Tuesday, April 26, 2011

STATUTORY MINIMUM WAGES AND EMPLOYERS’ LIABILITY IN RESPECT OF PF, BONUS AND GRATUITY


In a recent judgment in Globe Detective Agency (P) Ltd vs. Presiding Officer, Industrial Tribunal No. III and Another (2011- LLR 236) the Delhi High Court has ruled that Bonus should be paid to eligible workers at least on the statutory minimum wages applicable.
It has been a practice of establishments to split up the total salary into components like Basic, House Rent Allowance, Conveyance Allowance, Washing Allowance etc. There is nothing wrong in doing so  with respect to employees drawing higher salaries whose salary incomes are subject to income tax deduction, but not in respect of low paid or those who are paid statutory minimum rates of wages.
If any establishment has been paying wages to employees after splitting the gross salary in to basic + HRA+ Conveyance+ etc …., and whereas the sum of these heads make equal to or more than minimum wage fixed by the government, the employer is said to comply with the requirements under the Minimum Wages Act as was penned inter alia in the judgment in Airfrieght Ltd Vs State of Karnataka (AIR 1999 SC 2459). This ruling has been interpreted as a licence to split the total salary into components like HRA, Conveyance etc which do not form part of statutory salary.


What is statutory wage/ salary?


Statutory wage means wage as defined under various labour enactments. Different Acts have defined wages/salary differently. But almost all Acts have included the Basic Wage and Dearness allowance as part of wages/ salary. For instance, section 2(h) of the Minimum Wages Act, 1948, wages means an all inclusive remuneration payable to a worker as per the terms of contract of employment and includes house rent allowance. However, wage as per the said Act does not include any other facilities or amenity like rental value of house accommodation given to the employee, electricity or water bills paid in respect of them or medical attention given to them, special allowance paid to defray special expenses entailed on an employee or a class of employees by the nature of his or their nature of employment or any travel allowance or concession paid. Certainly, any contribution payable by the employer towards Provident or Pension Fund, Employees State Insurance, amount payable as bonus or amount payable as gratuity at the time of discharge of the employees is also not part of wages/ salary. The latter part is common under all legislations whereas under the CTC concept of salary fixation all contributions payable by the employer in respect of an employee is included in the salary or the so called Cost To Company.
Section 2(iv) of the Payment of Wages Act, 1936, also defines the wages in the similar manner by including all amounts payable as per contract of employment. Section 2(rr) of the Industrial  Disputes Act, however, includes in wages the value of house accommodation, supply of water and electricity, medical attendance or other amenity like value of concessional supply of food grains, travelling concession and any commission payable on the promotion of business.
Section 2 (s) of the Payment of Gratuity Act, 1972, excludes all allowances like HRA, travelling allowance etc from wages. Section 3(n) of the Maternity Benefit Act, 1961, includes HRA and value of food grains in wages. However, section 2(21) of the Payment of Bonus Act, 1965, excludes all allowances other than dearness allowance from wages.
The scheme 29(3) of the Employees Provident Funds Schemes, 1952, requires that provident fund contributions shall be on basic wages, dearness allowances, retaining allowance and value of food concessions payable to the employees. At the same time, section 2(22) of the Employees State Insurance Act, 1948, includes in wages all allowances which are paid in intervals of not exceeding two months. Though the treatment of travelling allowance has been a subject of dispute, its inclusion for coverage and contribution are being regulated by court ruling and separate notifications. However, the frequency of its payment and the nature of its payment as to whether as part of contract of employment or as reimbursement are also determining factors.  
In short the two basic components of salary which should be treated as salary for the purpose any Act concerned are the Basic wage and the Dearness Allowance. It is accordingly that the appropriate authorities under the Minimum Wages Act fix the minimum rates of wages. As such there is expected to have a basic rate of wage and a dearness allowance variable according to changes in the consumer price index. However, in many establishments the practice of paying variable dearness allowance (VDA) is not present. They pay under different heads like, Basic, HRA, Conveyance etc. Under such pay scales, the only component which qualifies all the tests of a statutory salary would be basic salary. This is often done with a view to reducing the employer’s burden of payment of bonus, gratuity, provident fund contribution etc.


A wrong Practice


The minimum wage as per the Minimum Wages Act is expected to include a basic rate and a dearness allowance which is adjustable according to the changes in cost of living indices. However, the employer is said to comply with the Act even if he is not paying DA under a separate head but the total pay is an all inclusive amount at par with or higher than the basic and DA as per the Minimum Wages Act. This was supported in the ruling by the Apex Court in Airfreight Ltd Vs. State of Karnataka. Therefore, an employer can split the total salary into basic salary, HRA, Conveyance, washing allowances etc and thereby can reduce his burden of payment of contribution to EPF, Bonus and Gratuity. In many instances the basic salary is kept at a very lower level and the major portion of salary would be in the form of HRA, conveyance allowance and even washing allowances!


Observations by Provident Fund Authorities


On finding that the Basic wage has been fixed at a lower level deliberately to deflate employer’s contribution towards Provident Fund, the PF Authorities have come up with a decision of requiring the employers to pay PF contributions at least on the minimum wages fixed by the government. This decision of the EPF Organisation has been challenged in various courts saying that it is the basic wage which will qualify for PF contributions or HRA, Conveyance and Washing Allowances do not form part of PF qualifying salary and even the EPFO has no authority to enforce minimum wages. The EPFO, on the other hand, uphold that the schemes under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, are social security schemes meant for the benefit of employees and the very purpose of the schemes would be defeated if the employers are allowed to split the salary into different components. Certainly, very recently the view expressed by the EPFO has been dismissed by the High Court of Punjab and Haryana in Asst. provident Fund Commissioner, Gurgaon Vs G4S Security Services (India) Ltd and another. The court relied on the definition of PF qualifying wages as per the Schemes which excludes HRA or other allowances.
However, the Employees Provident fund Organisation has issued a circular (No.: Coord/4(6)2003/Clarification/Vol-II/ Dated: 23-05-2011) calling on all employers that minimum wages should not be bifurcated for the purpose of payment of PF contribution. The circular says that ".....it is abundantly clear that basic wage in no case can be lesser than the minimum wage as the same is not only contrary to law of land but is also beyond logic and rationale that an establishment which can not pay even minimum wages to its employees, would be willing to pay allowances to them and if such instances exist, there is certainly a malafide motive which may be considered as knowingly making or causing to make false statement/representation punishable u/s 14(1) of EPF & MP Act, 1952. It may also attract the provision of section 418 of IPC.  It adds that " any agreement which negates any law of land is ab-initio-void and would have effect of non-existence. Therefore, any such terms of agreement for employment where minimum wages is splitted to reduce the liability under EPF & MP Act, 1952 would be governed by the same logic as it is against the provisions of Minimum Wages Act and hence illegal".

Observations of Court in payment of Bonus
In Globe Detective Agency (P) Ltd vs. Presiding Officer, Industrial Tribunal No. III and Another (2011- LLR 236), the Delhi High Court has taken a different view about treatment of ‘other allowances’ in calculation of bonus. Though section 2(21) of the Payment of Bonus Act excludes all allowances other than dearness allowance from wages, the verdict allows the contention of the respondents that allowances and amounts payable which are otherwise included as part of permanent wages cannot be removed for the purpose of calculation of bonus as was earlier held in S. Krishnamurthy Vs. Presiding Officer, Central Govt. Labour Court [1985-LLJ-133(SC)]


There are similar views about retrenchment compensation also. There is no doubt that no establishment has any right to exist unless it pays at least the bare minimum rates of wages fixed by the government [Crown Aluminum Works Vs. Workmen (1958 AIR 30)] Subsequent ruling on minimum wages also show that retrenchment compensation shall invariably be calculated on minimum wages since there is no question of defence if the aggrieved employee is paid lower than the minimum wages as nonpayment of minimum wages itself is a matter of industrial dispute. In the similar way payment of gratuity is also regulated in the first instance by taking in to consideration the basic wage which should not be less than the statutory minimum wages applicable.
Therefore, any attempt by an employer to split the statutory minimum wages shall only be viewed as a calculated act of reducing his burden of payment of his contribution towards Employees Provident Fund in the first instance and thereby gaining by way of reduced bonus payment and gratuity liability. It is worth understanding the quantum of outflow of funds had he worked out the PF contribution, Bonus and Gratuity payments in real terms and it would never be a burden since the amount of minimum wages by itself is a small amount. It is worth settling in the wordings of the Apex Court in Crown Aluminum Works case that no establishment has right to exist unless it pays at least the minimum wages. It is not confined only to the sum of amount paid but the variables like bonus, gratuity and other social security payments which depend on it as well. It is okay in the case of those whose drawings exceed minimum wages but is not acceptable in the case of low paid workers.  The verdict of Delhi High Court in Globe Detective Agency’s case is a right step but not final. There are more decisions to come in line with the present verdict which will entail minimum wage earners to get the exact benefit as envisaged by our Welfare State.

MADHU.T.K

41 comments:

  1. Dear Sir,

    Why the employers shoould sign either 12(3) or 18(1) settlement with unions.

    My query

    1. whether it is mandatory?
    2.Why not employer is signing settlement with other than union employees.i.e Management cader

    Kindly reply for the query

    REgards
    Samuel

    Regards

    ReplyDelete
  2. It is not mandatory that the management should sign settlement. However, a 12(3) settlement is legally binding and the workmen cannot raise any dispute about it.

    In respect of managerial category employees the provisions of ID Act will not apply and no protection as are offered to the workmen are available top the managers. Therefore,their pay revision etc will not be signed before any dispute redressal machinery but is shown in the contract of employment with the respective employee/ manager.

    Madhu.T.K

    ReplyDelete
  3. Dear Sir,

    Thanks for your clarifucation

    I have one more clarification Reg. Over Time. Please breif about it.

    In our company while computing over time amount Basic+D.A+V.D.A are considered.

    According to Factory act 1948 Sec-59, it explicittly states that "Basic wages plus such allowances , including the cash euivalent of the advantage accuring through concessaional sale to workers of foodgrains and other articles" to be considered for Over Time

    My query is even though we are having HRA, Amenities allowance, Special Allowance etc as wage components, we are not considered the allowance for computing the OVer Time. whether is a contravention against factory act.



    Please brief me sir.

    Regards
    Samuel

    ReplyDelete
  4. I have put my views on your above query when you put the same comment to my article about Protected Workmen in this blog. Please refer.

    Madhu.T.K

    ReplyDelete
  5. Sir,
    I got your reference from citehr, I am looking for an objective type book for HR as I was preparing for some exams...would really appreciate if you could help

    ReplyDelete
  6. Dear Sir,

    In our SIPCOT industrial belt all the employer are siging 12(3) with their unions.

    kindly clarify, why they are prefers 12(3) rather than 18(1)settlement . Also please flash out me some difference between 12(3) and 18(1).

    Regards
    Benison

    ReplyDelete
  7. Benison, I have given the clarification to Samuel. Please share it.

    Madhu.T.K

    ReplyDelete
  8. thank you for your service to HR peoples i very like your answer's.my mail ID geogiri782@gmail.com
    plz send me your suggestions.
    BY RAJAGIRI TK
    HTL POLLACHI COIMBATORE TAMILNADU

    ReplyDelete
  9. Sir, As per labour notification it is mentioned that apart from Minimum WAges employees are entitle to get VDA @ 75% over the rise and fall of Index Point in the AICPI. But I am unable to calculate the VDA amount. If some one's basis wages is Rs. 6240/- then what should be the VDA. Also please confirm me whether the VDA is mandatory to calculate with BASIC. Or we can give basic pay only as per prescribed Minimum Wages. I am working as a Chief Accountant in a Privatve Hospital. My email ID is kajaldutta.ac@gmail.com. Hope you will repoly me. Thanks K.Dutta, Tinsukia, Assam.

    ReplyDelete
  10. Variable Dearness Allowance (VDA) is always linked to Consumer Prince Index (CPI). It has no connection with basic salary. The notification of Minimum wages in the state will state how much is the VDA in the respective industry and how the same would be arrived at. For example, it could be Rs 20 per CPI above a certain fixed base of CPI, say, 100. If the CPI of the area is 167, then 67 points of CPI (which is the CPI above the base CPI, 100) will attract DA and the VDA will be Rs 1340 (67 X Rs 20)
    If the notification is like VDA is 75% of the CPI, then take the CPI, which will keep on changing with every change in the market prices,and find the VDA as percentage of that CPI.

    If you are paying a salary without a component like VDA but the total sum paid to employee is not less than the minimum wages , you need not pay VDA separately. Therefore, if the statutory minimum wages is Rs 4500 and the VDA payable is Rs 1500, the statutory wages payable is Rs 6000 and if you are paying Rs 6240 as gross salary with lots of components like Basic, HRA, Conveyance, Performance allowance etc, but without DA, you are said to comply with the requirements of law and you need not pay the VDA separately as was decided by Supreme Court in Airfrieght Ltd Vs State of Karnataka.

    Regards,

    Madhu.T.K

    ReplyDelete
  11. Sir,
    The security agency at a PSU is governed by DGR rate, however doesn't pay HRA to any of the 70 Security Guards, who reside in the city either at their own homes or rented accommodation. Th PSU says that a barrack is provided for their stay, which is not practical for 95% of these guards because they stay with their families. My questions are:
    1 - Is HRA Statutory Payment?
    2 - Can HRA be paid to Guards having own residence, Family Accommodation be provided to those who live with families in rented accommodation?

    Regards
    Raghavendra

    ReplyDelete
  12. HRA is not part of statutory salary under minimum wages notifications of most of the states. Therefore, if the salary being paid to the guards is at par or more than the minimum wages fixed by the govt. there is no need of paying anything additional to compensate HRA.

    Madhu.T.K

    ReplyDelete
  13. MINIMUM WAGES ARE DIFFERENT FROM THE WAGES UNDER GRATUITY ACT/BONUS ACT. TO UNDERSTAND THE DIFFERENCE WE HAVE TO GO THROUH THE definition of salary or wages as found in the MINIMUM WAGES ACT, we must also take into account the intention and purpose of the legislature in enacting the MINIMUM WAGES ACT,gratuity act and Payment of Bonus Act.
    I wish to refresh your idea the in the following case the Supreme Court has cited the proposals accepted by the tripartite Committee of Indian Labour conference held in New Delhi in 1957.
    Standard Vacuum Refining Co. of India v. Its Workmen, ; (i) In calculating the minimum wage, the standard working class family should be taken to consist of 3 consumption units for one earner, the earnings of women, children and adolescents should be disregarded; (ii) Minimum food requirement should be calculated on the basis of a net intake of calories, as recommended by Dr. Aykroyd for an average Indian adult of moderate activity; (iii) Clothing requirements should be estimated at per capita consumption of 18 yards per annum which would give for the average workers' family of four, a total of 72 yards; (iv) in respect of housing, the rent corresponding to the minimum area provided for under Government's Industrial Housing Scheme should be taken into consideration in fixing the minimum wage and (v) Fuel, lighting and other 'miscellaneous' items of expenditure should constitute 20 per cent of the total minimum wage. Keeping in view the socio-economic aspect of the wage structure, the Supreme Court observed that it was necessary to add the following additional component as a guide for fixing the minimum wage in the industry : (vi) children's education, medical requirement minimum recreation including festivals/ceremonies and provision for old age marriages etc., should further constitute 25 per cent of the total minimum wage."
    item no. 4 shows that minimum wages include house rent expenditure. SC clearly showed all the items which are part of minimum wages. SC says Rent for a house equal to industrial housing of yester years. it is equal to about 350-400 sft house accommodation. hence HRA or rent also is part of minimum wages.

    ReplyDelete
  14. I have one querry about minimum wages applicability and wage settlement. Currently we are complying with minimum wages applicable for the workmen. Now they have formed union and Charter of Demands are being discussed. The workmen are asking to reduce the basic salary so that they will get more inhand salary (PF,Bonus,Gratuity etc. will reduce) If this demand is fulfilled, will it voilate the applicable minimum wages, what about PF contribution ? Please send me reply on sun1_dip@yahoo.com

    ReplyDelete
  15. We are sigining an settlement under section 12 (3)and Section 18(3) of ID Act. While distributing the increased amount by way of settlement we are putting entire amount into "Conveyance Allowance". Currently the Basic salary is at par with minimum wages applicable now. My query is as follows :
    1.If there is increase in minimum wages, can workmen ask to revise their basic salary to comply with minimum wages
    2.We are putting entire increment into Conveyance allowance to avoid ESIC contribution on increased amount. Whether it is correct as per law ?

    ReplyDelete
  16. Sir,

    Whether VDA component is complulsory
    If we are following minimum wages act,is itnecessary to split that wages in to basic and VDA?
    If we are not having the VDA component ,in salary structure is it acceptable anf how pf can be contributed

    ReplyDelete
  17. It is not necessary that salary should have a VDA component. If the total of salary is not below the minimum wages fixed by the Govt. the establishment is said to comply with the statutory requirements. If you do not have bifurcation of salary but you are paying consolidated amount, the entire amount will qualify for statutory contributions, like bonus, gratuity PF etc. Since PF cannot be enforced to be contributed on a salary above Rs 6500, you can pay it on 6500. Similarly, Bonus can also be restricted to a rate on Rs 3500. For that also you can bifurcate the salary even if there is no material bifurcation in it.


    Madhu.T.K

    ReplyDelete
  18. Dear sir

    is it necessary to pay VDA for those who are having Gross Saalary morethan the minimum Wages ? some are demanding to pay the VDA to every employee? is it right? if is there any govt G.O, may please clarify me.

    Thanks & REgards
    Srinivas

    ReplyDelete
  19. dear all if an organisation say a hotel is paying its regular employees pf,bonus, leave of 30 days, gratuity on minimum wages hires some daily wage workmen to cope up with increased load due to festival and pays them minimum wages will it not be flouting equal pat for equal work

    ReplyDelete
  20. How much Cl should be provided for a year according to law?
    We are giving 6 Cl Per Year/and Pl According to Factory law is it OK?
    Regards
    sneha

    ReplyDelete
  21. Kindly go through what you have said to Mr.Kajal Dutta on 24-7-2012.
    "If you are paying a salary without a component like VDA but the total sum paid to employee is not less than the minimum wages , you need not pay VDA separately. Therefore, if the statutory minimum wages is Rs 4500 and the VDA payable is Rs 1500, the statutory wages payable is Rs 6000 and if you are paying Rs 6240 as gross salary with lots of components like Basic, HRA, Conveyance, Performance allowance etc, but without DA, you are said to comply with the requirements of law and you need not pay the VDA separately as was decided by Supreme Court in Airfrieght Ltd Vs State of Karnataka".
    Are you not giving a false advice?

    According to you when an employer pays gross which exceeds Minimum rate of wages then the employer need not pay VDA if the employer was in a habit of non payment of VDA. Are you right? Did the judgment any where said that instead of VDA any allowance can paid by the employer including basic appeared more than the statutory Minimum rate of wage fixed by Government no need to pay VDA.?

    It only concentrated on not allowed splitting up of the minimum rates of wages in to components of BASIC, VDA.and Cash value of commodities paid on concessional rates. Its a one pay package. Where basic is more than the Govt. fixed basic and VDA is less than the Govt. fixed VDA then there need not be payment of additional VDA so long the sum total of both basic and VDA being paid by the employer does not fall less than the sum total of basic and VDA fixed by the Govt. The problem has arisen when the authority of Karnataka had passed orders against the non payment of increased VDA when he ignored the increased basic being paid by the employer of air freight courier. Its not that all allowances also included to consider for payment of Minimum rates of wages.
    Further, what is the difference between Sec, 2(h) and 4(1) of M.W. Act?. According to you all allowances which are excluded in Def. 2(h) were advised to be taken into consideration for payment of minimum rates of wages.
    Suppose an employer pays Basic -1000/- VDA- Nil, HRA -5000/-, Conveyance allowance 3000/- , Medical allowance-2000/- per mensem where the state fixed Basic and VDA was around Rs. 7000/-. Do you mean the employer has complied with the components of Minimum rates of wages under Sec. 4(1).?
    An authority under Sec. 20 of the same enactment hears and decides only such cases where less than minimum rates of wages are found to be paid by the employers. In the above case if a case is filed for payment of Rs. 6000/-P.M. less than minimum rates of wages can the authority is not empowered to hear and decide it? According to you he is precluded to do so.
    An authority is empowered to hear and decide when the sum total of the components (according to air freight case) are found paid by the employers less than that of the minimum rates of wages fixed by the Govt. Do you justify adding HRA, conv. allowance etc. etc. and say that the authority is not allowed to take the issue on file to hear? Is that the crux of the judgment? what the importance of Minimum rate of wage? can HRA is considered for Minimum rate of wage, which is the component of Wage under Sec. 2(h). If it is added then what is the sanctity or difference between Sec. 2(h) and 4(1)? Is the authority empowered to hear and decide payment of less than wages i.e. Sec. 2(h)? What do you say now?---Panda, kesavapanda@gmail.com.

    ReplyDelete
  22. Sir,
    Greetings to You
    My company is small scale Industry ,we are following minimum wages strictly
    But we are not having bifurcation like VDA ,strictly saying we are not having VDA component.But we Bifurcated as HRA and other allowance.and according to statutory obligations we are paying PF on basic only .Is it ok or we have to bifurcate it to VDA also.is any sitatation or any law is available on this topic .Plz guide me sir

    ReplyDelete
  23. Please go through the comments above along with what I have written. In the ruling in Airfrieght India Vs State of Karnataka it is clearly stated that if you are paying salary in total which is above minimum wages there is no need to pay VDA. This ruling has been used by the employers to bifurcate the salary into small components so that contributions like Pf can be reduced. PF authorities have questioned this act and have asked the employers to pay contributions on total salary or minimum wages fixed which they have defended and the final decision is yet to come. There are a few problems associated with its enforcement. First, the EPFO does not have right to enforce minimum wages but it is a state subject. Secondly, in many scheduled industries the minimum wages i higher than Rs 6500 and the PF cannot demand any contribution on salary above 6500 until the ceiling is increased. Certainly, once it is amended as per the present decision to Rs 15000, it can be effectively enforced. Third, there are a lot of establishments who do not come under minimum wages schedule but are under the scheduled employment as per PF Act. Suppose that an establishment who does not have a minimum wages notified is paying average salary of Rs 4000 only to its workers. The establishment is covered under PF Act. The PF authorities cannot demand them to pay salary of 6500 and pay contribution based on that. Paying salary is purely the right of employer and PF can not direct how much should be paid.

    Anyway, the decision to pay PF on total salary or minimum wages is on hold.

    Madhu.T.K

    ReplyDelete
  24. Dear Mr. Madhu T.K,

    Thanks for all your inputs. I have a specific query about the usage of VDA in calculating gratuity payable to the employees. For e.g, an organisation having practice of paying VDA on a monthly basis to employees. In such case, will VDA be considered as part of "wages" along with Basic & Dearness allowance while calculating the gratuity payable at the time of separation / superannuation?

    Thanking you in anticipation!

    Rohan Prabhudesai

    ReplyDelete
  25. Dear Mr. Madhu T K and Mr. Kesava Panda,
    Thanks for both of your comments. However I am confused with both of your different interpretation of Minimum Wages Definition under Sec.2(h) and Sec.4(1). In Sec.2(h) even House Rent Allowance (HRA) is a component of wages. But in 4(1) HRA is missing and Special Allowance has appeared. Now what is the position of HRA in terms of Minimum wages wage definition. Is it considered as a component of Minimum wages or not?
    Further, when Minimum wages is Basic Rs.6000 and VDA Rs.3000, would it be advisable to split the Minimum wages into Basic Rs.4500, VDA Rs.3000 and Special allowance Rs.1500.

    If possible what is the PF applicability on Special allowance in respect of Minimum wages Act,Payment of wages Act and PF Act.

    Both of your prudent comments with example and Supreme and High court judgments would be highly helpful to the professional fraternity.

    with warm regards
    Hemachandra
    Bangalore
    hrneeds2011@gmail.com

    ReplyDelete
    Replies
    1. Dear Members,

      Seeking help from all Seniors on gratuity !!!

      My questions on gratuity are

      1) what is the definition of CTC as per law ? is it mention any where in our law ?

      2) If company is deducting Gratuity From CTC and if Employee leave the company (normal)in 1 year can he claim for the Reimbursement amount that is deducted from his CTC? If yes then how?

      Delete
  26. Dear Mr Madhu TK,

    The article above was very informative and helpful and thank you for the same. I had a query with regards to security guards and the agencies who claim to charge fees under various heads stating that they are statutory requirements. I will greatly appreciate if you could point out which of the below heads are statutory and which are not apart from Basic+DA (as per state min wages), PF @ 13.61% & ESIC @ 4.75%.
    1. HRA @ x%
    2. Conveyance Allowance
    3. Washing Allowance
    4. Uniform
    5. Leave @ 6% of Basic + DA
    6. Bonus @ 8.33% of Basic + DA
    7. ESC on Overtime.

    This is more or less for all states and its for guards for Retail outlet.

    Regards,
    DW.

    ReplyDelete
  27. Dear Sir,

    I am having query regarding latest amendment on minimum wage effective Dec 26,2014.
    We are engineering mfg industry. we are paying Basic+Sp. Allow+Fix performance Allow+Additional Allow to our contractual workers.
    Now as new minimum wage is exorbitantly high, can we restructure min wage as Basic+Sp.Allow+HRA for cost saving?
    Will it be illegal to withdraw the Fix Performance Allow and Additional Allow??
    Is it proper way that new rate of min wage is not refelected on basic only but total of Basic,sp. allow and HRA?

    Please reply urgently.
    Thanks in advance Sir.

    ReplyDelete
  28. Hello Sir,

    I am a law researcher in one of the Company in Gurgaon. I have a query regarding Contribution of PF,
    According to this article the notification issued by the POF Authority prevails, i.e. the PF contribution shall be made on Minimum wages atleast and if the employer bifurcates the Minimum wages it is illegal. They can bifurcate the total salary and not the Minimum wages.

    This is my understanding correct me if wrong

    awaitng for your response.
    Thank You
    Regards
    Smita
    smita.aanandan@gmail.com

    ReplyDelete
    Replies
    1. Sorry, I could not reply in time. Hope the reply given below will help you.

      Madhu.T.K

      Delete
  29. Hello Sir,

    I am a law researcher in one of the Company in Gurgaon. I have a query regarding Contribution of PF,
    According to this article the notification issued by the POF Authority prevails, i.e. the PF contribution shall be made on Minimum wages atleast and if the employer bifurcates the Minimum wages it is illegal. They can bifurcate the total salary and not the Minimum wages.

    This is my understanding correct me if wrong

    awaitng for your response.
    Thank You
    Regards
    Smita
    smita.aanandan@gmail.com

    ReplyDelete
  30. Hello sir,

    I have been reading your posts on Cite HR which I find very informative.

    I work in HR in a private company in Mumbai with employee strength of around 170-200. I am bit confused while restructuring salary.

    1. As per Section 2(b) of PF Act, DA is not included in the definition but all the available info on this mentions Basic +DA.. please clarify.
    2. We have mostly employees in the executive cadre barring four in workmen category. For entry level to 2-3 years of experience associate we take care that we are paying Basic as per minimum wages(semi- skilled category) and there is nothing like Special Allowance or DA as part of our salary structure.Their total emoluments are more than Minimum Wages. Hence, we have been deducting PF and calculating Bonus for such associates on basis of their "Basic Salary Head" as mentioned above. My question on this is...Is it compulsory for employer to contribute to PF at least as per min wages salary of Basic + Special Allowance.. even though their salary is above minimum wages? I mean is the benchmark is (Basic + Sp Allowance)as per the minimum wages should be a minimum contribution?
    3. Also i the above case my second question is.. Bonus calculation should also then be minimum 7000/- as per the recent amendment? as per our current practice we are paying on their basic salary head which we have maintained as per the minimum wages basic. So basically they will not be getting any difference(7000-5400). But is this a correct approach?

    The re-structuring if required as above will end up having very less in hand salary for less experienced new joinees who are at lower salary bracket. This will also increase the amount of burden on account of PF contribution on Company. Hence, I need to be doubly sure to put the case forward to the management.

    I am sure a senior experienced member of HR/IR fraternity like you will be able to answer my query.

    Please take some time out and guide me on the above as soon as possible.

    Warm Regards,
    Gayatri P

    ReplyDelete
  31. Section 2(b) defines only basic wages. It is not PF contributing wages which is defined in section 6 which states that contribution shall be payable on basic wages, dearness allowances and retaining allowances.
    If your total salary exceeds minimum wages fixed then you need not pay DA separately. But for PF purposes, basic wage means all emoluments and not just the basic wage fixed by you which will always be less than what the other allowances are and that has been the controversy with the EPFO
    We have been interpreting the PF contributing wages as Basic wages (and DA, if paid) only all these days though the Act is very clear that we have to pay it on basic wages (which as per section 2(b) is the total amount payable to the employee except DA, HRA, Bonus, cash value of food concessions, any present from the employer etc), DA and Retaining allowances, if any. When we are not payaing DA, we took only Basic wage as base for calculation of PF and in order to reduce the burden of payment, we decided to keep the basic salary at a very low level. Now, the PF has come up with a more clear definition which reads that all components of wages should contribute to PF except HRA. Now if they do not put a cap on the HRA, we will structure the salary with 90% of pay as HRA and the rest as basic, conveyance etc. In order to avoid confusions again, they have decided to give a capping of 20% on total wages as HRA.

    Again the PF is thinking of considering the minimum wages for PF qualifying salary. But the PF Enforcement Officers do not have the authority to question you why are you not paying the minimum wages because the enforcement of minimum wages is a subject of state's labour department.

    In order to safeguard your interests and the interests of employees, it is advisable to pay PF on the total salary except HRA which should not be more than 20% of the salary.

    As per the latest amendment to Payment of Bonus Act, the bonus of all employees whose wages do not exceed Rs 7000 should be calculated on the actual salary. In the case of employees whose wages exceed Rs 7000, the calculation should be done on the premise that their wages is 7000 or the minimum wages whichever is higher.

    Paying at least the minimum wages is an obligation of the employer. It is equally important that he should contribute towards the social security schemes. After all these are the amounts available to the workers when they retire. When you are not giving any portion of the profits, why don't you think of giving the statutory contributions without diluting it??

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  33. Dear Sir,
    I have doubts relates to Basic Pay. One of the staffs Basic pay Exceeds minimum wage (Basic Pay mentioned in the Minimum Wage Notification of Educational Institution) While giving increment to this staff, is it mandatory to add incremented amount basic also, or Can I Put the full amount under other heads. (Because his Basic Salary higher than Minimum wage notification, Please note that He is getting Variable DA too)

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  34. I have a query about Washing Allowance, whether washing allowance needs to be a part of the minimum wage for workmen??
    Kindly guide.

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  35. Dear Sir, I would like to know about in chattisgarh the minimum wages is Rs. 3432 and VDA is Rs. 2674. Should i calculate PF on 3432 or total of Basic+ VDA= 6107. Please suggest.

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  36. for all the latest labour law updates please visit bibleHR.com

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  37. Hi sir, Could you please explain the difference between statutory and non- statutory wage components with examples? Its for a pre-class assignment and i have no idea in this. Please help me sir..

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