Minimum Wages in India

The Minimum Wage Act is essential for all businesses to understand because if your business does not comply with it there can be penalties. For example, this act provides workers to file a legal complaint against businesses if they are underpaid. The Indian government has defined the 1948 Minimum Wages Act. It protects the rights of employees across private-sector companies and organisations.

All businesses including International companies operating in India must comply with the Minimum Wages Act. Especially calculating the minimum wages to pay each employee and ensure compliance. The difference in wages is due to criteria like region, industry, skills, and nature of work.

This article focuses on the Minimum Wage Act and how to calculate it, considering different factors.

Minimum Wages Act, 1948: An Overview

Minimum Wages Act of 1948 is legislation enforced by the Government of India to fix minimum rates of wages that specific employees are bound to receive. It aims to protect employees against exploitation and ensure that workers are paid fair wages for their services.

The Minimum Wages Act covers,

• Minimum amount of employee payment to be made
• Payment modes
• Procedure of fixing and revising minimum payments
• Composition of the advisory boards that decide what should be the minimum wages
• Compliance requirements for businesses and penalties

India’s national floor level minimum wage is INR 178 daily or INR 5,340 monthly. When introduced in 1948, the Minimum Wages Act provided specific powers to the Central and State Governments. This meant that the act was statutory, and if an employer underpays the employee less than the defined wages, it is termed forced labour.

Fair wages provide a sense of security for the workers and enable them to improve education, medical aid, and comfort. One of the critical aspects on which minimum wages are decided is the type of labour.

Types of Workers or Labor

The Minimum Wages Act covers three basic types of labour.

Unskilled Labour

Unskilled labour is the one that carries out simple tasks and duties and requires no previous experience for the job. Such labour often requires initial training to provide better familiarity with the tools and machines.

Skilled Labour

Skilled labourers can carry out specific tasks and functions with little assistance. Such labourers have expertise in delivering tasks within time and offer high quality.

Semi Skilled Labour

Semi skilled labour is the type that carries out most of the tasks but needs training to carry out advanced functions.

What type of labour you have at your organisation is just one parameter from many that can determine the minimum wage calculations. However, before discussing how to calculate minimum wages, let’s first go through essential reforms in the Minimum Wages Act 1948.

What type of labour you have at your organisation is just one parameter from many that can determine the minimum wage calculations. However, before discussing how to calculate minimum wages, let’s first go through essential reforms in the Minimum Wages Act 1948.

Reforms in Labor 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 labour laws were based on wages, bonus payments, timely payment, and universal provisions of 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 as 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.
• The reform also defines the mode of payments like coins, currency notes, cheques, credit to the bank account, or through electronic mode.
• The time limit for payment of wages and the deductions that may be made from the employee’s wages are fixed with the reform.
• Eligibility for the bonus to every employee whose wages do not exceed a specific monthly amount is established through the reform.
• New reforms mandate an annual payment of 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 to implement the provisions of the Code on Wages, 2019.

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

• 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 minimum living standards of a worker, 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 or the Consumer Price Index for Agricultural Labourers, or the Consumer Price Index for Rural Labourers.
• The factors to be considered for fixing and revising the minimum rates of wages, which include the skill of the workers, the arduousness of the work, the geographical location of the workplace, and the minimum living requirements of the workers and their families3.
• Working hours of the employees must not exceed eight hours in a day and forty-eight hours in a week.
• Overtime wages should be at least twice the regular rate of normal wages.
• The mode of payment of wages, which will be through a bank account or electronic mode, except in certain cases where cash payment may be allowed.
• The records and registers are to be maintained by the employers, and the returns and notices are to be furnished by them.

How to Calculate Minimum Wages in India

The Minimum wage is the smallest amount of money an employer is obligated to legally pay a worker for their work. The purpose of minimum wage is to ensure that workers can meet their basic needs and maintain a reasonable standard of living.

Factors Influencing Minimum Wage in Calculation

Minimum wages 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

Minimum wages in India are determined not only by the state or region but also by the type of industry and occupation that a worker is engaged in. 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

It is important to consider the skill level and job nature of workers when calculating minimum wages. 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 those for 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 is composed of two main components:

Basic Wage

A basic wage is typically a fixed amount of money a worker receives in exchange for their work. This amount is usually determined based on factors such as the cost of living and the prevailing market rates for similar work.

The basic wage in India is an important component of a worker’s overall compensation package, and it is often used as a starting point for calculating other benefits and allowances that they may be entitled to receive.

Variable Dearness Allowance (VDA)

VDA is an important component of a worker’s salary, which helps to adjust for the changes in the cost of living caused by inflation. It is calculated based on the consumer price index (CPI) and is usually revised every six months to ensure that workers are paid a fair wage that reflects the current cost of living.

The CPI measures the average change in prices of goods and services consumed by households. In India, VDA is applicable to workers in scheduled employments where minimum wages are fixed. The purpose of VDA is to ensure that workers are able to maintain their standard of living even in the face of rising prices.

House Rent Allowance (HRA)

HRA is a component of the salary that is meant to cover the expenses of renting a house or accommodation. It is usually calculated as a percentage of the basic wage and varies across different states and cities in India. The HRA can range from 10% to 50% of the basic salary of labour, depending on the city of residence and the company policy.

Apart from the above components, minimum wages also include other allowances or benefits, such as medical allowance, education allowance, transport allowance, etc.

Regular Revision and Review of Minimum Wages

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

The central government revises the minimum wages for its scheduled industries and occupations every five years, while the state governments revise them at least once every five years or more frequently at their discretion. The revision and review process involves consultations with various stakeholders, such as employers’ associations, trade unions, experts, etc.

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 labour in Punjab is 398.22 INR monthly.

At the same time, unskilled labour in Karnataka has a minimum wage of 484.11 INR monthly. The variation in minimum wage floors across states reflects the differences in the cost of living, economic development, political will, bargaining power of workers, etc.

Examples of Minimum Wage Rates in Different States:

Let’s analyze the variation of minimum wages in India state-wise. If you take the example of Gujarat, the minimum wage breakdown is as per different criteria like type of work or labour is as follows,

Simillarly if you compare the wages for West Bengal differs not just on the minimum wages calculations but also has different criterias,

Now that you understand the basic differences between minimum wages calculated in Gujarat and West Bengal based on skill level and type of work here is a comprehensive resource for all the states in India,

Compliance and Penalties

Minimum Wages Act 1948 of India establishes several compliance requirements and penalties if organisations fail to follow the any specific provisions.

Employer’s Responsibility to Pay Minimum Wages

According to the Minimum Wages Act 1948, it is the responsibility of the employer to pay minimum wages to the workers as the central or state government prescribes.

The employer cannot pay less than the minimum wage or make any deductions from the minimum wage except as the law permits. The employer also has to maintain records of the payment of minimum wages and display the minimum wage rates at a conspicuous place in the workplace.

Consequences of Non-compliance with Minimum Wage Regulations

Non-compliance with minimum wage regulations is a severe offence in India and can have adverse consequences for 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 provides 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 unauthorised deductions from the minimum wage, they can be fined up to INR 500 or 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 INR 500.
• If an employer obstructs or prevents an inspector from performing their duties under the act, they can be fined up to INR 500 or 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 INR 1,000 or 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 an authority appointed by the government. 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 from the payment date of less than minimum wage.

Conclusion

Minimum Wages Act is essential for businesses operating in India to comply and ensure better employee satisfaction. Calculating the suitable remuneration is also crucial because there are legal repercussions that organizations must look to avoid. Especially when it can harm your reputation, you must ensure the minimum wages you pay are under the norms prescribed by the Government of India.

FAQs

What are the factors that impact minimum wages in India now?

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

What are the minimum wages for unskilled and skilled labor in India?

The minimum wage for unskilled labor in India is INR 17,494 per month while the same for unskilled labor is INR 21,215 per month.

Which state in India has the highest minimum wage?

As of the most recent available information, the state of Kerala has one of the highest minimum wages in India.

Which is the state with the lowest minimum wage in India?

The state with the lowest minimum wage in India is West Bengal, which provides INR 9,784 per month for unskilled labor.

What are the penalties if a business does not comply with the Minimum Wages Act 1948?

Employers may be fined up to INR 10,000 and/or imprisoned for up to 6 months for violating provisions of the Act, such as paying wages lower than the minimum. Repeated offenses can attract higher fines and imprisonment of up to 3 years.