Minimum Wages in India

Minimum wages in India are the minimum payments any business makes to its employees per the “Minimum Wages Act 1948.” For all businesses, it is crucial to understand the changes in minimum wages, as non-compliance can lead to penalties. For example, this legislation allows workers to lodge legal complaints against firms that underpay them.

Every business, including international firms operating in India, must adhere to the Minimum Wages In India. So if you are operating in India, you need to ensure accuracy while calculating minimum wages for each employee. Wage variations arise from factors such as region, industry, skills, and the nature of the work.

This article will discuss the Minimum Wage Act and the methods for calculating it, considering various factors.

What is the Minimum Wage in India?

Minimum wages in India are regulated under the “Minimum Wages Act of 1948.” The act is enforced by the Government of India to protect employees from exploitation and ensure specific minimum remuneration. However, it is not uniform across the country. Each state has its own category of employees and cost of living, based on which it formulates the minimum wages employers need to pay.

The Minimum Wages Act covers,

• Minimum employee payment that each employer must pay.
• Standardized guidelines on which payment modes to use
• Revision of the minimum wages made by the government
• Establishment of an advisory board for the minimum wage review.
• Minimum wages for employees across skill levels
• Compliance requirements and penalties in case of violations.

Minimum wages in India are decided based on different factors and one of them is the Consumer Price Index (CPI). Plus, the Minimum Wages Act 1948 also considers house rent allowance(HRA) and variable dearness allowance (VDA) as key components for the calculation of labour wages in India.

This act makes sure that the country meets requirements of “Living Wage” concept given by ILO. It maintains the daily wages in India so that employees can manage food, healthcare, education, and clothing expenditures.

Types of Workers or Labor

The Minimum Wages Act covers three basic types of labour.

Unskilled Labour

The unskilled labourer is the one who carries out simple tasks and duties and requires no previous experience for the job. Such labourers often require initial training to provide better familiarity with the tools and machines.

Skilled Labour

Skilled labourers can carry out specific tasks with little assistance. Such labourers have expertise in delivering tasks in less time.

Semi Skilled Labour

Semi skilled labourer is the type who carries out most of the tasks but needs training to perform advanced functions.

Highly Skilled Labour

Highly Skilled Labourer is Trained for Complex Tasks and Operations that Require Expertise. Examples Include Project Managers, Scientists, Doctors, and Software Developers.

The type of labourers you hire at your organisation can help determine the minimum wage calculations. However, before discussing how to calculate minimum wages, let’s first go through the essential reforms in the Minimum Wages Act 1948.

Reforms in Labour Laws

Since introducing the Minimum Wages Act in 1948, India’s government has enforced many reforms.

The Code on Wages, 2019

The Code of Wages 2019 was introduced in the parliament to consolidate the provisions of four labour laws. These laws were based on wages, bonus payments, timely payment, and universal minimum wages.

Provisions of the Code on Wages, 2019

• According to the updated definition, wages include any payment, such as salaries, allowances, or any other form of compensation that can be expressed in monetary terms.
• These payments are due to a person who has completed the work required per their employment agreement, whether explicitly stated or implied.
• Reform prohibits discrimination based on gender for wages and recruitment of employees.
• It empowers the Government to fix a floor wage, considering the minimum living standards of workers and minimum wage rates set by it.
• Rules are defined to revise and fix minimum wages, and the components of minimum wages include a basic rate of wages and a cost-of-living allowance.
• It defines the mode of payments like coins, currency notes, cheques, and credit to the bank account to pay employee salaries.
• The time limit for payment of wages and the deductions are fixed with these reforms.
• The reform establishes eligibility for the bonus for every employee whose wages do not exceed a specific monthly amount.
• New reforms mandate an annual payment of a bonus subject to a minimum of 8.33% and a maximum of 20% of the wages.
• The new reform also defines different penalties for paying less than the due wages or contravening any provision of the Code.

The Code on Wages (Central Advisory Board) Rules, 2021

The Code on Wages (Central Advisory Board) Rules, 2021 comprise specific rules framed by the Central Government.

Provisions of the Code on Wages (Central Advisory Board) Rules, 2021 are:

• The Central Advisory Board will consist of 47 members, including representatives of employers, employees, state governments, and experts.
• The criteria for fixing the floor wage should include considerations like cost of living, the geographical area, and the prevailing market rates.
• The procedure for calculating the cost of living allowance must be based on the Consumer Price Index for Industrial Workers. You can also consider Consumer Price Index for Agricultural Labourers, or the Consumer Price Index for Rural Labourers.
• When updating minimum wage rates, consider several important factors like workers’ skill level, how difficult the work is, where the job is located, and the minimum amount of money workers and their families need to live.
• Working hours of the employees must not exceed eight hours a day and forty-eight hours a week.
• Overtime wages should be at least twice the regular rate of normal wages.
• Wages will be paid through a bank account or electronic means, except in some instances where cash payment may be allowed.
• The employers are responsible for maintaining records and registers, and must provide the necessary returns and notices.

How to Calculate Minimum Wages in India?

The calculation of minimum wages in India needs consideration of multiple factors right from the location of business, type of industry, cost of living, and skill level. Apart from these there are components of minimum wages like VDA and HRA that you need to consider while calculating it.

Factors Influencing Minimum Wage in Calculation

Minimum wage rate in India are determined by various factors, such as

#1. State and Region

The central government sets minimum wages for specific industries and occupations within its jurisdiction, including railways, mines, ports, and more. However, most industries and occupations under state jurisdiction have their minimum wages set by their respective state governments. Minimum wages differ across various states and regions in India.

#2. Industry and Occupation

In India, minimum wages are determined by the state or region, as well as by the type of industry and occupation of the worker. For instance, minimum wages for agricultural workers may differ from those for industrial workers.

Similarly, minimum wages for skilled labour are always higher than those for unskilled labour. This is because skilled workers require specialized training and expertise, and their services are usually in higher demand, which leads to higher wages.

#3. The Skill Level and Nature of Work

When calculating minimum wages, it is crucial to consider the skill levels and job nature of workers.. Highly skilled workers like engineers and doctors are entitled to a higher minimum wage than semi-skilled or unskilled workers like helpers or sweepers.

Further, minimum wages for hazardous or arduous work like mining or construction are higher than regular work. This helps to ensure that workers are paid fairly for the type of work they do.

Components of Minimum Wage Calculation

Minimum Salary in India as per labour law is composed of two main components:

Basic Wage

A basic wage is a fixed amount paid to a worker, influenced by the cost of living and market rates. In India, it forms a key part of a worker’s compensation and is a basis for calculating other benefits and allowances.

Variable Dearness Allowance (VDA)

VDA is a crucial part of a worker’s salary, adjusting for inflation and changes in the cost of living. It is based on the consumer price index (CPI) and typically revised every six months. This adjustment ensures that workers in scheduled employment, where minimum wages are set, can maintain their standard of living despite rising prices.

House Rent Allowance (HRA)

HRA (House Rent Allowance) is a component of salary intended to cover housing expenses. It typically ranges from 10% to 50% of the basic salary, depending on the city and company policy. Minimum wages include other benefits like medical, education, and transport allowances.

Regular Revision and Review of Minimum Wages

In India, Minimum wages are not fixed or static. They undergo regular revision and review by both central and state governments to ensure they reflect changes in the cost of living and market conditions.

The central government updates the minimum wages for scheduled industries and occupations every five years. The state governments review the minimum wages at least once every five years or more often at their discretion.. The revision and review process involves consultations with various stakeholders, including employers’ associations, trade unions, and experts.

Regional Disparities in Minimum Wages

One of the major challenges in implementing minimum wages in India is the wide variation in minimum wage floors across different states and regions. For example, the minimum wage for unskilled labor in Punjab is ₹10,996.04 per month.At the same time, unskilled labor in Chandigarh has a minimum monthly wage of ₹14,142.

The differences in minimum wage floors among states reflect variations in the cost of living, economic development, political will, and the bargaining power of workers, among other factors.

Minimum Wage Rates in Different States

Minimum wages in India are not uniform and differ from state to state. This is why it’s important to understand the minimum wage for each state. Below is a detailed list of the latest minimum wages across all the states in India.

Now that you have an idea of minimum wages across the state, it’s important to understand the types of penalties and compliance requirements of the Minimum Wages Act 1948.

Compliance and Penalties

The Minimum Wages Act, 1948, of India establishes several compliance requirements and penalties for organisations.

Employer’s Responsibility to Pay Minimum Wages

According to the Minimum Wages Act of 1948, employers are required to pay workers the minimum wages set by the central or state government.

The employer cannot pay less than the minimum wage or make any deductions from it, except as permitted by law. Employers must maintain records of minimum wage payments and display the minimum wage rates in a visible location at the workplace.

Consequences of Non-Compliance with Minimum Wage Regulations

Non-compliance with minimum wage regulations is a severe offence in India and can adversely affect workers and employers. For the workers, non-compliance can result in exploitation, poverty, indebtedness, malnutrition, ill health, etc. For employers, non-compliance can result in legal actions, penalties, fines, imprisonment, loss of reputation, etc.

Penalties and Legal Actions for Non-Compliance

The Minimum Wages Act 1948 defines various penalties and legal actions for non-compliance with minimum wage regulations.

Some of them are:

• If an employer pays less than the minimum wage or makes unauthorized deductions from the minimum wage, they can be fined up to ₹500, imprisoned for up to six months, or both.
• If an employer fails to maintain records of the payment of minimum wages or display the minimum wage rates at the workplace, they can be fined up to ₹500.
• If an employer obstructs or prevents an inspector from performing their duties under the act, they can be fined up to ₹500, imprisoned for up to six months, or both.
• If an employer gives false information or evidence to an inspector or a court, he or she can be fined up to ₹1,000, imprisoned for up to six months, or both.

Further, a worker who is paid less than the minimum wage can also file a claim for the recovery of the unpaid amount before a government-appointed authority. The authority can order the employer to pay the unpaid amount, compensation, and interest.

The worker can also file a complaint before a court within six months of the payment date for less than the minimum wage.

Conclusion

The minimum wage in India protects employees from exploitation, but businesses must comply with the Minimum Wages Act of 1948 to avoid violations.

This involves considering the state of operation, employee skill levels, and cost of living. Additionally, businesses should stay up to date on government changes to labor wages when calculating minimum payments for employees.

What are the Factors that Impact Minimum Wages in India Now?

The factors that impact minimum wages in India include the state, the area within the state based on its development level, industry, occupation, and skill level.

Is the Minimum Wage in India 26 Days or 30 Days?

The minimum wage in India is calculated for 30 days, which means that the monthly wage is divided by 30 to get the amount the employer needs to pay daily to employees.

Which State in India has the Highest Minimum Wage?

Delhi has the highest minimum wage, ranging from ₹17,000 to ₹23,000 per month.

Which is the State with the Lowest Minimum Wage in India?

The state with the lowest minimum wage in India is Meghalaya, which provides ₹5,670 per month for unskilled labor.

What are the Penalties if a Business does Not Comply with the Minimum Wages Act 1948?

Failure to comply with the Minimum Wages Act may lead to fines up to ₹10,000 and imprisonment for up to six months or more.