I want to THANK ALL OF YOU for being a teacher to me and many others who are entering the field of HR.
Sir, today for the first time, I am daring to write something. Please forgive any mistakes that may occur and provide your valuable guidance.
To your obedient follower,
Sir, I am working with an automobile parts manufacturing company that was taken over by new management just one month ago. All staff remain in the same positions as before.
Now, our first salary under the new management is due in 15 days. Within this short time frame, the management wants me to restructure the salary system in compliance with rules and laws, limiting PF/ESIC contributions to the lowest to minimize their liability according to government regulations.
Currently, employees have gross salaries ranging from ₹5000 to ₹75000 per month, with Basic + DA set at 50% of the gross, resulting in a significant statutory PF contributory burden on the employer due to the absence of a ceiling of ₹6500.
The new management aims to reduce this burden to the legal limit of ₹780 + 1.61% of admin charges, with the deduction of employees' PF amounts maintained to increase their savings in PF accounts. However, the employer's share is to be capped at ₹885 (13.61% of ₹6500).
Is this legally possible? We aim to respect the law and comply with it.
Additionally, please provide guidance on minimizing ESIC contributions and how to formulate a leave policy.
Thank you, and I eagerly await your guidance.
From India, Pune
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Sir, today for the first time, I am daring to write something. Please forgive any mistakes that may occur and provide your valuable guidance.
To your obedient follower,
Sir, I am working with an automobile parts manufacturing company that was taken over by new management just one month ago. All staff remain in the same positions as before.
Now, our first salary under the new management is due in 15 days. Within this short time frame, the management wants me to restructure the salary system in compliance with rules and laws, limiting PF/ESIC contributions to the lowest to minimize their liability according to government regulations.
Currently, employees have gross salaries ranging from ₹5000 to ₹75000 per month, with Basic + DA set at 50% of the gross, resulting in a significant statutory PF contributory burden on the employer due to the absence of a ceiling of ₹6500.
The new management aims to reduce this burden to the legal limit of ₹780 + 1.61% of admin charges, with the deduction of employees' PF amounts maintained to increase their savings in PF accounts. However, the employer's share is to be capped at ₹885 (13.61% of ₹6500).
Is this legally possible? We aim to respect the law and comply with it.
Additionally, please provide guidance on minimizing ESIC contributions and how to formulate a leave policy.
Thank you, and I eagerly await your guidance.
From India, Pune
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If the new management continues with the old employer's name and PF & ESI A/C, it is not possible to reduce the PF and ESI contributions. If they change the company name and decide to start new PF and ESI A/C, it may be possible. However, some problems may arise in this scenario. Employees will lose the continuity of their savings in PF. Therefore, it is advisable to inform the new management about these considerations. They should make a decision on this matter. Best of luck.
From India, Salai
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5From India, Salai
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Dear Friend,
Kindly refer to the recent judgment of the Bombay High Court regarding the restriction on the Management's PF share to be paid only up to Rs. 6500, even if the employee's salary exceeds Rs. 6500 (Basic + DA).
G.K. Manjunath
From India, Bangalore
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Kindly refer to the recent judgment of the Bombay High Court regarding the restriction on the Management's PF share to be paid only up to Rs. 6500, even if the employee's salary exceeds Rs. 6500 (Basic + DA).
G.K. Manjunath
From India, Bangalore
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Dear vjnamdeorao,
As regards to your query on PF, you can reduce the PF contribution amount and restrict it to 12% on Rs. 6500/-, i.e., Rs. 780/-. There is a judgment of the Supreme Court in the case of Marathwada Gramin Bank Karmachari Sanghatana Vs Management of Marathwada Gramin Bank (SC 2011 LLR 1130), according to which you can reduce the PF contribution amount and restrict it to 12% on Rs. 6500/-, i.e., Rs. 780/-. However, you are advised to obtain consent from all affected employees. Furthermore, according to section 9A of the ID Act, no employer who intends to make any changes in the conditions of service applicable to any worker in regard to any matter specified in the Fourth Schedule shall do so without providing notice. Therefore, you need to give notice of the change under section 9A.
As for your ESI query, you have no scope to reduce your liability unless you restructure your entire salary package and convert certain emoluments into annual terms (i.e., LTA, Medical, etc.).
Thank you.
From India, Mumbai
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As regards to your query on PF, you can reduce the PF contribution amount and restrict it to 12% on Rs. 6500/-, i.e., Rs. 780/-. There is a judgment of the Supreme Court in the case of Marathwada Gramin Bank Karmachari Sanghatana Vs Management of Marathwada Gramin Bank (SC 2011 LLR 1130), according to which you can reduce the PF contribution amount and restrict it to 12% on Rs. 6500/-, i.e., Rs. 780/-. However, you are advised to obtain consent from all affected employees. Furthermore, according to section 9A of the ID Act, no employer who intends to make any changes in the conditions of service applicable to any worker in regard to any matter specified in the Fourth Schedule shall do so without providing notice. Therefore, you need to give notice of the change under section 9A.
As for your ESI query, you have no scope to reduce your liability unless you restructure your entire salary package and convert certain emoluments into annual terms (i.e., LTA, Medical, etc.).
Thank you.
From India, Mumbai
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Dear Friend,
The Supreme Court has upheld that even if the management has been paying contributions over and above 6500/-, it can be brought back and paid only on 6500/-. The decision is in respect of the case by the workmen of Marathwada Gramin Bank Karmachari Sangatana Vs. Management of Marathwada Gramin Bank - 2011 LLR 1130 (SC).
Citing the above judgment, you can also implement the same in your organization. This could save a lot of money for the management. The present system will have a cascading effect as the VDA and wages would go on increasing due to inflation and wages settlement.
In view of all these, it is advisable to have a detailed discussion with your advocate.
With kind regards.
From India, Bangalore
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The Supreme Court has upheld that even if the management has been paying contributions over and above 6500/-, it can be brought back and paid only on 6500/-. The decision is in respect of the case by the workmen of Marathwada Gramin Bank Karmachari Sangatana Vs. Management of Marathwada Gramin Bank - 2011 LLR 1130 (SC).
Citing the above judgment, you can also implement the same in your organization. This could save a lot of money for the management. The present system will have a cascading effect as the VDA and wages would go on increasing due to inflation and wages settlement.
In view of all these, it is advisable to have a detailed discussion with your advocate.
With kind regards.
From India, Bangalore
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Dear friends,
As far as PF contribution is concerned, PF authorities are not at all bothered whether you are increasing the salary or decreasing the salary. They care about whether the company covers PF & ESIC for all its employees, including the contract laborers. More importantly, the current yearly CTC offered to its employees should not decrease. To maintain this, you may introduce other yearly benefits such as LTA, Incentives, etc., to match the previous yearly CTC.
Regards,
Vijayan
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As far as PF contribution is concerned, PF authorities are not at all bothered whether you are increasing the salary or decreasing the salary. They care about whether the company covers PF & ESIC for all its employees, including the contract laborers. More importantly, the current yearly CTC offered to its employees should not decrease. To maintain this, you may introduce other yearly benefits such as LTA, Incentives, etc., to match the previous yearly CTC.
Regards,
Vijayan
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can anyone help me in knowing that can we split minimum wages for not contributing more PF amount. if anyone has a answer then please revert with some notification. Thanks Deepa Gusain
From India, Delhi
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From India, Delhi
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Dear Deepa Gusain,
You can find prevailing minimum wages in Delhi through Google (please find attached a screenshot saved in a Word file). As it is known, the PF authority is not concerned about contributions based on basic salary. Please remember that the minimum wages to be paid are mandatory, and the gross wages should not be less than the amount specified in the notification.
The basic salary can be reduced to lower the PF contribution. However, ESI is calculated based on the total wages paid, excluding washing allowance. Therefore, as suggested by another member, consider restructuring the CTC by creating components for Medical and LTA.
From your post, I understand that you are looking for ways to reduce the burden of PF and ESI contributions imposed by your employer.
Thank you.
From India, Hyderabad
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You can find prevailing minimum wages in Delhi through Google (please find attached a screenshot saved in a Word file). As it is known, the PF authority is not concerned about contributions based on basic salary. Please remember that the minimum wages to be paid are mandatory, and the gross wages should not be less than the amount specified in the notification.
The basic salary can be reduced to lower the PF contribution. However, ESI is calculated based on the total wages paid, excluding washing allowance. Therefore, as suggested by another member, consider restructuring the CTC by creating components for Medical and LTA.
From your post, I understand that you are looking for ways to reduce the burden of PF and ESI contributions imposed by your employer.
Thank you.
From India, Hyderabad
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Dear Subbarao ji,
With due respect to you, I differ with your following statements:
I am reproducing paragraph 12 of the EPF & MP Act 1952 verbatim for your reference:
12. Employer not to reduce wages, etc.
No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme, reduce whether directly or indirectly, the wages of any employee to whom the Scheme or the Insurance Scheme applies, or the total quantum of benefits in the nature of old age pension, gratuity, provident fund, or life insurance to which the employee is entitled under the terms of his employment, express or implied.
From India, Mumbai
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With due respect to you, I differ with your following statements:
I am reproducing paragraph 12 of the EPF & MP Act 1952 verbatim for your reference:
12. Employer not to reduce wages, etc.
No employer in relation to an establishment to which any Scheme or the Insurance Scheme applies shall, by reason only of his liability for the payment of any contribution to the Fund or the Insurance Fund or any charges under this Act or the Scheme or the Insurance Scheme, reduce whether directly or indirectly, the wages of any employee to whom the Scheme or the Insurance Scheme applies, or the total quantum of benefits in the nature of old age pension, gratuity, provident fund, or life insurance to which the employee is entitled under the terms of his employment, express or implied.
From India, Mumbai
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