India’s Minimum Wage Structure: A Brief Explainer

Posted by Reading Time: 6 minutes

By A&A LAW

Businesses in India have to contend with multiple sources of wage and employment regulation.

These include the constitution, labor statutes, judicial precedents, and collective and individual agreements.

Further, Indian labor law comes under the jurisdiction of both federal and state governments, complicating matters such as the computation of minimum wage.

This article intends to throw light on some of the most frequently asked questions on the application and calculation of minimum wages in India.

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Minimum wage and Indian law

The Minimum Wage Act of 1948, passed by the Indian parliament, fixes the minimum wage for certain ‘scheduled employment’ categories – which is applicable to the whole of India. The minimum wages given under this Act apply to both skilled as well as unskilled laborers.

Under the 1948 Act, a Tripartite Committee of Fair Wage was appointed that defined the minimum wage in India as a wage that must guarantee bare livelihood.

The term ‘scheduled employment’ means an employment specified in the list appended to the Minimum Wages Act or any process or branch of work forming part of such employment.

In India, minimum wages are not fixed for an industry in a state, if there are less than 1,000 employees working in that industry in that state.

Minimum wage and the Indian constitution

The Indian constitution defines the ‘living wage’ for a worker. The term ‘living wage’ ensures a basic standard of living, which includes good health, dignity, comfort, and education. It also provides for contingencies.

However, India’s constitution also defines what a ‘fair wage’ is. Fair wage is that level of wage that maintains a certain level of employment, while also seeking to increase it – keeping in mind the industry’s capacity to pay.

This would translate to a gradual increase across a period of time, based on growth of industry and other considerations such as cost of living etc.

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Minimum wage and the Supreme Court

India’s Supreme Court provides precedents in cases such as PUDR v. Union of India and Sanjit Roy v. State of Rajasthan, where it has stated that any wage below the prescribed rate breaches Article 23 of the Indian constitution. This means that a worker cannot be forced to work for a wage that is less than the minimum rate. If anyone forces him to work at such a low wage, it may be considered forced labor under Article 23.

Who fixes the minimum wage in India?

Labor law in India is a concurrent subject, meaning that it comes under the jurisdiction of both federal and state governments. As such, the ‘appropriate government’ fixes and revises the minimum wage.

For some specified types of employment, the federal or ‘central’ government is responsible (for instance, under categories mentioned in the Minimum Wage Act of 1948).

In all other areas of employment, it is the respective state government that establishes the minimum wage.

The wage rate may be fixed daily, hourly, or even monthly. In India, there are two methods for the fixation and revision of the minimum wage rate – the Committee Method and the Notification Method.

  • Committee Method

The appropriate government sets up committees and sub-committees.  These committees hold enquiries and make recommendations for the fixation and revision of minimum wages.

There are five Regional Minimum Wages Advisory Committees in India. Their aim is to bring uniformity in minimum wages of different scheduled employments.

  • Notification Method

The appropriate government publishes proposals in the official gazette to inform the persons who may be affected. 

The notification specifies a date that is at least two months away from the date of the notification. This is the date on which the proposals will be due for consideration. Before publishing these notifications, the government consults various committees and sub-committees.

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Calculation of the minimum wage rate in India 

The determination of minimum wage depends on many factors. These include:

  • Level of income;
  • Paying capacity;
  • Prices of essential commodities;
  • Productivity; and
  • Local conditions.

Since these factors vary from state to state, across India, the rates of minimum wage differ as well.

Further, the Indian Labour Conference of 1957 fixed certain parameters for the fixation of minimum wage.

At least 20 percent of wages must provide for:

  • Minimum food requirement: 2700 calories per adult (approximately);
  • Clothing requirements: 72 yards per year per family;
  • Rent: According to the minimum area provided by Government’s Industrial Housing Scheme; and
  • Miscellaneous expenditure: Fuel, lighting, etc.

Other parameters that must form 25 percent of the total minimum wage are:

  • Children’s education;
  • Medical needs;
  • Minimum recreation, that is, festivals or ceremonies;
  • Provision for old age; and
  • Provision for marriage.

Consequently, there are multiple rates of the minimum wage according to the respective type of scheduled employment and the class of work within that ‘schedule’ or sector, the age category (adults or teenagers or children), the skill and occupational position, and the location of the business.

Rohit Kapur of Dezan Shira & Associates comments: “Although the regulations are somewhat ambiguous, on a practical note, the average monthly wage for a semi-skilled worker in urban areas of India would be about Rs 15,000 (US$236), while in rural areas, it would be roughly between Rs 6,000 (US$94) to Rs 11,000 (US$173), depending on the minimum wage determination in the respective state. Foreign investors should take professional advise when costing out business operational issues throughout India.”

About Us

A&A LAW is a full service law firm, offering comprehensive legal services in all major areas of law. The firm offers contentious and non-contentious legal services to clients. The non-contentious services include strategic planning, providing legal opinions, preparing documents, and conducting negotiations. The contentious services include arbitration, representation of clients in court hearings at all levels, and enforcement of court judgments and arbitral awards. In addition, they provide services for commercial & non-commercial litigation and corporate governance. The combined experience of the firm’s professionals is over sixty two (62) years, spanning across the world. A&A LAW have worked with industry leaders in the field and have delivered as per their requirements.

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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout India and the Asian region. We maintain offices in Delhi and Mumbai and throughout China, South-East Asia, India, and Russia. For assistance with India investment issues or into Asia overall, please contact us at india@dezshira.com or visit us at www.dezshira.com.

 
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