Respected all,
With reference to the Supreme Court judgment, every company is going to change its salary structure. We have a significant number of workers with an approximate gross salary of 15,000. Can we adjust our salary structure to be 60% basic and 40% of the gross salary? The minimum wage is about 6,400 per month, and our current structure is as follows:
Basic HRA CA Uniform Allowance Medical Allowance Gross Salary
6413 2952 2952 1476 967 14760
We intend to change it to:
Basic Salary: 8856 (60% of gross salary)
HRA: 5904 (40% of gross salary)
Is this structure feasible? Kindly advise me in this context. If there are any issues with the aforementioned salary structure, please let me know. Your valuable suggestions will be highly appreciated.
From India, Shimla
Acknowledge(0)
Amend(0)
With reference to the Supreme Court judgment, every company is going to change its salary structure. We have a significant number of workers with an approximate gross salary of 15,000. Can we adjust our salary structure to be 60% basic and 40% of the gross salary? The minimum wage is about 6,400 per month, and our current structure is as follows:
Basic HRA CA Uniform Allowance Medical Allowance Gross Salary
6413 2952 2952 1476 967 14760
We intend to change it to:
Basic Salary: 8856 (60% of gross salary)
HRA: 5904 (40% of gross salary)
Is this structure feasible? Kindly advise me in this context. If there are any issues with the aforementioned salary structure, please let me know. Your valuable suggestions will be highly appreciated.
From India, Shimla
Acknowledge(0)Amend(0)
Hi,
You have misunderstood the recent judgment of the SC, in my opinion. All fixed components of the breakup will attract PF, as per my understanding. HRA will also attract PF. Otherwise, many companies keep HRA only in their salary breakup to avoid PF liability.
Request you to read the judgment again or consult a good consultant.
My opinion..
From India, Pune
Acknowledge(0)Amend(0)
176You have misunderstood the recent judgment of the SC, in my opinion. All fixed components of the breakup will attract PF, as per my understanding. HRA will also attract PF. Otherwise, many companies keep HRA only in their salary breakup to avoid PF liability.
Request you to read the judgment again or consult a good consultant.
My opinion..
From India, Pune
Acknowledge(0)Amend(0)
HRA is also a part of the salary as per the current apex court verdict. To claim HRA as an allowance, the employer has to either pay the rent directly to the landlord or obtain a copy of the rent receipts (Form 12BB of income tax will work perfectly on the subject). As per the current verdict, all components that do not qualify as exempt allowance under income tax are now to be added in EPF salary as well. Overtime is the only exemption, but it is subject to the permission of the inspector of factories/shop & establishment.
Acknowledge(0)Amend(0)
Acknowledge(0)Amend(0)
Dear All,
I am sorry to state that you are wrong instating that HRA is included for calculation of PF. Please find below the excerpt form the judgement
"The aforesaid provisions fell for detailed consideration by this Court in Bridge & Roof (supra)when it was observed as follows:
“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein
means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.
If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or
payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.
8. Then we come to clause (ii). It excludes dearness allowance, houserent 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.
This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the
exceptions contained in clause (ii) refer to
payments which are earned by an employee in
accordance with the terms of his contract of
employment. It was admitted by counsel on both
sides before us that it was difficult to find any one
basis for the exceptions contained in the three
clauses. It is clear however from clause (ii) that
from the definition of the word "basic wages"
certain earnings were excluded, though they must
be earned by employees in accordance with the
terms of the contract of employment. Having
14
excluded "dearness allowance" from the definition
of "basic wages", s. 6 then provides for inclusion of
dearness allowance for purposes of contribution.
But that is clearly the result of the specific
provision in s. 6 which lays down that contribution
shall be 61/
4 per centum of the basic wages,
dearness allowance and retaining allowance (if
any). We must therefore try to discover some basis
for the exclusion in clause (ii) as also the inclusion
of dearness allowance and retaining allowance (for
any) in s. 6. It seems that the basis of inclusion in
s. 6 and exclusion in clause (ii) is that whatever is
payable in all concerns and is earned by all
permanent employees is included for the purpose,
of contribution under s. 6, but whatever is not
payable by all concerns or may not be earned by all
employees of a concern is excluded for the purpose
of contribution. Dearness allowance (for examples
is payable in all concerns either as an addition to
basic wages or as a part of consolidated wages
where a concern does not have separate dearness
allowance and basic wages. Similarly, retaining
allowance is payable to all permanent employees in
all seasonal factories like sugar factories and is
therefore included in s. 6; but houserent
allowance is not paid in many concerns and
sometimes in the same concern it is paid to some
employees but not to others, for the theory is that
houserent
is included in the payment of basic
wages plus dearness allowance or consolidated
wages. Therefore, houserent
allowance which may
not be payable to all employees of a concern and
which is certainly not paid by all concern is taken
out of the definition of "basic wages", even though
the basis of payment of houserent
allowance
where it is paid is the contract of employment.
Similarly, overtime allowance though it is generally
in force in all concerns is not earned by all
employees of a concern. It is also earned in
accordance with the terms of the contract of
15
employment; but because it may not be earned by
all employees of a concern it is excluded from
"basic wages". Similarly, commission or any other
similar allowance is excluded from the definition of
"basic wages" for commission and other allowances
are not necessarily to be found in all concerns; nor
are they necessarily earned by all employees of the
same concern, though where they exist they are
earned in accordance with the terms of the
contract of employment. It seems therefore that the
basis for the exclusion in clause (ii) of the
exceptions in s. 2(b) is that all that is not earned in
all concerns or by all employees of concern is
excluded from basic wages. To this the exclusion of
dearness allowance in clause (ii) is an exception.
But that exception has been corrected by including
dearness allowance in s. 6 for the purpose of
contribution. Dearness allowance which is an
exception in the definition of "basic wages", is
included for the propose of contribution by s. 6 and
the real exceptions therefore in clause (ii) are the
other exceptions beside dearness allowance, which
has been included through S. 6.”"
It is clearly evident that the SC has used its earlier decision to exclude HRA for calculation of PF as it is not an allowance that is uniformly paid across organization to everybody
From India, Hyderabad
Acknowledge(0)Amend(0)
I am sorry to state that you are wrong instating that HRA is included for calculation of PF. Please find below the excerpt form the judgement
"The aforesaid provisions fell for detailed consideration by this Court in Bridge & Roof (supra)when it was observed as follows:
“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein
means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.
If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or
payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.
8. Then we come to clause (ii). It excludes dearness allowance, houserent 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.
This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the
exceptions contained in clause (ii) refer to
payments which are earned by an employee in
accordance with the terms of his contract of
employment. It was admitted by counsel on both
sides before us that it was difficult to find any one
basis for the exceptions contained in the three
clauses. It is clear however from clause (ii) that
from the definition of the word "basic wages"
certain earnings were excluded, though they must
be earned by employees in accordance with the
terms of the contract of employment. Having
14
excluded "dearness allowance" from the definition
of "basic wages", s. 6 then provides for inclusion of
dearness allowance for purposes of contribution.
But that is clearly the result of the specific
provision in s. 6 which lays down that contribution
shall be 61/
4 per centum of the basic wages,
dearness allowance and retaining allowance (if
any). We must therefore try to discover some basis
for the exclusion in clause (ii) as also the inclusion
of dearness allowance and retaining allowance (for
any) in s. 6. It seems that the basis of inclusion in
s. 6 and exclusion in clause (ii) is that whatever is
payable in all concerns and is earned by all
permanent employees is included for the purpose,
of contribution under s. 6, but whatever is not
payable by all concerns or may not be earned by all
employees of a concern is excluded for the purpose
of contribution. Dearness allowance (for examples
is payable in all concerns either as an addition to
basic wages or as a part of consolidated wages
where a concern does not have separate dearness
allowance and basic wages. Similarly, retaining
allowance is payable to all permanent employees in
all seasonal factories like sugar factories and is
therefore included in s. 6; but houserent
allowance is not paid in many concerns and
sometimes in the same concern it is paid to some
employees but not to others, for the theory is that
houserent
is included in the payment of basic
wages plus dearness allowance or consolidated
wages. Therefore, houserent
allowance which may
not be payable to all employees of a concern and
which is certainly not paid by all concern is taken
out of the definition of "basic wages", even though
the basis of payment of houserent
allowance
where it is paid is the contract of employment.
Similarly, overtime allowance though it is generally
in force in all concerns is not earned by all
employees of a concern. It is also earned in
accordance with the terms of the contract of
15
employment; but because it may not be earned by
all employees of a concern it is excluded from
"basic wages". Similarly, commission or any other
similar allowance is excluded from the definition of
"basic wages" for commission and other allowances
are not necessarily to be found in all concerns; nor
are they necessarily earned by all employees of the
same concern, though where they exist they are
earned in accordance with the terms of the
contract of employment. It seems therefore that the
basis for the exclusion in clause (ii) of the
exceptions in s. 2(b) is that all that is not earned in
all concerns or by all employees of concern is
excluded from basic wages. To this the exclusion of
dearness allowance in clause (ii) is an exception.
But that exception has been corrected by including
dearness allowance in s. 6 for the purpose of
contribution. Dearness allowance which is an
exception in the definition of "basic wages", is
included for the propose of contribution by s. 6 and
the real exceptions therefore in clause (ii) are the
other exceptions beside dearness allowance, which
has been included through S. 6.”"
It is clearly evident that the SC has used its earlier decision to exclude HRA for calculation of PF as it is not an allowance that is uniformly paid across organization to everybody
From India, Hyderabad
Acknowledge(0)Amend(0)
HRA, by definition, is outside the purview of "basic wages" under Section 2(b) of the Act. Components of wages like incentive bonus earnings, which are dependent on the output produced by the employee concerned, and other allowances that are not "universally" applicable to all employees or a category of employees, should not be included in the basic wages for calculating PF, as per the latest judgment of the Supreme Court.
Consequently, including HRA for the purpose of calculating PF would be erroneous.
From India, Nasik
Acknowledge(0)Amend(0)
Consequently, including HRA for the purpose of calculating PF would be erroneous.
From India, Nasik
Acknowledge(0)Amend(0)
HRA is a subject of many departments, and if it gets taxable at one place, it would invite the attention of EPF as well. That's why we suggest employers to obtain a 12BB declaration from employees to prevent them from any unwanted queries from EPF.
Acknowledge(0)Amend(0)
Acknowledge(0)Amend(0)
Dear All
Basic wages Dearness allowance (all cash payments by
whatever name called paid to an employee on
account of a rise in the cost of living)
Retaining allowance
Cash value of any food concession
However, ‘basic wages’ does not include cash
value of any food concession, Dearness allowance,
House rent allowance, Overtime allowance, Bonus,
Commission or any other similar allowance payable
to an employee in respect of his employment, any
presents made by the employer.
As per aforesaid matter HRA exclude from the basic salary .Therefore your are requested to suggest me said salary structure is ok or not .I am not clear yet in this context
From India, Shimla
Acknowledge(0)Amend(0)
Basic wages Dearness allowance (all cash payments by
whatever name called paid to an employee on
account of a rise in the cost of living)
Retaining allowance
Cash value of any food concession
However, ‘basic wages’ does not include cash
value of any food concession, Dearness allowance,
House rent allowance, Overtime allowance, Bonus,
Commission or any other similar allowance payable
to an employee in respect of his employment, any
presents made by the employer.
As per aforesaid matter HRA exclude from the basic salary .Therefore your are requested to suggest me said salary structure is ok or not .I am not clear yet in this context
From India, Shimla
Acknowledge(0)Amend(0)
Dear All, Being a HR We have to think both side employer as wall as statutory compliance as per said judgment .Hence i post this matter on best platform where i am seeking your value able suggestion
From India, Shimla
Acknowledge(0)Amend(0)
From India, Shimla
Acknowledge(0)Amend(0)
Hi,
Greetings!
I completely agree with all the answers, but I have one question. If it's all about the salary head and breakup, should I keep only HRA in my salary breakup to avoid PF liability, bonus liability, gratuity liability, and all other social security benefits?
For example:
Salary: 15,000 CTC
Salary breakup:
HRA: 15,000
Gross salary: 15,000
Does this mean the only liabilities would be ESIC and professional tax, with no other liabilities from the employer's side? (ESIC is applicable in areas for liability, otherwise no liability). Would there be no PF and other liabilities as the salary head is HRA?
I am raising a question, nothing else.
From India, Pune
Acknowledge(0)Amend(0)
Greetings!
I completely agree with all the answers, but I have one question. If it's all about the salary head and breakup, should I keep only HRA in my salary breakup to avoid PF liability, bonus liability, gratuity liability, and all other social security benefits?
For example:
Salary: 15,000 CTC
Salary breakup:
HRA: 15,000
Gross salary: 15,000
Does this mean the only liabilities would be ESIC and professional tax, with no other liabilities from the employer's side? (ESIC is applicable in areas for liability, otherwise no liability). Would there be no PF and other liabilities as the salary head is HRA?
I am raising a question, nothing else.
From India, Pune
Acknowledge(0)Amend(0)
Dear Sir, We never can not do it ,my question was if anyone has some other ideas to maintain both side employer as wall as pf compliance then let me know
From India, Shimla
Acknowledge(0)Amend(0)
From India, Shimla
Acknowledge(0)Amend(0)
Though I am not quite clear about the thrust of the questions, I am still trying to address #8 to #11 above, making some assumptions. Payment of only HRA may sound a bit bizarre, besides falling foul with some other statutes, even assuming that the amount paid is above what is prescribed under the Minimum Wages Act that stipulates a Basic Wage and a Special Allowance. The authorities are sure to assume that the amount paid is camouflaged wages, and they are not far from the truth.
I am also assuming that the questionnaire has a problem with Dearness Allowance that is shown as excluded in the definition of basic wages under Sec. 2 (b). If you read further, either the Act or the Case, you will realize that DA is getting covered for PF under Sec 6. To my mind, it is an anachronism found in the Act itself.
Post the SC judgment, the thumb rule to apply is that if you pay any amount across the board without the recipient having to do anything special to earn it (like incentive bonus), it would amount to a "universal" allowance applicable to all attracting PF.
From India, Nasik
Acknowledge(0)Amend(0)
I am also assuming that the questionnaire has a problem with Dearness Allowance that is shown as excluded in the definition of basic wages under Sec. 2 (b). If you read further, either the Act or the Case, you will realize that DA is getting covered for PF under Sec 6. To my mind, it is an anachronism found in the Act itself.
Post the SC judgment, the thumb rule to apply is that if you pay any amount across the board without the recipient having to do anything special to earn it (like incentive bonus), it would amount to a "universal" allowance applicable to all attracting PF.
From India, Nasik
Acknowledge(0)Amend(0)
Basic salary is the key factor for all components, and HRA cannot exceed 40% of basic.
A knowledgeable HR professional will never allow the HR component to be split just based on percentages. Instead, they will engage the employee in a short discussion and request formal documents to avail the benefit of exempted allowances.
The HR job profile is not merely a routine task but requires coordination with all relevant departments, particularly those related to finance and labor.
Acknowledge(0)Amend(0)
A knowledgeable HR professional will never allow the HR component to be split just based on percentages. Instead, they will engage the employee in a short discussion and request formal documents to avail the benefit of exempted allowances.
The HR job profile is not merely a routine task but requires coordination with all relevant departments, particularly those related to finance and labor.
Acknowledge(0)Amend(0)
Dear All,
I am sharing herewith a recent Supreme Court judgment copy description by EPFO Vadodara chapter, Gujarat for your ready reference. I hope it will clear all your doubts. Please contact your regional EPFO office for any doubts regarding this presentation from EPFO itself.
All the best!!!
From India, Pune
Acknowledge(0)Amend(0)
I am sharing herewith a recent Supreme Court judgment copy description by EPFO Vadodara chapter, Gujarat for your ready reference. I hope it will clear all your doubts. Please contact your regional EPFO office for any doubts regarding this presentation from EPFO itself.
All the best!!!
From India, Pune
Acknowledge(0)Amend(0)
Dear All,
There is no way to save employer and employee liability. Only basic HRA ratio is a maximum of 60:40, or 70:30 if we increase the HRA percentage more than 40. EPFO will add the difference of HRA in basic wages and penalize them.
Acknowledge(0)Amend(0)
There is no way to save employer and employee liability. Only basic HRA ratio is a maximum of 60:40, or 70:30 if we increase the HRA percentage more than 40. EPFO will add the difference of HRA in basic wages and penalize them.
Acknowledge(0)Amend(0)
Respected All,
Thank you for your valuable suggestion on the aforementioned matter. One of my HR colleagues informed me that the company has changed its salary structure following the Supreme Court judgment. They have decided that, effective from 01/04/2019, the "Special Allowance" will now be referred to as "DEVELOPMENT ALLOWANCE" in your salary structure.
Please advise or share any insights you may have related to the DEVELOPMENT ALLOWANCE.
Thank you.
From India, Shimla
Acknowledge(0)Amend(0)
Thank you for your valuable suggestion on the aforementioned matter. One of my HR colleagues informed me that the company has changed its salary structure following the Supreme Court judgment. They have decided that, effective from 01/04/2019, the "Special Allowance" will now be referred to as "DEVELOPMENT ALLOWANCE" in your salary structure.
Please advise or share any insights you may have related to the DEVELOPMENT ALLOWANCE.
Thank you.
From India, Shimla
Acknowledge(0)Amend(0)
Dear All,
I also want to know about the development allowance. I saw many companies are doing the same thing. If anyone has any idea about it, kindly share. What percentage of development allowance can we include in our salary structure?
Thank you.
From India
Acknowledge(0)Amend(0)
I also want to know about the development allowance. I saw many companies are doing the same thing. If anyone has any idea about it, kindly share. What percentage of development allowance can we include in our salary structure?
Thank you.
From India
Acknowledge(0)Amend(0)
Hi,
I had attended a grievance program in Bangalore regarding the recent changes in the PF, and the PF assistant commissioner was the key person in the program. He confirmed that HRA components will not attract PF. Many have raised questions about fixing the HRA percentage. Since there is no proper rule for salary structure, he said it will be on a case-by-case basis.
As per my knowledge, salary components vary on a case-by-case basis, i.e., salary components will differ when a company is located in cities, villages, hilly areas, or coastal areas. For example, HRA cannot be the same for a company situated in a city and a village. Usually, in towns, rent will be higher. We have to fix HRA higher in these places. We also have to consider the Income Tax treatment. If HRA is less than the actual rent paid, it will affect the ability to claim HRA exemption in IT. All these issues apply only to those who are earning a salary of less than 15K.
My suggestion is that you can fix HRA at 20%-40% of the gross (24% is the safest option since government organizations in Bangalore maintain the same) if you are in a town. Frankly speaking, PF officials have the power to question your salary components, so you should have proper justification for your policy.
From India, Bengaluru
Acknowledge(0)Amend(0)
I had attended a grievance program in Bangalore regarding the recent changes in the PF, and the PF assistant commissioner was the key person in the program. He confirmed that HRA components will not attract PF. Many have raised questions about fixing the HRA percentage. Since there is no proper rule for salary structure, he said it will be on a case-by-case basis.
As per my knowledge, salary components vary on a case-by-case basis, i.e., salary components will differ when a company is located in cities, villages, hilly areas, or coastal areas. For example, HRA cannot be the same for a company situated in a city and a village. Usually, in towns, rent will be higher. We have to fix HRA higher in these places. We also have to consider the Income Tax treatment. If HRA is less than the actual rent paid, it will affect the ability to claim HRA exemption in IT. All these issues apply only to those who are earning a salary of less than 15K.
My suggestion is that you can fix HRA at 20%-40% of the gross (24% is the safest option since government organizations in Bangalore maintain the same) if you are in a town. Frankly speaking, PF officials have the power to question your salary components, so you should have proper justification for your policy.
From India, Bengaluru
Acknowledge(0)Amend(0)
Dear Muhammed Asif,
Our company is situated in Panchkula city. We can offer 60% of the basic salary and 40% of the gross salary as House Rent Allowance (HRA). Is this admissible? Kindly share your thoughts if you have any information regarding development allowance. I am eagerly awaiting your valuable suggestions.
Thank you.
From India
Acknowledge(0)Amend(0)
Our company is situated in Panchkula city. We can offer 60% of the basic salary and 40% of the gross salary as House Rent Allowance (HRA). Is this admissible? Kindly share your thoughts if you have any information regarding development allowance. I am eagerly awaiting your valuable suggestions.
Thank you.
From India
Acknowledge(0)Amend(0)
Dear Gaurav,
Whether the cost of living in your city is higher? As per my knowledge, the city Panchkula is a small city, so living costs are assumed to be lower. My suggestion is that you can fix the HRA at 30%. It would be better to consult your PF office regarding HRA and development allowance for more clarity, as they are the authority to inspect your organization.
Thank you.
From India, Bengaluru
Acknowledge(0)Amend(0)
Whether the cost of living in your city is higher? As per my knowledge, the city Panchkula is a small city, so living costs are assumed to be lower. My suggestion is that you can fix the HRA at 30%. It would be better to consult your PF office regarding HRA and development allowance for more clarity, as they are the authority to inspect your organization.
Thank you.
From India, Bengaluru
Acknowledge(0)Amend(0)
Dear Muhammed Asif Thanks a lot for your valuable suggestion .I will consult with PF office regarding HRA and development allowance for more clarity.
From India
Acknowledge(0)Amend(0)
From India
Acknowledge(0)Amend(0)
plz share minimum wages notification karnataka for 19 20 in electronic manufacturing industry?
From India, Bengaluru
Acknowledge(0)Amend(0)
From India, Bengaluru
Acknowledge(0)Amend(0)
Minimum wages is revised in every year by concerned State Govt This year i.e. 2019 the same will be declared after completion of General Election.
From India, Mumbai
Acknowledge(0)Amend(0)
From India, Mumbai
Acknowledge(0)Amend(0)Looking for something specific? - Join & Be Part Of Our Community and get connected with the right people who can help. Our AI-powered platform provides real-time fact-checking, peer-reviewed insights, and a vast historical knowledge base to support your search.
Salary Sheet & PF PT Calculation & Challan Nov 2010.xls