Reducing the basic salary will not have any legal implications, but this will not attract anyone because in most organizations, the CTC hike is normally given on the basic salary. The basic salary has a significant impact on the CTC as most components are calculated based on it.
From India, Vadodara
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5From India, Vadodara
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Hi Deepika,
Thanks for the reply. So, you mean to say that we can reduce the basic of those employees who have less than ₹6500 as long as it is more than 35% of the total gross salary. Or is it advisable that we continue with the same structure for basics less than ₹6500 and alter the structure for those who exceed the PF limit?
Another thing - are you sure the percentage is 35% of the gross?
Rolly
From India, New Delhi
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Thanks for the reply. So, you mean to say that we can reduce the basic of those employees who have less than ₹6500 as long as it is more than 35% of the total gross salary. Or is it advisable that we continue with the same structure for basics less than ₹6500 and alter the structure for those who exceed the PF limit?
Another thing - are you sure the percentage is 35% of the gross?
Rolly
From India, New Delhi
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Dear Rolly, I donot think any legal problems you would face. But for safety measures check your legal department. As per my knowledge, every thing depends on company to company
From India, Mumbai
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From India, Mumbai
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Hi Deepika,
According to the PF Act, the basic can be 100% of the gross but should not be less than 35% of the gross. It depends on your company to decide the percentage of the basic, as it varies from company to company.
Now, coming to your point, if an employee's basic is less than 6500/-, then it is mandatory to deduct PF from the employee's salary. However, if the basic is more than 6500/-, then it depends on the mutual understanding of the employer and employee to deduct PF; in this case, it is not mandatory.
If you want to reduce the company's liability towards employer PF, you can do one thing: increase the CTC of the employee and deduct the employer PF from the employee's account because employer PF is included in CTC. Alternatively, you can reduce the basic so that employer PF is reduced.
One important thing to note is that for both employees whose basic is 6500/- or less and those whose basic is more than 6500/-, the basic percentage of the gross should be the same.
Now, it's your decision on what you want to do in your company.
Best regards,
[Your Name]
From India, New Delhi
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According to the PF Act, the basic can be 100% of the gross but should not be less than 35% of the gross. It depends on your company to decide the percentage of the basic, as it varies from company to company.
Now, coming to your point, if an employee's basic is less than 6500/-, then it is mandatory to deduct PF from the employee's salary. However, if the basic is more than 6500/-, then it depends on the mutual understanding of the employer and employee to deduct PF; in this case, it is not mandatory.
If you want to reduce the company's liability towards employer PF, you can do one thing: increase the CTC of the employee and deduct the employer PF from the employee's account because employer PF is included in CTC. Alternatively, you can reduce the basic so that employer PF is reduced.
One important thing to note is that for both employees whose basic is 6500/- or less and those whose basic is more than 6500/-, the basic percentage of the gross should be the same.
Now, it's your decision on what you want to do in your company.
Best regards,
[Your Name]
From India, New Delhi
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Thank you so much, Deepika. And one more thing... as you said - the basic percentage should be the same for all employees, whether less than 6500/- basic or above the PF ceiling limit. So, are you sure you cannot have two salary slabs? For example, Basic - 60% for employees earning under 1.5 lacs p.a. salary and Basic - 50% for employees earning over 1.5 lacs p.a. salary. Is it a legal violation?
From India, New Delhi
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From India, New Delhi
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It depends on company to company some could basic as 30% some as 60% etc But still I respect your reply.
From India, Mumbai
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From India, Mumbai
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Dear Rolly,
Earlier, I wrote that basic percentage should be the same, but after discussing with some higher-ups in accounts, I learned that the basic amount can vary from employee to employee. You have the flexibility to decide on different percentages of basic for different employees.
Following your suggestion, you can structure your salary as basic + HRA + special allowances. Additionally, if you wish to reduce the company's liability towards employer PF, you can consider deducting employer PF from the salaries of employees whose salary exceeds 6500/-. Although it is not mandatory to provide employer PF for them, they may still request it. By deducting the employer PF, the company's liability will not increase.
It is crucial to note that this rule should only apply to new joiners. The basic salary cannot be changed during an employee's tenure. If you intend to adjust the basic and incorporate special allowances, you should release the employee for one month, then reappoint them at the beginning of the company and implement the new rule.
You have the liberty to add any components to the salary, such as special allowances, but you cannot reduce the basic amount midway. Doing so could lead to a reduction in both employee and employer PF, which employees may object to.
You can implement the following actions:
1. Deduct employer PF from employees' salaries.
2. Modify your rules for leave encashment as needed.
3. Deduct HRA and include this amount as special allowances.
If you have any further queries, feel free to ask.
Deepika
From India, New Delhi
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Earlier, I wrote that basic percentage should be the same, but after discussing with some higher-ups in accounts, I learned that the basic amount can vary from employee to employee. You have the flexibility to decide on different percentages of basic for different employees.
Following your suggestion, you can structure your salary as basic + HRA + special allowances. Additionally, if you wish to reduce the company's liability towards employer PF, you can consider deducting employer PF from the salaries of employees whose salary exceeds 6500/-. Although it is not mandatory to provide employer PF for them, they may still request it. By deducting the employer PF, the company's liability will not increase.
It is crucial to note that this rule should only apply to new joiners. The basic salary cannot be changed during an employee's tenure. If you intend to adjust the basic and incorporate special allowances, you should release the employee for one month, then reappoint them at the beginning of the company and implement the new rule.
You have the liberty to add any components to the salary, such as special allowances, but you cannot reduce the basic amount midway. Doing so could lead to a reduction in both employee and employer PF, which employees may object to.
You can implement the following actions:
1. Deduct employer PF from employees' salaries.
2. Modify your rules for leave encashment as needed.
3. Deduct HRA and include this amount as special allowances.
If you have any further queries, feel free to ask.
Deepika
From India, New Delhi
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Few points:
- In this year's increments, do not increase the amount in the basic. Instead, do it on allowances or add a few more components.
- For increment purposes, check this: http://www.dhanbank.com/careers/ctc_officers.pdf
From India, Kalyan
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- In this year's increments, do not increase the amount in the basic. Instead, do it on allowances or add a few more components.
- For increment purposes, check this: http://www.dhanbank.com/careers/ctc_officers.pdf
From India, Kalyan
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Hi Deepika,
You have been a great help, and I am bothering you again. I was certain that basic cannot be reduced within the tenure of the employee, and you clarified it as well.
I want to know about those people whose basic is above 6500/- and thus get a fixed PF contribution of Rs. 780/-. Can their basic be reduced, for example, from 20K a month basic to 12K, as their PF contribution remains unchanged? Or is it that their basic cannot be reduced as well? I hope I am clear.
Rolly
From India, New Delhi
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You have been a great help, and I am bothering you again. I was certain that basic cannot be reduced within the tenure of the employee, and you clarified it as well.
I want to know about those people whose basic is above 6500/- and thus get a fixed PF contribution of Rs. 780/-. Can their basic be reduced, for example, from 20K a month basic to 12K, as their PF contribution remains unchanged? Or is it that their basic cannot be reduced as well? I hope I am clear.
Rolly
From India, New Delhi
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