Commentary on Labour Laws Issues


Breakup of Salary into Basic Salary and Other Components?

Question # 1:

We need an advise about what is break up of salary (minimum wage Rs.15,000) like Basic, Medical, COLA, SASA, Conveyance , House Rent etc with law reference. Thanking you for your cooperation as always.

Ameer Hussain Thebo

Sr. Manager HR and Compliances

Artistic Fabric and Garment Industries

Bin Qasim Town Karachi

Answer # 1:

Unfortunately, labour laws does not give break up of salary into various its components as you described. In fact, labour laws do not define "Basic" Salary anywhere. So any breakup of salary by employer is done arbitrarily and is a hangover practice from the government: military or bureaucracy.

In private industry, salaries or wages are defined as gross wages. In fact, where ever the word "wage" occured it is presumed to mean "gross wages", according to the Supreme Court judgment when calculating gratuity.

The idea of breakup in wages comes from the evolution of minimum wage which was not rising every year like these days. In 1970s, 80s, 90s the minimum wage was stuck for 24 years at Rs. 140 pm (1969 -- 1993) and rose to Rs. 1500 in 1993 and Rs. 2500 in 2001. For lack of increase in minimum wage, workers were compensated by giving small payments or allowances by various names in the form of COLA or other special allowances.

Then the question came up before the Supreme Court as to what is the meaning of "wage" in various labour laws, whether it mean "basic" or "gross" wages or something else.

The 1994 judgment in Zain Packaging Industries Ltd. vs. Abdul Rashid and 2 others (1994 SCMR 2222) Supreme Court interpreted the term "wage", wherever occurred in labour laws, to mean "gross" wage although they did not use that term. The judgment did not give break up of the salary as you stated in your question. On the other hand, it certainly did not include all kinds of payments or allowances as part of wages. The judgment gave a criteria by which one can decide whether to include or exclude any payment or allowance from wages.

The criteria for determining the nature of allowances became permanency or contingency. In addition to COLA, any allowances or bonuses which are regular, permanent and not dependent upon any contingency or existence or otherwise of certain condition, no matter by what name they are called, are included in wages. On the other hand, any payments which are contingent in nature, i.e., irregular, unpredictable and/or depend on the...

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