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Minimum Wages and Salary Structures in India

Foreign businesses in India can have a challenging time comprehending and calculating the minimum wage as they differ in every state and are categorized under multiple criteria, such as region, industry, skill level, and nature of work.

Both the central and state governments have control over fixing the minimum wages of employment. Wage rates of employment differ across occupations, skills, sectors, and regions. Given the extent of difference between various kinds of employable work, there is no set wage rate that can be set for each specific work across the country.

This article addresses some frequently asked questions, including how minimum wages are calculated in India, what is the penalty for non-compliance, and what some useful resources hiring departments in foreign companies may refer to when assessing the country’s labor costs.

How is the minimum wage calculated in India?

India’s minimum wage and salary structure differs based on the following factors: state, area within the state based on development level (zone), industry, occupation, and skill level. This offers foreign investors a range of options when choosing where to locate their setup.

India offers the most competitive labor costs in Asia, with the national-level minimum wage at around INR 178 (US$2.16) per day, which works out to INR 5340 (US$65) per month. This number is a floor-level wage – and the wage rate will vary depending on geographical areas and other criteria.

Businesses are advised to track the periodically updated minimum wage amount across various categories of employment, such as unskilled, semi-skilled, skilled, and highly skilled workers, in their respective state/city/zone of operation.

Each state government has the power to fix the minimum wage rates for the following:

  • Time work;
  • Piecework; and
  • Overtime work.

Minimum wages for an employee are based on the following parameters:

  • Nature of employment;
  • Industry;
  • Geographic location; and
  • Employee’s age.

Minimum Wages for States Across India (per month) (in INR)

State

Unskilled

Skilled

Highly skilled

 

Andaman and Nicobar Islands

Effective date: Jan 1, 2024

16,328

21,632

23,790

Andhra Pradesh

Effective date: April 1, 2024

13,248.50 (Zone I)
12,498.50 (Zone II)
12,248.50 (Zone III)

15,248.50 (Zone I)
14,248.50 (Zone II)
12,748.50 (Zone III)

15,748 (Zone I)
14748 (Zone II)
13,248 (Zone III)

Arunachal Pradesh

Effective date: April 1, 2023

6,600

7,200

NA

Assam

Effective date: June 1, 2023

9,800.50

14,239.35

18,307.05

Bihar

Effective date: April 1, 2024

10,660

13,494

16,484

Chandigarh

Effective date: October 1, 2023

13,659

14,334 (I)
14,109 (II)

14,734

Chhattisgarh

Effective date: October 1, 2023

10,100 (Zone C)

10,360 (Zone B)

10,620 (Zone A)

11,530 (Zone C)

11,790 (Zone B)

12,050 (Zone A)

12,310 (Zone C)

12,570 (Zone B)

12,830 (Zone A)

Dadra and Nagar Haveli

Effective date: October 1, 2022

9,237.80

9,653.80

NA

Daman and Diu

Effective date: April 1, 2023

11,466

12,012

NA

Delhi

Effective date: October 1, 2023

17,494

21,215.00

NA

Goa

Effective date: October 1, 2023

13,598 (Zone A)
13,468 (Zone B)

16614 (Zone A)
16484 (Zone B)

NA

Gujarat

Effective date: April 1, 2024

12,662 (Zone I)
12,376 (Zone II)

13,234 (Zone I)
12922(Zone II)

NA

Haryana

Effective date: January 1, 2024

10,924

12,646.12 (Class A)
13,278.44 (Class B)

13,942.36

Himachal Pradesh

Effective date: April 1, 2023

11,250 (I)
10,429 (I)

13,062 (I)
12,006 (II)

13,592 (I)
12,580 (II)

Jammu and Kashmir

Effective date: October 17, 2022

8,086

 

12,558

14,352

Jharkhand

Effective date: October 1, 2023

9,162.11

12,652.78

14,615.83

Karnataka

 Effective date: April 1, 2024

15106.23 (Zone I)
14,554.43 (Zone II)
14,028.90 (Zone III)
13,528.40 (Zone IV)

17,539.67 (Zone I)
16,871.99 (Zone II)
16,236.11 (Zone III)
15,630.50 (Zone IV)

18,941.80 (Zone I)
18,207.35 (Zone II)
17,507.88 (Zone III)
16,841.71 (Zone IV)

Madhya Pradesh

Effective date: April 1, 2024

11,800

14,519

16,144

Maharashtra

Effective date: January 1, 2024

13,089 (Zone I)
12,493 (Zone II)
11,896 (Zone III)

14,700 (Zone I)
14,104 (Zone II)
13,508 (Zone III)

NA

Nagaland

Effective date: June 14, 2019

5,280

7,050

NA

Punjab

Effective date: September 1, 2023

10,736.75

 

12,413.75

13,445.75

Rajasthan

Effective date: July 1, 2021

6,734

7,358

8,658

Tripura

Effective date: October 1, 2023

7,420.61

9,104.13-12,289.91

NA

Uttar Pradesh

Effective date: October 1, 2023

10,275

12,661

NA

Uttarakhand

Effective date: April 1, 2024

12,391-12,539

13,838-14,023

NA

West Bengal

Effective date: January 1, 2024

9,841 (Zone A)
9,210 (Zone B)

11,909 (Zone A)
11,142 (Zone B)

13,099 (Zone A)
12,258 (Zone B)

Source: Simpliance

Note: This is not a comprehensive table, and the respective state governments in India announce their minimum wage rates differently, that is, according to skill level or other criteria. The criteria are either unskilled, semi-skilled, skilled, and/or highly skilled work categories or are occupation-based categories. For accurate and up-to-date information, companies are advised to consult local experts and official government sources in each state to ensure compliance with the latest minimum wage regulations.

Skills classification:

Unskilled

An unskilled employee is one who does work that involves the performance of simple duties, requiring little or no independent judgment or previous experience, although familiarity with the occupational environment is necessary. Their work may require physical exertion in addition to familiarity with a variety of articles or goods.

Semi-skilled

A semi-skilled worker is one who does work generally of a defined routine nature wherein the major requirement is not judgment or skill as others make important decisions. Their work is thus limited to the performance of routine operations of limited scope.

Skilled

A skilled employee is one who is capable of working efficiently in exercising considerable independent judgment and discharging their duties with responsibility. They must possess a thorough and comprehensive knowledge of the trade, craft, or industry in which they are employed.

Highly skilled

Highly skilled workers typically possess advanced education (college and higher) degrees or niche qualifications and the knowledge and skills to perform complicated tasks, have the ability to adapt quickly to technology changes, and are tasked with the creative application of knowledge and skills acquired through training in the work they perform.

Most media report that the average Indian salary for unskilled work ranges between INR 2250 (US$27.17) to a maximum of INR 70,000 (US$845.40) per month under the Minimum Wages Act. However, the median monthly salary in India comes at around just INR 29,400 (US$355.07). According to the latest data released by the World of Statistics on May 1, 2023, India has an average monthly wage of INR 46,861 (US$566).

These rates apply very differently among the respective industries – with higher salary wages reported in skilled professional services industries like software and consultancy work as compared to manufacturing and construction. 

Minimum Wage Data for Central Government as of April 1, 2024 (in INR)

Category

Area A

Area B

Area C

Sweeping and cleaning

20,228

16,926

13,572

Watch and ward without arms

24,648

21,412

19,084

Watch and ward with arms

26,728

24,648

22,412

Construction, maintenance – unskilled

20,228

16,926

13,572

Construction, maintenance – semi skilled/ supervisory

22,412

19,084

15,806

Construction, maintenance – skilled/clerical

24,648

22,412

19,084

Construction, maintenance – highly skilled

26,728

24,648

22,412

Delhi’s minimum wage: 2023-24 rates

On October 23, the Delhi government announced its revised minimum wage rates, effective October 1, 2023. The minimum monthly wages of unskilled workers will be increased from INR 17,234 (US$207.04) to INR 17,494 (US$210.17), semi-skilled workers from INR 18,993 (US$228.20) to INR 19,279 (US$231.64) and skilled workers from INR 20,903 (US$251.12) to INR 21,215 (US$254.87).

The minimum wage rates for supervisor and clerical categories of employees have also been revised by the city government. The minimum monthly wages of employees who have not completed their Grade 10 schooling (non-matriculate) is increased from INR 18,993 (US$228.20) to INR 19,279 (US$231.64) and for matriculate employees from INR 20,903 (US$251.12) to INR  21,215 (US$254.87).

For graduates and those with higher educational qualifications, the monthly wages have been hiked from INR 22,744 (US$273.26) to INR 23,082 (US$277.32).

Monthly Minimum Wages in Delhi (in INR)

Class of employment

Wages (2022)

Hike

Wages (April 1, 2023)

Hike

Wages (October 1, 2023)

Unskilled

16,792

442

17,234

260

17,494

Semi-skilled

18,499

494

18,993

286

19,279

Skilled

20,357

546

20,903

312

21,215

Clerical and supervisory staff (non-matriculate)

18,499

494

18,993

286

19,279

Clerical and supervisory staff (matriculate)

20,357

546

20,903

312

21,215

Clerical and supervisory staff (graduates and above)

22,146

598

22,744

338

23,082

Daily Minimum Wage in Delhi (As of October 1, 2023) (in INR)

Category

Daily rates (Oct 1, 2023)

Unskilled

673/-

Semi-skilled

742/-

Skilled

816/-

Non-matriculate

742/-

Matriculate but not graduate

816/-

Graduate and above

888/-

 

Non-compliance penalty

Non-compliance with the minimum wage rules by employers will result in payment of a fine of INR 10,000 (US$136) and possible imprisonment for up to five years.

Important Tip
If workers are paid less than the government-declared minimum wages, then they can file a complaint with the labor inspectorate. The complaint can be filed individually by the worker, through a lawyer, or through an official of the registered trade union.

Working hours

The maximum working hours normally range between eight to nine hours a day, depending on the city in which the employee works. Existing labor legislation grants a rest interval between working hours for employees.

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The working day of a (unskilled/semi-skilled/skilled) adult worker shall be so arranged that inclusive of the interval of rest – it shall not exceed 12 hours on any day.

The below table summarizes the hours worked in a day and week with rest intervals, including meals for four metropolitan cities of India, according to the respective state-specific S&E Acts.

Working hours

New Delhi

Mumbai

Chennai

Kolkata

Maximum hours in a day

9

9

8

81/2

Maximum hours in a week

48 (normal circumstances)

54 (special circumstances)

48 (normal circumstances)

54 (special circumstances)

48 (normal circumstances)

54 (special circumstances)

48 (normal circumstances)

54 (special circumstances)

Rest interval

1/2 hour (rest and meal interval) for every 5 hours of continuous work

At least one hour (rest and meal interval) for every 5 hours of continuous work

At least 1/2 hour (rest and meal interval) for every 4 hours of continuous work

1 hour (rest and meal interval) for every 51/2 hours of continuous work

Overtime

Overtime payments are given to employees in the category of workmen in factories and commercial establishments prescribed by the concerned state authorities. Overtime wages are calculated at a rate of up to twice the normal wage under various acts, including the S & E Act for various states.

Several statutes regulate overtime and overtime payment, and different legal acts provide for different periods of working hours. Below are some of the relevant Acts that have different provisions for overtime payment and their violations. It may be noted that the following acts only apply to the workmen category.

Act

Provision

Other compliance

Minimum Wages Act, 1948

Section 14 of the Act mentions that any worker whose minimum rate of wages is fixed by a period of time, such as by hour, by day, or by any such period, and if a worker works more than that number of hours, it is considered to be overtime. In case the number of hours constituting a normal working day exceeds the given limit, then the employer will have to pay them for every hour or for part of an hour for which they have worked in excess at the overtime rate.

It is compulsory to maintain a Register of Overtime and other records. This Register of Overtime contains various details such as the name of the employee, hours of overtime, date, and other such details that are necessary for the records.

Factories Act, 1948

Under Section 59, it is stated that where a worker works in a factory for more than 9 hours in any day or for more than 48 hours in any week, they shall, in respect of overtime worked, be entitled to receive wages at the rate of twice their ordinary rate of wages.

If in any factory there is any contravention of any of the provisions of this Act or of any rules made thereunder or of any order in writing given thereunder, the occupier and manager of the factory shall each be guilty of an offense.

If found guilty, they will be punished with imprisonment for a term of up to 2 years or with a fine up to INR 100,000 or both.

If the incompliance is continued after conviction, then it will be punishable with a further fine, which may extend to INR 1,000 for each day on which the contravention is so continued.

How to structure a salary in India: Key components

Salaries often have different components, such as basic salary, allowances, perquisites, etc. It is important to understand how salaries are structured and the various methodologies associated with it while processing payroll.

While creating the ideal salary structure, the following things need to be considered:

Compliance with labor and payroll regulations

Compliance norms like minimum wages and social security provisions should be kept in mind while drafting the salary structure.

Cost to company

Companies use the term “cost to company” (CTC) to calculate the total cost to employ an individual (that is, all the costs associated with an employment contract). A major part of the CTC comprises compulsory deductibles. These include deductions for the Provident Fund, medical insurance, etc. For the company, CTC is a term that refers to expenses the company will spend on an employee in a particular year. The expense for the company is not necessarily just the salary amount paid to the employee. For employees, CTC is an amount projected by the company as salary but is never what is received by the employee in cash. This is understood as:

Basic Salary + Benefits + Allowances = Cost to the Company – Taxes – Deductions – Personal Deductions = Net Salary

CTC and taxability of various compensation components

Components of a CTC

Fixed salary

It is linked with attendance or number of payable days of the employee, a major portion of the employee’s salary in hand.

Basic salary: It is 40 percent to 50 percent of CTC. The basic salary is fully taxable. Many statutory components such as provident fund, bonus, gratuity, etc., and other benefits as per company policy such as leave travel allowance, etc., are related to basic salary. Therefore, an increase and or decrease in basic salary may impact the CTC of the employee.

Dearness allowance (DA): It is mostly given to government employees; very few private companies use it as a salary component. In private companies, if DA is missing from the salary component, then consider the basic salary component as Basic + DA. Dearness allowance is paid to lower the impact of inflation. It is fully taxable.

House rent allowance (HRA): HRA is paid to the employee to meet the expenses of renting a home. Normally companies keep it to 40 percent to 50 percent of the basic salary, depending upon where you live.

In case the employee lives in a metropolitan city (New Delhi, Mumbai, Chennai, or Kolkata), then HRA will be kept to 50 percent of the basic salary, and in case the employee lives in a non-metro city, then HRA will be 40 percent of the basic salary. The taxability of HRA depends on where the employee lives.

Variable salary

The variable salary is not fixed and depends upon the performance of an employee. Many companies pay this as part of their employees’ CTC.

Performance-based incentive: A performance-based incentive, if made part of CTC, is normally known as variable pay. Every company has a different policy to measure performance and allocate performance-based incentives.

Sales-based incentive: A sales-based incentive is given to employees who work in sales.

Profit-linked bonus: The employer links the bonus of the employee with the profitability of the company, project, or department. This also works as a retention tool and motivates the employee to ensure higher profitability at the same time.

Reimbursement

Reimbursement is paid to an employee for expenses incurred by employees either on behalf of the company or company-related activities. Every reimbursement should be seen differently in the context of tax.

  • Mobile/ internet expense;
  • Books and periodicals;
  • Meals/food coupons or meal pass; and
  • Leave and travel allowance.
Social security contributions

Contributions made by the employer for the employee’s long-term saving schemes or social benefits scheme as per statutory compliance are exempt from income tax.

  • Employee provident fund (EPF): The employer contributes 12 percent of the basic salary against EPF. It is a statutory obligation on the part of the employer. The employee gets the benefit of a PF deduction (12% of basic) on their part. The PF administration charges are to be borne entirely by the employer (0.50% of basic salary), which the employer needs to pay to RPFC in addition to 12 percent of basic salary. Contributions to the EPF scheme are obligatory for both the employer and the employee when the employee is earning up to INR 15,000 per month and voluntary when the employee earns more than this amount. If the pay of any employee exceeds this amount, the contribution payable by the employer will be limited to the amount payable on the first INR 15,000 only.

For establishments that employ less than 20 employees or meet specific conditions as notified by the Employees’ Provident Fund Organization (EPFO) under the Ministry of Labor and Employment, the contribution rate for both the employee and employer is limited to 10 percent.

  • Employee state insurance (ESI): The employer needs to deposit 3.25 percent of the gross salary of the employee in case the employee’s gross salary is less than INR 21,000. Hence, the employer keeps it as part of employee CTC. 0.75 percent of gross gets deducted from the employee’s gross salary, which decreases their in-hand salary by that amount. There is no tax benefit associated with ESI contributions or deductions.
  • Gratuity: Gratuity is paid to the employee once the employee completes five years of continuous service or, in the case of employee death, irrespective of completion of five years. It is a statutory liability of the employer. Hence many employers keep this component as part of employee CTC.
Statutory bonus

The procedure of payment of a bonus to the employees is as per the Payment of Bonus Act, 1965, and is applicable to:

  • Any factory employing 10 or more persons where any processing is carried out with the aid of power; and
  • Other establishments (established for the purpose of profit) employing 20 or more persons.

Every employee who is not drawing salary/wages beyond INR 21,000 per month and who has worked for not less than 30 days in an accounting year shall be eligible for a bonus of a minimum of 8.33 percent of salary/wages or INR 100, whichever is higher, and INR 60 if the employee’s age is less than 15 at the beginning of the assessment year.

The bonus is to be paid even if there is a loss in the establishment, and its limit is fixed at a maximum of 20 percent of the employee’s salary/wages. In the case of employees whose salary/wages range from INR 7,000 to INR 21,000 per month for the purpose of the payment of a bonus, their salaries/wages would be deemed to be INR 7,000. The bonus amount is fully taxable.

Stock options

Many companies provide stock options to employees under an Employee Stock Option Plan (ESOP). ESOPs are plans under which employees receive the right to purchase a certain number of shares in the company at a predetermined price as a reward for their performance and as motivation for employees to keep improving their performance. Employees typically have to wait for a certain duration, known as the vesting period, before they can exercise the right to purchase the shares.

ESOPs are taxed in two instances:

  • At the time of exercise – as a prerequisite: ESOPs would be taxed as a perquisite, the value of which would be (on date of allotment) = (FMV per share – Exercise price per share) x number of shares allotted. The employer deducts TDS on this perquisite, and this is reflected in the employee’s Form 16 and included as part of the total income from salary in the tax return. The TDS on the ‘perquisite’ stands deferred to earlier of the following events:
    • Expiry of five years from the year of allotment of ESOPs;
    • Date of sale of the ESOPs by the employee; and
    • Date of termination of employment. 
  • At the time of sale by the employee – as a capital gain: The employee may choose to sell the shares once these are bought. If the employee sells these shares, it triggers a tax liability. The difference between the sale price and FMV on the exercise date is taxed as capital gains.

Important Tip
Fixed pay includes basic pay, dearness allowance (DA), house rent allowance (HRA), conveyance allowance, and other special allowances, etc.

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