Bifurcation Of Minimum Wages - Pdf Download

Dear All,

I am working with a company as an HR Executive. I have been in the same line for the past four years. I have a doubt whether it is possible to bifurcate minimum wages into 2 or 3 allowances as per the company's salary structure, i.e., Minimum Wages in Chandigarh are Rs. 3550/-.

After Bifurcation:

- Basic = 1775/-
- HRA = 888/-
- Con. = 888/-
- Total = 3551/-

As per the EPF Act (Basic + DA), I have searched through many books, but the results are still nil. If you have any notifications or judgments, please forward them to me or suggest what would be right in this case.

I have also worked with consultants and audited many companies that are also bifurcating the minimum wages. Even in a case when I was handling the EPF inspection, I asked the inspector if there is any written statement that prohibits the bifurcation of minimum wages, but the topic was closed without a clear resolution. Now, I seek input from all the members of this site.

Amit
HR Executive

Dear Friend,

There is one judgment popularly known as the Air-Freight Case wherein the Supreme Court has decided that Minimum Wages should be treated as one component only and not to be divided.

Regards

Dear Amit,

Minimum wages can be further broken down into various components, but the Basic+Fixed DA portion should comprise the majority percentage unless there is a union agreement or settlement in this regard, taking a progressive view. For example: Basic + Fixed DA = 55% of Minimum Wages, VDA + HRA + other Allowances = 45% of Minimum Wages. Minimum wages are the minimum total gross wages an organization must pay to employ people in industries covered under the Minimum Wages Act. The definition of wages is as given in the Act; we need not go to any other sources to interpret the term wages.

Regards,
SC

Dear Friends,

If we read paragraph 19, it includes the following words:
"The idea of fixing such wages in the light of the cost of living at a particular juncture of time and of neutralizing the rising prices of essential commodities by linking up scales of minimum wages with the cost of living index is provided for in Section 4, but VDA is part and parcel of wages. Once rates of minimum wages are prescribed under the Act, whether as all-inclusive under Section 4(1)(iii) or by combining basic plus dearness allowance under Section 4(1)(i), they are not amenable to split up. It is one pay package. Neither the scheme nor any provision of the Act provides that the rates of minimum wages are to be split up based on the cost of each of the necessities taken into consideration for fixing the same."

It may please be noted that the definition of wages under the Act never states that the minimum wages can be bifurcated under various heads.

Regards

Dear All,

The term "wages" is defined as below:

According to Section 2(h), "wages" means all remuneration capable of being expressed in terms of money which would, if the terms of the contract of employment express or implied were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment. It includes house rent allowance but does not include:

(i) the value of:
(a) any house accommodation supply of light water medical attendance, or
(b) any other amenity or any service excluded by general or special order of the appropriate government;

(ii) any contribution paid by the employer to any person fund or provident fund or under any scheme of social insurance;

(iii) any traveling allowance or the value of any traveling concession;

(iv) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(v) any gratuity payable on discharge.

"Employee" means any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical in a scheduled employment in respect of which minimum rates of wages have been fixed. It includes an out-worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted, or otherwise processed for sale for the purposes of the trade or business of that other person, where the process is to be carried out either in the home of the out-worker or in some other premises not being premises under the control and management of that other person. It also includes an employee declared to be an employee by the appropriate government, but does not include any member of the Armed Forces of the Union.

You can bifurcate and spread it across the components described. What we cannot do is deny payment of any component after bifurcation. The cap is on payment and not bifurcation.

For example, in West Bengal, you need to pay 5% of Basic as HRA, as per the West Bengal House Rent Allowance Act. Should we include it in Minimum Wages, or should it be paid additionally to Minimum Wages? Since an all-inclusive rate is given in West Bengal, we take it that HRA is included in Minimum Wages.

Regards,
SC

Dear Friend,

The definition clearly states that minimum wages include HRA and make it one component itself and specifically exclude the other five things. I, and not even the Supreme Court, think that it can be bifurcated or trifurcated.

Regards

Dear Kuljit,

I have one clarification to seek. For instance, if the Minimum Wage is Rs. 100, what would be the PF contribution amount?

Regards,
SC

Dear Friend,

Both the PF Act and MW Act are different statutes and are dealt with accordingly. I understand your intention in asking this question about PF being deducted on the Basic salary only. The Minimum wages include HRA, but the basic salary under the PF Act excludes HRA. However, we should follow the judgment to clear the ambiguity and consider Minimum wages as one component, deducting PF on 100 Rs.

What do you say?

With Highest Regards

Hi Kuljit is right. In a situation like that, take the total wages as a consolidated single salary component and don't bifurcate. If it goes down the prescribed wages, then you have to adhere to PF/ESI wherein the employer has to contribute on their own. Always when it comes to salary fixation, please don't just stick to the baseline so tightly.

Advise the management to relax by a little higher value to freely exercise in case of unexpected contingency due to amendment changes in the Act. Many employers do unwanted expenses and pay little or no attention when it comes to statutory compliance. It is quite difficult to change their attitude unless the respective statutory commissioners take the whip into their hands to reprimand.

Regards, Chandru

In addition to this discussion on whether Minimum Wages can be bifurcated or not, please advise if the minimum wage is applicable to contract labor/semi-contract labor or if it applies to all employees on the payroll, including office staff, admin, etc. Because in cases where it is applicable to all employees, I have observed many instances where the basic pay is less than the minimum wage, while the other components (fixed every month) such as HRA, conveyance, special allowance amount to more than the minimum wage. Dear friends, please resolve.

Thanks & Regards, Deepak

Dear,

Minimum wages cannot be bifurcated for the sake of saving PF, however, minimum wages allow it. But now the Supreme Court has given a judgment in the case of Group Four Security. If anyone has a copy of the judgment, please forward it.

Thanks,
J.S. Malik

Thanks for the reply. I have also discussed with lawyers, and the result I got is that yes, we can bifurcate into basic and HRA, but we have to deduct the PF on the minimum wage. It means the minimum wage for Haryana is Rs. 3640 for unskilled, and we are paying him Rs. 5640/- so we can divide it into:

Basic: 3640
HRA: 2000

We will deduct the PF on 3640, which is fair.

Regards,
Deepak

Dear Friends,

I just want to inquire whether PF & ESIC contributions made by employees are a part of the minimum wage or not. Suppose the tax slab for skilled workers in a region is Rs. 3500 - does that mean, according to the act, that the worker should be paid Rs. 3500 as take-home salary? Please explain.

Dear All,

I think whether you bifurcate the minimum amount of wages or not depends on company policy. We just have to ensure that the employee is paid the minimum rate fixed by the government. Accordingly, we have to calculate the PF.

Regards,
Namrata

Hi,

Minimum wage only refers to the basic amount declared by the state from time to time, excluding any other components. The PF deduction depends on the basic amount; for example, if the basic wage is 3550, it comprises 3124 as take-home wage and 426 as the employee's share of PF. However, if someone pays more than 3550, it is welcome, and they can segregate it as per their own requirements. Nevertheless, the basic wage should not be less than 3550 in your case.

Regards,
Arun

I also need clarification. Our company is paying conveyance on working days, and PF ESI is not deducted from conveyance. Hence, we have bifurcated 50% of the minimum wage. Is it right?

Regards,
Dinesh

Hi, absolutely, Minimum Wage cannot be bifurcated. You can refer to one of the rulings given by the Chandigarh Court regarding this matter, which is also available on the same site. Please search for it. If not found, provide your email, and I can forward the same.

Regards,
Purna

Dear Friends,

I too agree with Kuljit that minimum wages should not be split. In cases where these bifurcations are made, you will see that Basic+DA is always equal to or more than the minimum wages. If this is not the case, it is a non-conformity.

Guys, this is my opinion. Please let me know if I am wrong.

Regards,
Sandeep K.

Dear all,

Please find attached the ruling copy for your reference.

Regards,
Maahiein

Dear Friends,

PF will have to be calculated on the prescribed Minimum Wage. Therefore, it is a clear inference that bifurcation of the Minimum Wage is not really the correct thing to do. In the example you have stated, PF will be deducted on Rs. 100.

Vasant Nair

Dear Deepak,

The Minimum Wages Act is applicable to every person who works in an organization, including contractor workers.

Thank you.

There is one term COLA - i.e. Cost of Living Allowance. Whether it is a term defined under the Indian Payment of Wages Act? If not, some companies bifurcate wages such as Basic + COLA + HRA. Is it permissible to use the word COLA? The term Dearness Allowance is defined in the Act, but how can one assume that COLA is the same term as Dearness Allowance unless it is specifically defined under the Act.

Can anyone enlighten me on this confusion? If the term COLA can be used as it is, what are the rules pertaining to fixing COLA under Indian labor laws? Quick response is solicited. Thanks and regards to all reader friends.

Dear Friends,

After considering all the discussions above, it is clear that they are correct from the market perspective or from the perspective of companies bifurcating minimum wages. However, it is important to note that according to labor law, Minimum Wages comprise Basic Wage and Dearness Allowance and should not be further divided into any other components.

Yesterday, I met with the Labor Commissioner regarding a Gratuity case, where we had segmented the minimum wage or salary of the employee into different categories, but the basic wage was below the minimum wage stipulated by law. The Commissioner candidly stated that the minimum wage refers solely to the basic wage of an employee and not any additional components, and that Gratuity must be calculated based on the prescribed minimum wage.

In light of the discussions above, I would like to emphasize that the minimum wage corresponds to the basic wage of the employee only. If Dearness Allowance is to be paid, it should be added to the Basic Wage to determine the minimum wage.

If there are any changes or mistakes in the above information, please feel free to discuss and share.

Regards,
Nandan Negi

Dear Friends,

As per the above discussion, all viewpoints are correct from a market perspective or in terms of companies bifurcating minimum wages. However, according to labor law, it is noted that Minimum Wages are equal to Basic Wage + Dearness Allowance and should not be further bifurcated in the minimum wages apart from these two components.

Yesterday, I was in front of the Labour Commissioner for a Gratuity case. We had divided the minimum wage or salary of the employee into different categories, but the basic wage was lower than the minimum wage mandated by the law.

He candidly mentioned that the minimum wage refers to the basic wage of an employee, not other components. Therefore, we are required to pay the Gratuity amount based on the prescribed minimum wages.

In conclusion, from the above discussion, I intend to emphasize that the minimum wage corresponds to the basic wage of the employee solely, or if Dearness Allowance is included, we can sum up the Basic and Dearness Allowance as the minimum wage.

If there are any changes or mistakes, please feel free to discuss and comment.

Regards,
Nandan Negi

Dear All,

I hope the attached order regarding the restriction and bifurcation of PF wages below Minimum Wages from the RPFC Haryana serves your purpose.

Deepak Behl
Piyush Consultancy Services (Labour Laws Consultant)
Ph: 9811397722

Dear Seniors,

Please read the Swastik73 box. All allowances are included in the Wages definition. So, we can bifurcate the minimum wages (this is my view). However, the lawmakers are confused about many things in labor law. Labor laws should be revised without any loopholes.

Warm Regards,
Suthanthira Selvan

Dear all,

If we go by the description of the regulation that was passed for wages, it means all the elements providing monetary benefits to the employees, including Basic, HRA, Conv., all must be included, and so does the wage could be bifurcated.

If you go by the notification from the EPFO: we can't just bifurcate the minimum wage for the purpose of reducing the PF deduction. These acts are meant for providing long-term benefits to the employees. The PF office could force you to deduct the PF on the minimum wage and could also take legal action for that.

This rule is applicable for companies covered under the shop act as well, as per sections 3 and 4 of the minimum wage act, stating that basic plus dearness allowance are not amenable to split up.

Thanks and regards,

Himanshu Guleria

Dear All,

The situation for Deepak still prevails. Is the company's bifurcation of the minimum wage amount subject to legal action, or are they on the safe side?

In terms of adhering to Labour Laws, should we split the minimum wages (Can we pay the EPF contribution on the minimum wages or on the bifurcated minimum wages as Basic)? Please suggest, as it has been a bone of contention for many of us for so long.

Thanks,
Manish Gupta

I am in a charitable medical center in Delhi. We are paying our employees as per minimum wages. Once we cross the limit of the number of employees, we need to add PF facility. Can we adjust the employer contribution in employees' salary? Please advise.

ANIL

Hi,

Please provide clarification on the bifurcation of gross salary. Is it necessary to include 50% of the basic salary in the gross salary? If so, please send the Government Order as per the act, or provide further clarity.

Sir,

Please provide me with the updated minimum wage of the central government and guidance on calculating consolidated remuneration, including Variable Dearness Allowance (VDA) notified by the Central government from time to time.

Regards,

Pintoo Kumar
9711552866