Changes to VDA Under Minimum Wages

 

Animay Singh

Simpliance COE

Biography

The Minimum Wages Act, 1948 is a social-welfare legislation that aims to regularize the payment of wages for certain classes of employments known under the Act as scheduled employments. The objective is to ensure that workers are not exploited by being forced to work for wages below the specified threshold set by either the Central or State Government. The ‘appropriate government’ under the Act fixes minimum wages by way of notification in the Official Gazette after consultation with the Committees/Subcommittees in charge.

Minimum wages are revised periodically based on the Consumer Price Index (CPI) and other relevant considerations in formulating a reasonable ‘living wage’ for workers. This is iterated under Section-3(1) of the Act which explains that the components of Minimum Wage are a basic rate of wages and a special allowance that may be adjusted periodically with variations in the cost-of-living allowance.

What is Variable Dearness Allowance (VDA)?

Variable DA is an allowance given to workers to account for inflationary trends for the price rise and is notified by the State government once in a year after capturing the price rise data over the previous year. Official Inflation Rate is calculated on the basis of the Consumer Price Index (CPI) which tracks the cost of living over a period of time. Inflation affects the purchasing power of an individual thereby allowing for an objective assessment of one’s salary, this is because an increase in salary coupled with a corresponding increase in inflation would effectively render that increase worthless. 

Thus, from the above, we can see that inflation affects the value of an individual’s wages adversely, especially those earning on a daily basis such as workers under the scope of the Minimum Wages Act, 1948. Changes in Variable Dearness Allowance alter the quantum of the same to counter these inflationary trends in prices and ensure that workers receive a wage that allows them basic purchasing power (living wage).

Effect of Change Implemented by Karnataka Govt.

The Department of Labour, Government of Karnataka vide an Order No. KaE 72 LWA 2020 dated 20/07/2020 permitted postponement of payment of VDA payable under the State notifications. This relaxation was granted for the period from 01/04/2020 to 31/03/2021 to mitigate the hardship being faced by employers due to the COVID-19 imposed lockdowns. Several news outlets reported that the State Government provided a waiver on the payment of VDA, this, however, is inaccurate as the Order merely mentions postponement.

Therefore employers can defer payment of VDA for the above mentioned period. The employers will have to pay the deferred VDA after 31/03/2021 in addition to the VDA applicable from 1/04/2021 onwards. When the deferred VDA is paid, employers are also liable to pay the difference in bonus, in leave with wages, as well as in overtime payment. Employers are given the option to continue paying VDA if the deferred scheme of payment under the above plan is burdensome. Employers that have already paid VDA for the period April-June 2020 may avail deferment July 2020 onwards. If employers opt for the deferred manner of payment they will not be liable to pay ESI and PF on the deferred VDA. When the deferred VDA becomes payable the ESI and PF shall also be payable.

Conclusion

While the order aims to alleviate the hardship of employers it has raised several questions as well, such as, the applicability of the order, the manner in which to avail of the benefit of the scheme and changes in the manner of filing returns. Apart from this, there are the concerns of employees/workmen who rely on this allowance for their daily sustenance. Especially in these troubled times with unpredictable market conditions and the uncertainty surrounding economic revival deferring payment of such a vital allowance is questionable.

A possible stop-gap solution that the Government may consider is utilizing funds from various schemes such as the State Labour Welfare Fund or the Building and Other Construction Workers (BoCW) Fund to provide workers with some compensation for any hardship they face due to this change. The government can assist employers by providing further clarity on changes in compliance requirements such as filing returns and maintaining registers.

Do you agree with the steps the State Government has taken? What other measures can be taken to alleviate the hardship of employers as well as employees? Leave your thoughts in the comments below.