarification with copy of any inspection order received from the officer.
From India, Salem
The officer depends upon the components of Minimum rates of wages as defined in Sec. 4 of Minimum wages Act. He is not considering the HRA under Sec. 2(h) of the Act. The gross of the worker is divided into the following.
Pay+DA+HRA+Commission on sales +Transport allowance+Medical allowance+ washing allowance etc. Out of these the Pay and DA comprise less than the Minimum rate of wage of the Government of A.P. and I also accept it. The Government revised Minimum wage for a salses man is Rs. 9200/- (Basic pay and DA), whereas it is 2000/- less than that in my establishment, though the gross is 10,300/- including the remaining 5 components. I am deducting EPF and ESI contribution only on 7200/- Therefore, he is considering that 7200/- as Minimum wages as per Sec. 4 of the Act and not considering even HRA and other components stating that they are defray expenses and should not be considered for calculation of Minimum wages and therefore, coming to a conclusion that I am paying 2000 less than minimum rates of wages and sent a Notice under Sec. 12 of Minimum wages Act.
One way he is suggesting that in order to make good of Govt. fixed Minimum rate of wages it can be done to add the lesser amount from other allowances and start deducting the EPF and ESI contributions from 9200/- so that no additional remuneration would be necessary to pay to the workers to keep the Gross intact and the additional expenditure that is to be met from my exchequer is the difference of EPF and ESI to that extent of Rs. 2000 i.e. 240/- P.M. and 75/- respectively. Can I accept it and do necessary modifications in other allowances so that I need not to change the gross and also to show that I am complying with Government’s Minimum rates of wages by meeting the additional expenses as he stated? Am I not allowed to pay lesser pay and DA i.e. 7200 instead of 9200 since my gross is more than 9200?
From India, Chennai
Pay+DA+HRA+Commission on sales +Transport allowance+Medical allowance+ washing allowance etc. Out of these the Pay and DA comprise less than the Minimum rate of wage of the Government of A.P. and I also accept it. The Government revised Minimum wage for a salses man is Rs. 9200/- (Basic pay and DA), whereas it is 2000/- less than that in my establishment, though the gross is 10,300/- including the remaining 5 components. I am deducting EPF and ESI contribution only on 7200/- Therefore, he is considering that 7200/- as Minimum wages as per Sec. 4 of the Act and not considering even HRA and other components stating that they are defray expenses and should not be considered for calculation of Minimum wages and therefore, coming to a conclusion that I am paying 2000 less than minimum rates of wages and sent a Notice under Sec. 12 of Minimum wages Act.
One way he is suggesting that in order to make good of Govt. fixed Minimum rate of wages it can be done to add the lesser amount from other allowances and start deducting the EPF and ESI contributions from 9200/- so that no additional remuneration would be necessary to pay to the workers to keep the Gross intact and the additional expenditure that is to be met from my exchequer is the difference of EPF and ESI to that extent of Rs. 2000 i.e. 240/- P.M. and 75/- respectively. Can I accept it and do necessary modifications in other allowances so that I need not to change the gross and also to show that I am complying with Government’s Minimum rates of wages by meeting the additional expenses as he stated? Am I not allowed to pay lesser pay and DA i.e. 7200 instead of 9200 since my gross is more than 9200?
From India, Chennai
The Hon'ble Supreme Court in the case of Airfreight v. State of Karnataka in the year 1999 has categorically held that the total pay package, excluding the components as provided in the definition of wage in Minimum Wages Act 1948, would be considered and it is perfectly legal if the total pay package is not less than the rate of minimum wage. Notice of the Labour Department can be replied to accordingly.
From India, Faridabad
From India, Faridabad
Dear Kesavapanda,
Had you furnished the exact amounts of all the components of your industry wage structure, it would have been more convenient for us to make a comparative analysis with the structure of the minimum wages.
If there is any difference between the industry wages and the statutory minimum wages, any enforcement authority under the Minimum Wages Act, 1948 has to follow the ratio decidendi of the Supreme Court laid down in its judgment in Airfreight Corporation Ltd case [1999 Supp (1) SCR 22 ] only and there is no scope for any other interpretation in excess of enthusiasm for Article 141 of our Constitution explicitly lays down that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. In this judgment the Supreme Court categorically held that minimum rates of wages fixed under the Act is remuneration payable to the worker as one package of fixed amount. Earlier also in its judgment in Unichoyi vs State of Kerala [AIR (1962) SC 12(17) ] the Apex Court held:
" Further the definition of the word 'wages' and the manner prescribed under sections 3 and 4 of the Act fixing the wages would make it clear that ' minimum wage ' is one unit of fixed amount... "
In the Airfreight judgment, the S.C held further as follows:
" In cases where employer is paying total sum which is higher than minimum rates of wages fixed under the Act including the cost of living index (VDA), such employer is not to pay VDA separately. However, for determining whether they are paying minimum rates of wages or not, the amount paid for the value of items which are excluded under section 2 ( h) of the Act is not to be taken into consideration". Therefore, the comparison has to be compulsorily on this line only. Hence I am not able to understand your statement that he is not considering HRA. Leaving out HRA and Medical Allowance, the other components viz., (i) Commission on Sales (ii) Transport Allowance and (iii) Washing Allowance would certainly fall under the excluded items of section 2( h) for sales commission is variable and the remaining are special expenses to be defrayed by the employee. Your own calculation of ESI subscription on Rs.7200/=pm confirms this fact. If excluding the last three, the industry gross wages is equal to or more than the revised minimum wages of Rs. 9200/=, certainly there is unquestionable parity between the two. Check it please.
Deductions of ESI and PF subscriptions are covered by separate legislations about which an inspector under the MWA, 1948 is not concerned with. Particularly, the amendment carried out by the Central Government to the definition of the term ' wages' in conformity with the Code on Wages, 2019 and the judgment of the Supreme Court in Vivekananda Vidyalaya Mandhir case (2019), replaces the concept of basic wages and it cannot be a point of reference for statutory minimum wages.
Therefore, you may recheck the nature of the components in the industry wage structure and decide its parity with the statutory minimum wages. As long as the sum total of your industry wages excluding Sales Commission, Transport Allowance and Washing Allowance is equal to the sum total of the basic and V.D.A fixed and revised under the MWA,1948, there is compliance. If it happens to be so, you can explain it to the Officer and inform him that claim if any filed u/s 20 of the Act would be resisted accordingly.
From India, Salem
Had you furnished the exact amounts of all the components of your industry wage structure, it would have been more convenient for us to make a comparative analysis with the structure of the minimum wages.
If there is any difference between the industry wages and the statutory minimum wages, any enforcement authority under the Minimum Wages Act, 1948 has to follow the ratio decidendi of the Supreme Court laid down in its judgment in Airfreight Corporation Ltd case [1999 Supp (1) SCR 22 ] only and there is no scope for any other interpretation in excess of enthusiasm for Article 141 of our Constitution explicitly lays down that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. In this judgment the Supreme Court categorically held that minimum rates of wages fixed under the Act is remuneration payable to the worker as one package of fixed amount. Earlier also in its judgment in Unichoyi vs State of Kerala [AIR (1962) SC 12(17) ] the Apex Court held:
" Further the definition of the word 'wages' and the manner prescribed under sections 3 and 4 of the Act fixing the wages would make it clear that ' minimum wage ' is one unit of fixed amount... "
In the Airfreight judgment, the S.C held further as follows:
" In cases where employer is paying total sum which is higher than minimum rates of wages fixed under the Act including the cost of living index (VDA), such employer is not to pay VDA separately. However, for determining whether they are paying minimum rates of wages or not, the amount paid for the value of items which are excluded under section 2 ( h) of the Act is not to be taken into consideration". Therefore, the comparison has to be compulsorily on this line only. Hence I am not able to understand your statement that he is not considering HRA. Leaving out HRA and Medical Allowance, the other components viz., (i) Commission on Sales (ii) Transport Allowance and (iii) Washing Allowance would certainly fall under the excluded items of section 2( h) for sales commission is variable and the remaining are special expenses to be defrayed by the employee. Your own calculation of ESI subscription on Rs.7200/=pm confirms this fact. If excluding the last three, the industry gross wages is equal to or more than the revised minimum wages of Rs. 9200/=, certainly there is unquestionable parity between the two. Check it please.
Deductions of ESI and PF subscriptions are covered by separate legislations about which an inspector under the MWA, 1948 is not concerned with. Particularly, the amendment carried out by the Central Government to the definition of the term ' wages' in conformity with the Code on Wages, 2019 and the judgment of the Supreme Court in Vivekananda Vidyalaya Mandhir case (2019), replaces the concept of basic wages and it cannot be a point of reference for statutory minimum wages.
Therefore, you may recheck the nature of the components in the industry wage structure and decide its parity with the statutory minimum wages. As long as the sum total of your industry wages excluding Sales Commission, Transport Allowance and Washing Allowance is equal to the sum total of the basic and V.D.A fixed and revised under the MWA,1948, there is compliance. If it happens to be so, you can explain it to the Officer and inform him that claim if any filed u/s 20 of the Act would be resisted accordingly.
From India, Salem
The Labour Officer has taken the fixed portion of the salary only. He can do so because commission is based on sales and is like an incentive and not part of salary. Travelling expense is also a reimbursement (unless otherwise provided in the contract of employment) Similarly, medical allowance is also an allowance to defray a specific expenditure. For both these, one has to produce bills in support or give a declaration that he had met expenses.
HRA perse is an allowance paid to an employee to pay rent for the house he resides for the purpose of his employment. Though now a days most of the companies pay it universally to all employees including employees who reside in their own houses. Even the EPF verdict on basic wages clarifies this point.
If you say that all these allowances are universally available to all the employees, you can club all these components together to get total wages. Therefore, you have to submit that HRA is a component of salary and is available to all employees including those who reside in their own houses. Travelling expense is not a reimbursement but is also fixed and available to all employees irrespective of their place of residence. Similar is the case with medical allowance. Though commission which is a variable component will be left out, you will be able to include HRA, Travelling allowance and Medical allowance in salary.
Now Labour Officer cannot direct you on which amount you should pay PF and ESI. Even otherwise, you are expected to pay it on gross salary only.
From India, Kannur
HRA perse is an allowance paid to an employee to pay rent for the house he resides for the purpose of his employment. Though now a days most of the companies pay it universally to all employees including employees who reside in their own houses. Even the EPF verdict on basic wages clarifies this point.
If you say that all these allowances are universally available to all the employees, you can club all these components together to get total wages. Therefore, you have to submit that HRA is a component of salary and is available to all employees including those who reside in their own houses. Travelling expense is not a reimbursement but is also fixed and available to all employees irrespective of their place of residence. Similar is the case with medical allowance. Though commission which is a variable component will be left out, you will be able to include HRA, Travelling allowance and Medical allowance in salary.
Now Labour Officer cannot direct you on which amount you should pay PF and ESI. Even otherwise, you are expected to pay it on gross salary only.
From India, Kannur
Great response from the participants. I express my heartfelt thanks to all of you who have responded to my post. As required by Shree Umakanthan sir I furnish hereunder the break up of the emoluments in rupees I used to pay to the salesman, which is the core issue of this post.
Basic 5000 +DA 2200+HRA 1200+ Commission 500+TA 1000+Medical allowance 300 + Washing allowance 100.
According to Shree Umakanthan the HRA can be added to the 7200, which reaches to a total of Rs. 8400/- P.M. The said officer argued that unless there is difference between Sec. 4 and Sec. 2(h) there would not be separate prescription of Sec. 4 in the Act. He argues that in many of the establishments the managements shows only gross but do not split up the components of wages. All his officers generally take that gross into consideration but he does not. In the cases where there was no break ups provided by the employers he has to invariably demand for the ECR statements under EPF Act from which he segregates the coverage of the quantum of PF as contribution from each of the employee, which provides him an estimation of the coverage of components of the Minimum rate of wage, which he derives from the two components of Basic and VDA from Sec. 6 of EPF Act, which is, qccording to him, are the exact components under Sec. 4 of Minimum wages Act on what basis the Government fixes or revises Minimum wages, which is statutory and adds that the exclusion of the contents in Sec. 2(h) as stated in the Supreme court judgment does not mean inclusion of HRA , a component under Sec. 2(h), which was added only in 1957 , which was not a component prior to 1957, and further he is not desisted from finding out the fact of contributions of the employees under EPF for estimation of the extent of coverage of Minimum rate of wage the employer has extended though it is not the look out for the department of Provident Fund. He also adds that the proviso to Sec. 12 also emphasizes that and any statutory deduction is allowed on it and therefore, he considers the statutory deduction of EPF as per Sec. 12(2) of the Act and also adds that my firm is not entitled to give lesser coverage of statutory minimum wages fixed by the Government of AP, which contain the two components of Sec. 4 of the Act, which he terms as exploitation as my firm deducts lesser contribution under EPF Act and the same equivalent lesser amount is added as contribution of employer side and by thus a lot of amount to each employee is held back by my firm. He also adds that though it is the subject matter of Provident Fund department from the lesser coverage it is evident that my firm is not paying minimum wages as the remaining components, including HRA, are not helpful to secure the capacity of a person as worker. I need some more help from all to give a fitting reply.
From India, Chennai
Basic 5000 +DA 2200+HRA 1200+ Commission 500+TA 1000+Medical allowance 300 + Washing allowance 100.
According to Shree Umakanthan the HRA can be added to the 7200, which reaches to a total of Rs. 8400/- P.M. The said officer argued that unless there is difference between Sec. 4 and Sec. 2(h) there would not be separate prescription of Sec. 4 in the Act. He argues that in many of the establishments the managements shows only gross but do not split up the components of wages. All his officers generally take that gross into consideration but he does not. In the cases where there was no break ups provided by the employers he has to invariably demand for the ECR statements under EPF Act from which he segregates the coverage of the quantum of PF as contribution from each of the employee, which provides him an estimation of the coverage of components of the Minimum rate of wage, which he derives from the two components of Basic and VDA from Sec. 6 of EPF Act, which is, qccording to him, are the exact components under Sec. 4 of Minimum wages Act on what basis the Government fixes or revises Minimum wages, which is statutory and adds that the exclusion of the contents in Sec. 2(h) as stated in the Supreme court judgment does not mean inclusion of HRA , a component under Sec. 2(h), which was added only in 1957 , which was not a component prior to 1957, and further he is not desisted from finding out the fact of contributions of the employees under EPF for estimation of the extent of coverage of Minimum rate of wage the employer has extended though it is not the look out for the department of Provident Fund. He also adds that the proviso to Sec. 12 also emphasizes that and any statutory deduction is allowed on it and therefore, he considers the statutory deduction of EPF as per Sec. 12(2) of the Act and also adds that my firm is not entitled to give lesser coverage of statutory minimum wages fixed by the Government of AP, which contain the two components of Sec. 4 of the Act, which he terms as exploitation as my firm deducts lesser contribution under EPF Act and the same equivalent lesser amount is added as contribution of employer side and by thus a lot of amount to each employee is held back by my firm. He also adds that though it is the subject matter of Provident Fund department from the lesser coverage it is evident that my firm is not paying minimum wages as the remaining components, including HRA, are not helpful to secure the capacity of a person as worker. I need some more help from all to give a fitting reply.
From India, Chennai
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