What should be the Basic + DA percentage from the Gross salary?

What should be the basic + DA percentage from the gross salary?

Also, what is the HRA percentage from the basic amount?

Dear Thomas,

Determination of gross salary/wages, its componential structure, and the percentage of each component to the gross amount are matters to be decided by collective bargaining between the individual employer and his employees or at the discretion of the individual employer as per the prevailing industry norms subject to statutory restrictions like the application of minimum wages, if any. Therefore, no straight-jacket formula can be suggested in the matter. The percentage of the components of basic salary/wages and dearness allowance have to be fixed in such a manner that social security measures like gratuity and EPF are not reduced. Therefore, my suggestion would be that you can follow the structure adopted by the progressive employers in your industry.

Dear Thomas Almeida ji,

Our most senior member Shri. Umakanthan has rightly said that there is no straight-jacket formula as to the percentage of basic plus DA to Gross. There is no law that says you need to pay basic & DA as a certain percentage of gross pay. No law mandates paying salary/wages in various other components or allowances, except in some states where there is the law of HRA.

You are required to pay the components of Basic & DA/Sp. Allw. as per the minimum wage rates or more as prescribed for your scheduled industry. This is the law. In Maharashtra, if you have more than 50 employees, you are liable to pay a minimum of 5% HRA of Basic & DA/Sp. Allw.

Dear Colleague,

The DA component is meant to neutralize basic wages against price erosion, and it is 100% at the rock bottom wages as per the Supreme Court guidelines. However, unless you devise some formula to link basic wages to the Cost of Living Index (CPI), prescribing any percentage would be futile.

As rightly pointed out by the learned colleagues, you can adopt the Minimum Wage formula applicable to your industry or follow industry practice in the region.

Regards, Vinayak Nagarkar HR Consultant

Respected seniors,

Is it correct to keep the basic component too low considering that the minimum wage is equal to the gross and not the basic? I require your expert opinion.

Thanks,
Santosh

Hello dear,

It is wrong to say that the minimum wage is equal to gross and not basic. Rather, the opposite is true. In Punjab, as per Note 3 of the minimum wage notification dated 31-05-2012, it has been specifically provided that "The minimum wages fixed/revised shall be the basic rates of wages." This may also be the situation in many other states. Please check for your state.

Regards,
Jacob Pratap

Putting total gross as per government fixation and dividing basic & da at 40% - is it acceptable?

Hello dear,

When the appropriate government fixes or revises the minimum wage for different categories of employees (i.e., unskilled, semiskilled, skilled, etc.), then one of the clauses in that notification is about linking this wage with the Consumer Price Index (CPI), which is declared every six months based on the data provided by the Statistical Department of State/Center governments. Based on the CPI, the appropriate government then enhances the wage of each category. This enhancement is merged with the earlier fixed or revised minimum wage. By such merger, a new minimum wage is formed and is treated as the minimum wage fixed by the government.

Hence, if you split the minimum wage into Basic + DA, it will not save you any money as all benefits under the Labour Laws are given to workmen on Basic + DA. My experience is that employers want to split the minimum wage so that they can save some money on contributions to ESI, PF, bonus, gratuity, etc.

Under the Minimum Wages Act, there is no percentage fixed for splitting it into Basic and DA. Please decide for yourself, keeping in view that it is a welfare legislation and even ethics demand that the legal share of poor workmen or, for that matter, the share of anyone, should not be taken away.

Best wishes and regards.