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, skills level, and nature of work.
The new wage code prohibits employers from paying workers less than the stipulated minimum wage. Further, minimum wages must be revised and reviewed by the central and state government at an interval of not more than five years.
This article will address some frequently asked questions, including how minimum wages are calculated in India, what is the penalty for non-compliance, and what are some useful resources that hiring departments in foreign companies may refer to when assessing the country’s labor costs.
How is the minimum wage calculated in India?
India offers the most competitive labor costs in Asia, with the national-level minimum wage at around INR 176 (US$2.80) per day, which works out to INR 4,576 (US$62) per month.
This is a national floor-level wage – and will vary depending on geographical areas and other criteria.
More broadly, a global ranking of average wages recently prepared by Picodi.com showed that India had an average monthly wage of INR 32,800 (US$437).
Further, some state governments, like Andhra Pradesh, offer tax breaks for companies generating local employment.
It must be noted that 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 set up.
India uses a complex method of setting minimum wages that defines nearly 2,000 different types of jobs for unskilled workers and over 400 categories of employment, with a minimum daily wage for each type of job. The monthly minimum wage calculation includes the variable dearness allowance (VDA) component, which accounts for inflationary trends, that is, the increase or decrease in the Consumer Price Index (CPI), and where applicable, the house rent allowance (HRA).
As mentioned earlier, the calculation of the minimum wage factors in the skill-level of the worker and the nature of their work. Broadly, workers in India are categorized as unskilled, semi-skilled, skilled, and highly skilled.
Updated Minimum Wage Amounts
According to the Minimum Wages Act of 1948, 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 kind of employable work, there is no set wage rate that can be set for each specific work across the country.
In 2021, the updated minimum wage amount across various categories of employment, such as unskilled, semi-skilled, skilled, and highly skilled workers effectively commenced on:
- July 1 onwards for West Bengal
- April 1 onwards for Himachal Pradesh, Karnataka, Tamil Nadu, Chhattisgarh, Delhi, Jharkhand, Madhya Pradesh, Odisha, Uttarakhand, Andhra Pradesh, Bihar, Gujarat, and Uttar Pradesh
- October 1 onwards for Goa
- June 1 onwards for Assam, Kerala
- July 1 onwards for Haryana and Maharashtra
- November 1 onwards Jammu and Kashmir
- December 1 onwards for Manipur
Other states saw the most updated minimum wage commencing on:
- April 1, 2016 for Mizoram
- July 1, 2017 for Sikkim
- September 1, 2019 for Punjab
- June 14, 2019 for Nagaland
- October 1, 2020 for Meghalaya
- July 1, 2020 for Rajasthan
- April 1, 2020 for Chandigarh
- January 1, 2020 for Puducherry
Non-compliance of the minimum wage rules by employers will result in payment of a fine of INR 10,000 (US$136) and their possible imprisonment for up to five years.
Under the new wage code, the government will appoint inspectors-cum-facilitators to carry out inspections to ensure that the companies are compliant with the code. The penalty would depend on the nature of the offense. The maximum penalty is imprisonment for three months and/or a fine of up to INR 100,000 (US$1,405).
It is important that companies are compliant with the wage norms stipulated by the respective state government and industry body. Inspections are likely to be more stringent on companies with foreign investment, especially in the event of any labor unrest.
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, or through a lawyer, or through an official of the registered trade union.
Why India has no national minimum wage
Under the Code on Wages Act, 2019, workers from all industries are entitled to receive minimum wages fixed by their respective state governments. Matters concerning labor and its welfare come under the purview of, both, the state and central governments as per constitutional law, thereby resulting in multi-jurisdictional regulation.
Earlier, only workers from a particular set of industries (40 percent of the entire workers’ population) were entitled to receive minimum wages. Nevertheless, since passing the wage code in 2019, there has been no new development on implementing a national minimum wage for Indian workers.
In a media report, a government official was quoted saying that implementing the minimum wage plan was not a “priority right now as there are challenges at hand both at micro and macro levels.” The report further elaborated that the government worried that hiking minimum wages at this time would negatively impact industry amid an economic slowdown.
In January 2021, labor unions across the country observed a nationwide strike to protest the government’s stalling on proposals in this regard and its inaction on increasing workers’ minimum wages.
And, due to the ongoing COVID-19 pandemic, the implementation of a national minimum wage is not likely to get formalized any time soon. Moreover, labor shortages in industrial areas due to reverse migration during the 2020 lockdowns, have increased daily wage rates – at least for the near term. For example, daily wage rates have reportedly gone up from nearly INR 250 to INR 350-400 as of April 2021. It appears that workers have mobilized to metro cities than lower tier cities to recoup loss in wages during the economy shutdowns or recover from job losses. At the same time, India’s factory activity has increased on the backs of increased orders and rising consumption in sectors like the FMCG and logistics.
Besides addressing wage standards in the country, key labor legislation have also been rolled out as promised by the central government in the pursuit of labor reforms. Three new labor codes were approved by India’s parliament on September 22-23, 2020, in a historic move to consolidate the country’s multiple labor legislation and compliance norms. The new codes are – Industrial Relations Code Bill, 2020; Code on Social Security Bill, 2020; and the Occupational Safety, Health and Working Conditions Code Bill, 2020.
As of April 12, 2021, the government has temporarily deferred the implementation of the four labor codes – till key industrial states notify rules of implementation. This was to previously come into effect April 1, 2021 and is likely delayed due to elections in some states (West Bengal, Kerala). Moreover, key stakeholders have raised concerns, including the corporate sector citing unpreparedness.
The respective labor codes will bring gig workers and inter-state migrant workers into the ambit of social security for the first time. This will impact minimum wage considerations, but businesses should note that they also make it easier for them to be flexible in their hiring and firing decisions as well as in shutting down operations in the country.
Seeking local expertise
Foreign entities doing business in India can learn more about the minimum wages in India through the Ministry of Labor and Employment database, which provides industry-wise wage norms. The new wage code can be accessed here, and the website for the chief labor commissioner can be accessed here.
Since determining wages in India is complex, and labor compliances are carefully monitored, it is recommended to seek advice from a local firm to assess costs and other liabilities. Otherwise the firm may be exposed to additional risks during times of labor unrest and strikes by workers that can lead to reputational and financial damage to the company.