Labour ministry forms panel to relook at minimum wage fixation formula

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  • The Union government is mulling a revision in the formula to calculate minimum wages that may increase income levels of workers across the country.


  • The Central Advisory Committee on Minimum Wages, headed by Labour and Employment Minister  Bandaru Dattatreya, decided to constitute a committee to deliberate the proposed changes in the calculations of minimum wages for workers.
  • The board comprises central government nominated persons representing employers and employees, industry stakeholders and trade unions.

Present way of calculating minimum wages:

  • The norms for fixing minimum wages today are based on recommendations of the Indian Labour Conference in 1957.
  • The minimum wage level for industries is fixed based on spending estimates for a working class family on 2,700 calories of food per person, 72 yards clothes, minimum housing rent and education and light and fuel.
  • Presently, husband, wife and two children in a family are considered three units, based on which minimum wage is determined for agriculture and non-agriculture workers under the Minimum Wages Act, 1948.The Act is applicable to 47 central sector establishments.

New Formula to calculate minimum wages:

The committee would deliberate upon the following factors while recommending a new formula for minimum wages

  1. Number of units per family
  2. Inclusion of dependant parent
  3. Treatment of women and children at par with the male family member
  • The ministry is expected to take into consideration a proposal to double the units or individuals considered per family to six from three at present by including dependent parents as well as considering each child as one unit.

Impacts of new formula:

  • Minimum wages differ from state to state, for example, in Delhi, the state government has recently decided to hike the minimum wages for unskilled worker to Rs 13,350 per month against Rs 9,724 per month earlier.
  • An unskilled agriculture labourer will be entitled to get a minimum wage of Rs 300 per day in C-category towns, up from Rs 160 now, or Rs 8,658 per month, while those in B and A category towns will get Rs 303 and Rs 333 respectively.
  • India may see a doubling of minimum wage nationally to about Rs 18,000 per month as the labour ministry is set to relook at the formula currently used to determine the floor level.

Reactions from different groups:

  1. From Trade Union side:
  • The trade unions are saying that the three-unit systems are not sufficient to decide minimum wages because the children continue to stay with the family for longer periods.
  • The trade unions are saying that the two children and wife should be accorded one single unit.
  • After the 2010 Supreme Court ruling that dependent parents are to be taken care of by children, two more units should be added and the formula be based on six-unit formulae than three
  1. From employers side:
  • From the employer’s point of view, it should not be abnormally high for them because it needs to be at a level which sustains the establishment.
  • Some of the states have not revised DA for more than five years. Every year or every six months, depending upon the variable DA, which is linked to the consumer price index, the variable DA has to be changed so that the minimum wage get altered.
  • Among others, there are issues related to dearness allowances (DA) fixation, as it is revised once in five years.
  • Employer representatives, part of the Central Advisory Board, highlighted the inability to pay higher wages levels in case the formula for minimum wages is revised.

Loopholes in the present way of calculating minimum wages: 

  • According to labour law experts, until now, only the wages of workers in the central sphere was being decided by the central government while that in the state sphere by different states. Consequently, there was no uniformity.
  • There was no proper methodology to arrive at the wages of unskilled workers across sectors factoring in the changes in cost of living.
  • Right now, the minimum wage rules are applied to only those who earn less than Rs 18,000 both at central and state spheres.
  • It has no provision to count dependent parents, if any, or even if there are more than two children.
  • There are several states that have not even constituted their respective state advisory boards to fix minimum wages,
  • The ruling-Bharatiya Janata Party — affiliate trade union Bharatiya Mazdoor Sangh (BMS) — said the three-unit formula to fix minimum wages is unscientific in today’s time as the situation that existed in 1957 has substantially changed as on today.
  • Bharatiya Mazdoor Sangh recommended the government to increase the total units for calculating minimum wages for a family from three to six.
  • The contract workers are governed by the Contract Labour (Regulation & Abolition) Act, 1970 that covers only those establishments and contractors that employ 20 or more workmen on any day of the preceding 12 months.

New minimum wage code bill:

  • The Union Cabinet had approved a labour code on Minimum Wages.
  • The bill will certainly benefit an estimated 4 crore employees in the country across the sectors.
  • States will be bound to maintain the threshold decided by the Centre.

1-       Positive aspects:

  • The new Bill will benefit not just those earning less than Rs 18,000 but all category of workers.
  • For semi-skilled and skilled persons, it has been increased from Rs 10,764 to Rs 14,698 and from Rs 11,830 to Rs 16,182 per month, respectively.
  • It will consider all parameters concerning this segment.
  • Technically, the new code roll is four different Acts rolled into one — the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976.
  • This bill will be good news for unskilled workers.

2-       Negative aspects:

  • The smaller companies falling under the employee-threshold operate in different states and varying business environments, may not be in a position to comply with the minimum wage rules, particularly those in economically backward states like North East region.
  • Industries may also face severe financial difficulties that will force them to take drastic steps.
  • If these firms are pushed to the corner on the minimum wage issue, they may simply go for large-scale staff layoffs and automation

Challenges in implementation of new wage bill:

Implementation of the minimum wage rule across sectors and states will be a tricky challenge. Some of the challenges are mentioned below:

  • Labour is a subject in the concurrent list and states take into account different parameters while deciding the wage structure of workers.
  • There is a possibility that some state governments may raise objections.
  • Infrastructure development for implementation is also a big challenge.


To make the new wage code a reality, the present government will have to focus on following areas:

1-       Generate political consensus

2-      Work on creating an infrastructure to ensure implementation; and

3-       Talk to state governments about the nuances of the new wage structure


Looking at the larger picture, the new wage code is one part of the reforms needed to modernize the archaic labour laws in India, provided some loopholes are filled. There is need of infrastructure development to ensure that employees get benefit of the new wage code.



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