Dear Seniors, I am in confusion, Can basic be 100% ? If so then will it be problematic in some aspect for our organisation.? Regards, Khushi
From India, Pune
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1From India, Pune
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Dear J. N Modi Sir,
Our organization is considering setting the basic pay at 100% to ensure safety and exemption. Is this feasible? Could you please provide the criteria for the basic pay for all staff members?
Regards,
Khushi
From India, Pune
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Our organization is considering setting the basic pay at 100% to ensure safety and exemption. Is this feasible? Could you please provide the criteria for the basic pay for all staff members?
Regards,
Khushi
From India, Pune
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PF will be calculated on Basic,D.A.,Retaining Allowance if it is ,Cash paid food concession
From India, Vadodara
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From India, Vadodara
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Hi Khushi,
As per my knowledge, in any law, there is no specified particular percentage of basic to be decided. However, it is the sole discretion of the organization to have a certain percentage of the basic in salary or wages. Its minimum limit is being defined by the fixation of Minimum Wages, and hence we could pay below that. But as far as 100% basic is considered, again, you need to verify that the other components like PF, PTax, HRA, OT (if applicable), leave pay, etc., all such factors are to be considered on 100% basic, which will increase your indirect expenses on every employee. Also, take note that if you are thinking of going to 100% basic may be suitable for exemption of PF, then according to me, it is not at all possible. Whatever percentage of basic it may be, PF contributions have to be carried out at the specified percentage.
Please review your decision.
Regards,
Atul S Malve
From India, Sholapur
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As per my knowledge, in any law, there is no specified particular percentage of basic to be decided. However, it is the sole discretion of the organization to have a certain percentage of the basic in salary or wages. Its minimum limit is being defined by the fixation of Minimum Wages, and hence we could pay below that. But as far as 100% basic is considered, again, you need to verify that the other components like PF, PTax, HRA, OT (if applicable), leave pay, etc., all such factors are to be considered on 100% basic, which will increase your indirect expenses on every employee. Also, take note that if you are thinking of going to 100% basic may be suitable for exemption of PF, then according to me, it is not at all possible. Whatever percentage of basic it may be, PF contributions have to be carried out at the specified percentage.
Please review your decision.
Regards,
Atul S Malve
From India, Sholapur
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Dear Khushi, As per my knowledge most of the organizations deduct 12% of basic for PF from Employee and Employers contribution.
From India, Bangalore
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From India, Bangalore
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Hi Khushi,
An interesting question you have raised. My answers are below. Dear Seniors, please let me know if I'm wrong.
As far as my knowledge is concerned, there is no company that will have employees' salary as 100% Basic. Because if they do, obviously there will not be any more components like HRA, Conveyance, or Other Allowances. If there is going to be 100% Basic, then the indirect expenses for the employer will increase heavily. For example, Basic is generally between 30% - 50% of Gross salary. Bonus, Gratuity, and various other benefits for employees will be calculated based on Basic. So, if you are going to have 100% Basic, then your expenses are going to shoot up, which could have been avoided if you had followed the normal breakup pattern.
Let me know if this helped.
Thanks,
Sethu
From India, Madras
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An interesting question you have raised. My answers are below. Dear Seniors, please let me know if I'm wrong.
As far as my knowledge is concerned, there is no company that will have employees' salary as 100% Basic. Because if they do, obviously there will not be any more components like HRA, Conveyance, or Other Allowances. If there is going to be 100% Basic, then the indirect expenses for the employer will increase heavily. For example, Basic is generally between 30% - 50% of Gross salary. Bonus, Gratuity, and various other benefits for employees will be calculated based on Basic. So, if you are going to have 100% Basic, then your expenses are going to shoot up, which could have been avoided if you had followed the normal breakup pattern.
Let me know if this helped.
Thanks,
Sethu
From India, Madras
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Dear Khushi,
There is no bar on the percentage of Basic. But logically, if the salary of your employee is equal to the minimum wage, then obviously the basic of that employee shall be 100% of his gross salary. The simple principle behind all this is that the Basic cannot be less than the Minimum Wages as is clear by the latest circulation of the EPF Department. It is also mentioned in this circulation that Minimum Wages cannot be bifurcated. You can easily download the above-mentioned circulation letter from this site.
But otherwise, if the salary of the staff is more than the Minimum Wages, then it is always better to fix the basic as 60% of the Gross and the rest 40% can be the other allowances. Having 100% Basic for the staff getting a salary more than the Minimum wages is definitely going to create problems for your organization. All the deductions and benefits on the salary are calculated as per the Basic. In this way, the contributions of your organization shall be huge.
Thanks and Regards,
Amarjeet Sijngh
From India, Mumbai
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There is no bar on the percentage of Basic. But logically, if the salary of your employee is equal to the minimum wage, then obviously the basic of that employee shall be 100% of his gross salary. The simple principle behind all this is that the Basic cannot be less than the Minimum Wages as is clear by the latest circulation of the EPF Department. It is also mentioned in this circulation that Minimum Wages cannot be bifurcated. You can easily download the above-mentioned circulation letter from this site.
But otherwise, if the salary of the staff is more than the Minimum Wages, then it is always better to fix the basic as 60% of the Gross and the rest 40% can be the other allowances. Having 100% Basic for the staff getting a salary more than the Minimum wages is definitely going to create problems for your organization. All the deductions and benefits on the salary are calculated as per the Basic. In this way, the contributions of your organization shall be huge.
Thanks and Regards,
Amarjeet Sijngh
From India, Mumbai
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Hi Kushi,
Generally, there would be a specific limit in fixing the basic salary. For instance, in Metro cities, the basic salary is fixed at 40%, and in Non-Metro cities, the basic salary is fixed at 60%.
Question: You raised a query as to why the basic salary can't be 100% of his total salary.
Answer: When the basic salary is 100% of the total salary, it becomes challenging to allocate amounts to other components such as HRA, Special Allowances, transport allowances, medical allowances, educational fees, LTA, and Gross Salary. There is no rule for being exempt from PF or ESI which are nowadays mandatory and beneficial for all employees. However, an exemption from PF can be obtained when a new entrant's basic salary is equal to or more than 6500. Another option for PF exemption is by paying employees as consultants (on a part-time basis) where only TDS (10% of the total amount) is deducted.
To ensure employee benefits, employers can use certain strategies without encountering difficulties. For example, if an employee's salary is 5500CTC, it can be recorded as 7000CTC, with 22% shown as present and the remaining 8 days as absent. This approach allows for the demonstration of maintaining minimum wages within the organization while also reducing the amount paid towards PF and ESIC.
I hope you find these ideas helpful.
Please let me know more about the company.
Regards,
Vinay Kumar.
From India, Hyderabad
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Generally, there would be a specific limit in fixing the basic salary. For instance, in Metro cities, the basic salary is fixed at 40%, and in Non-Metro cities, the basic salary is fixed at 60%.
Question: You raised a query as to why the basic salary can't be 100% of his total salary.
Answer: When the basic salary is 100% of the total salary, it becomes challenging to allocate amounts to other components such as HRA, Special Allowances, transport allowances, medical allowances, educational fees, LTA, and Gross Salary. There is no rule for being exempt from PF or ESI which are nowadays mandatory and beneficial for all employees. However, an exemption from PF can be obtained when a new entrant's basic salary is equal to or more than 6500. Another option for PF exemption is by paying employees as consultants (on a part-time basis) where only TDS (10% of the total amount) is deducted.
To ensure employee benefits, employers can use certain strategies without encountering difficulties. For example, if an employee's salary is 5500CTC, it can be recorded as 7000CTC, with 22% shown as present and the remaining 8 days as absent. This approach allows for the demonstration of maintaining minimum wages within the organization while also reducing the amount paid towards PF and ESIC.
I hope you find these ideas helpful.
Please let me know more about the company.
Regards,
Vinay Kumar.
From India, Hyderabad
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Dear,
Firstly, you have to pay minimum wages to the employees or workmen of your organization.
The definition of Basic wages has been defined under section 2(b) of the EPF & MP Act, 1952 as below:
Section 2(b) "Basic wages" means all emoluments which are earned by an employee while on duty or on leave on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:
i. the cash value of any food concession
ii. any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus, commission, or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
iii. any presents made by the employer
But the First Bench of the Madras High Court has stayed the order of a single judge passed in the Management of Reynolds pens India Pvt. Ltd., Kancheepuram, and others vs. the regional PF Commissioner-II, Chennai, 2011 LLR 876, holding that the employees' provident fund contributions were payable on various allowances like conveyance allowance, education allowance, special allowances, food concessions, medical allowance, special holidays, night shift incentive, and city compensatory allowance. The stay order was passed in the presence of the counsel for the provident fund department. No next date has been fixed for the final hearing of the appeal.
However, it is better to have wage components as mentioned below: Basic, DA, and HRA and deduct PF only for Basic. Since minimum wages also include HRA, you can bifurcate the minimum wages as mentioned below:
i. Retain the minimum wages Basic as Basic wages
ii. You can split the DA into two parts: one is DA and another is HRA. This is safer.
From India, Madras
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Firstly, you have to pay minimum wages to the employees or workmen of your organization.
The definition of Basic wages has been defined under section 2(b) of the EPF & MP Act, 1952 as below:
Section 2(b) "Basic wages" means all emoluments which are earned by an employee while on duty or on leave on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:
i. the cash value of any food concession
ii. any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus, commission, or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
iii. any presents made by the employer
But the First Bench of the Madras High Court has stayed the order of a single judge passed in the Management of Reynolds pens India Pvt. Ltd., Kancheepuram, and others vs. the regional PF Commissioner-II, Chennai, 2011 LLR 876, holding that the employees' provident fund contributions were payable on various allowances like conveyance allowance, education allowance, special allowances, food concessions, medical allowance, special holidays, night shift incentive, and city compensatory allowance. The stay order was passed in the presence of the counsel for the provident fund department. No next date has been fixed for the final hearing of the appeal.
However, it is better to have wage components as mentioned below: Basic, DA, and HRA and deduct PF only for Basic. Since minimum wages also include HRA, you can bifurcate the minimum wages as mentioned below:
i. Retain the minimum wages Basic as Basic wages
ii. You can split the DA into two parts: one is DA and another is HRA. This is safer.
From India, Madras
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What is the strength of organization and basic salary? A minimum of 20 employees is required. As per the act, those who are receiving a basic salary below 6500 have to contribute to EPF, which is mandatory. From the basic salary, 12% has to be deducted for EPF. If someone's basic salary is more than 6500, it is not mandatory to contribute to PF.
Regards,
Ashok
From India, Madras
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Regards,
Ashok
From India, Madras
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Salary Sheet & PF PT Calculation & Challan Nov 2010.xls