Recovery Of Allowances From Employees Wages, After 6 Month,

Dear Seniors,

In my organization (Principal Employer), an IT company (contractor/vendor) has been paying its workers basic wages lower than the minimum wages for the past six months. When we insisted that the company pay the arrears (the difference in basic wages) to all their workers for the entire six-month period, the vendor agreed to do so. However, they have now restructured the Salary Sheet, equalizing the wages to the current minimum wage by transferring amounts from allowances to Basic wages. While we have agreed to this change, the vendor is also deducting all allowances from the workers' wages, which were previously paid to them over the past six months.

Below is the calculation:

The Basic Wages were Rs. 3167/- PM (from Apr '14 to Sep '14) but should have been Rs. 8112/- PM, resulting in a difference of Rs. 4945/- (Apr '14 to Sep '14). Additionally, HRA, Travel Allowances, or any other allowances were also paid along with the Basic wages.

The vendor is now prepared to pay the arrears to the workers, amounting to Rs. 4945/- x 6 months = Rs. 29670/- (for Apr '14 to Sep '14). Starting from Oct '14, the vendor has set the basic wage at Rs. 8112/- (as per minimum wages) by adjusting the allowances in the basic wage, reducing all allowances to zero (0).

However, the vendor is also subtracting the total amount of allowances from the Rs. 29670/- (arrears amount) that they had paid to the workers in the last six months, i.e., from Apr '14 to Sep '14.

Therefore, my question is whether the vendor has the right or it is correct to shift allowances (HRA, Travel Allowances, or any other allowances) into Basic wages for the purpose of meeting minimum wage requirements, instead of providing a separate increment in Basic Salary. Can the vendor recover the allowances that the company has already paid to the workers in previous months?

Please advise and provide your valuable suggestions.

Dear Mr. Sachin,

God bless you.

1. The contractor/vendor has no legal rights to merge allowances into basic wages.
2. As an organization, please do not force him, leading to any illegality.
3. How much are you paying him per capita?
4. Normally, the agreement with the contractor for manpower supply is made in clear terms.
5. Please read the agreement signed. Lastly, how can any contractor be asked to literally double the salary? It is also not clear how approximately Rs. 4,000.00 of allowances can be paid to a contract wager.

If you need any more clarifications, please send a copy of the agreement and salary sheet of the staff provided by the contractor.

Dear Sachin,

I have understood the following points from your post:

1. The vendor has made the PF contribution based on less than the government-declared minimum wages.
Answer: The vendor is liable to make the PF contribution based on the full minimum wages declared by the state government.

2. As the employer, you are insisting that the vendor make the contribution based on the full minimum wages.
Answer: The vendor will claim the differential contribution from you (Employer Contribution) and recover the employees' share from the employees.

3. Allowances have been merged with Basic Wages, and all the allowances are now at zero.
Answer: The decision lies with you. If you wish to pay enhanced wages to employees, then ask the vendor to revise the basic wages without impacting any allowance part. This could unexpectedly enhance the wages of employees.

Regards,
Jitender

Sachin,

What your contractor is doing is illegal.

If he and you think that pretending to pay arrears and then taking it away by recovery of the same is going to let you off the hook, then all I can say is that either you don't know anything about the law or you think the government officials are fools.

First, minimum wages are defined in terms of basic + da. So it has to be more than the minimum wages (in your case ₹8112). Since the amount paid is less, the differential is payable by the contractor. In addition, he is required to pay the differential on PF also on the same. I think the law would require a penalty on the PF account, but your consultants will be able to figure out how to show it in a manner to avoid a penalty.

Second, you cannot change the salary structure in this manner. You cannot now make the allowances zero. This would be a change of terms of employment, and you need to follow the rules laid down under the Industrial Disputes Act. All contract workers must agree to the change in structure (specifically, in all reductions of any component).

You can restructure and increase during, but not the way you have done, as it will amount to unfair labor practice, illegal deduction, or even payroll fraud, depending on how a complaint is filed.

Third, you can definitely not remove allowances with retrospective effect and try to recover the same. If you have paid a higher amount by mistake, that's your fault. Recovery can be made only for a genuine mistake identified within a month (max 2 months) except those caused by fraud or suppression of information by employees.