In our company allowance are basic, da, hra, conveyance, medical, child, and special allowance. Pl. Guide me which of allow. Are considered for pf deduction
From India, Mohali
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1From India, Mohali
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Dear Friend, Except HRA, all other allowances considered as Basic.
From India, Mumbai
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From India, Mumbai
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Thanks sir for your prompt reply Can we exclude employee from epf if basic and other allowances more than 15000
From India, Mohali
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From India, Mohali
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Pl. see below example Basic 11125 DA 3894 Conv 890 Special Allow 1720 Gross 17629 Pl. tell me in above case PF applicable or not
From India, Mohali
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From India, Mohali
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if all allowances are more than 15000, in that case PF is to deducted or not
From India, Mohali
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From India, Mohali
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If this is the salary on his joining, then he can be excluded. On the other hand, if he has been a member of PF (existing member), you should continue contributing at least Rs 15,000. This applies to a new joiner whose salary at the time of joining your establishment is more than Rs 15,000 but was a PF member with his previous company and has not withdrawn that PF upon leaving that company.
From India, Kannur
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From India, Kannur
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In the appointment letter, we are mentioning only the Basic salary and Basket. Here, basket means allowances in which employees are claiming as per the convenience of income tax rules, like HRA, Conv., etc.
In this scenario, although we are paying different components (HRA, Conv.) in the salary slip, the same are not mentioned in the appointment letter as we stated above.
Please let us know for the existing employees, can we increase HRA (here basic will remain the same) and merge all other allowances in HRA subject to a maximum of 50% or 40% to overcome the liability of PF.
Regards,
R K Dixit
From India, New Delhi
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In this scenario, although we are paying different components (HRA, Conv.) in the salary slip, the same are not mentioned in the appointment letter as we stated above.
Please let us know for the existing employees, can we increase HRA (here basic will remain the same) and merge all other allowances in HRA subject to a maximum of 50% or 40% to overcome the liability of PF.
Regards,
R K Dixit
From India, New Delhi
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My advice is NO because even HRA, as a component of salary, which is also part of the gross salary earned by an employee while on duty or on leave, should be part of PF qualifying salary. What we have to note is that it is the salary including HRA that is considered for deducing salary if one has taken a few days leave without pay. Or it is the same gross salary including HRA that is paid if he is on leave with pay. That means if he is paid HRA outside the salary, based on the category of city of residence and employee grade, like what is being given to officers of public sector banks, then only it can be excluded from PF qualifying salary.
From India, Kannur
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From India, Kannur
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Is there a limit on HRA as a % of Basic. Typically companies have 60% of Basic to 100% of baic. Can HRA be more than 100% of Basic?
From India, Gurgaon
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From India, Gurgaon
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Dear Pradip, Keep HRA 40% for non metro and 50% for metro for the purpose of exemption under Income Tax act.
From India, Mumbai
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From India, Mumbai
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Ravi, For Income Tax purposes - yes, the 40% or 50% rule will apply. But, if HRA is say 100% of Basic, would it be excluded from PF computation.
From India, Gurgaon
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From India, Gurgaon
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There is no such rule that you can keep the HRA at 40 or 50% of Basic. Even under Income Tax, we have different situations for exemption, and it is not a flat 40 or 50% of the basic wage. In the case of employees who reside in their own house, how does it work? All that you have to note is the salary is the amount agreed upon by the employee to do a certain work, and it is that salary which is taken into consideration when he is absent without pay. It is also the salary that is paid if he is on leave with pay. As such, the gross salary is the salary that should qualify for PF, subject to the ceiling which, at the present rate, is Rs 15,000. After all, it is a matter of Rs 1,800, and I don't understand why the employers are again bifurcating this amount and showing a very small amount as basic wages and a huge amount as HRA. Is it that people work just to pay rent?
From India, Kannur
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From India, Kannur
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I guess people want to keep Basic low as it has Gratuity implication.
From India, Gurgaon
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From India, Gurgaon
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Under the Payment of Gratuity Act, the meaning of Salary is the same, and I am sure the next battle will be for that. Many establishments now provide their gratuity fund based on the basic salary of the employees. But under the Payment of Gratuity Act, wages mean all emoluments which an employee earns while on duty or on leave. The same principle that I have explained in the previous post can be applied here as well. If the wages paid for your paid leave or the wages deducted for your unpaid leave are based on gross wages, this is the wages as per agreement, and there cannot be any dilution in it. This should be the base for the calculation of Gratuity also.
From India, Kannur
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From India, Kannur
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Dear Madhu Sir, Can you please share different situations for claiming exemption under HRA (please mention the section) for our knowledge.
From India, Mumbai
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From India, Mumbai
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HRA is paid only to persons who work for us in the location but have their own house in some other place. When you hire a person, there will be an understanding that they have to stay in the location where they have to work. In order to make them available in the location we offer, IN ADDITION TO SALARY, an amount with which they can take a house on lease. This is called HRA. Depending on the category of employees, you can have different slabs of HRA. It can be a dormitory kind of arrangement with a common bathroom, etc., the rent of which is paid by the employer himself, in the case of workers; it can be flats in the case of middle-level employees or furnished villas for others. The cost of rent can be added to your CTC but not in GROSS SALARY. Obviously, for local employees or people from the same locality, this will not be available. That is not an issue either. Why do we pay to some employees? Because we need them to be available at the place of operation.
In the above arrangement, if an employee could not come to the office for, say, four days, due to some reasons and since they had no leave to their credit, the days were marked as Leave without Pay. Then they will get the HRA in full but four days' salary on the basis of gross salary will only be deducted. In the case of HRA as a component of gross salary, they will not get it. The first case recognizes that they are still in the locality though they could not come to the office. As such, they should pay rent to the landlord in full even though they did not go to the office for a few days (for the landlord whether they go to the office or not is not at all an issue). When it is a part of the gross salary, they will lose it for four days. If it is lost, there should be a reason. The reason is that they did not attend their office, and as per the terms and conditions of employment, HRA is a part of gross wages and that will be proportionally deducted when they are absent.
When HRA is paid over and above salary, that can be exempted from PF. But when it is included in the gross salary, it should be considered as part of PF qualifying salary.
From India, Kannur
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In the above arrangement, if an employee could not come to the office for, say, four days, due to some reasons and since they had no leave to their credit, the days were marked as Leave without Pay. Then they will get the HRA in full but four days' salary on the basis of gross salary will only be deducted. In the case of HRA as a component of gross salary, they will not get it. The first case recognizes that they are still in the locality though they could not come to the office. As such, they should pay rent to the landlord in full even though they did not go to the office for a few days (for the landlord whether they go to the office or not is not at all an issue). When it is a part of the gross salary, they will lose it for four days. If it is lost, there should be a reason. The reason is that they did not attend their office, and as per the terms and conditions of employment, HRA is a part of gross wages and that will be proportionally deducted when they are absent.
When HRA is paid over and above salary, that can be exempted from PF. But when it is included in the gross salary, it should be considered as part of PF qualifying salary.
From India, Kannur
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Dear all,
I have a query related to the new PF ruling by the Supreme Court. In our company, we have allowances such as basic+DA, HRA, conveyance, and medical allowance. However, only 50% of employees receive all of the above components, while the remaining 50% of employees receive only Basic+DA and HRA.
According to the Supreme Court rule, special allowances should be included in the PF calculation. My query is, in the above case, should the new ruling be followed considering that all components are not universally paid to all employees?
Please guide me on this matter.
Regards,
Priya
From India, Mumbai
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I have a query related to the new PF ruling by the Supreme Court. In our company, we have allowances such as basic+DA, HRA, conveyance, and medical allowance. However, only 50% of employees receive all of the above components, while the remaining 50% of employees receive only Basic+DA and HRA.
According to the Supreme Court rule, special allowances should be included in the PF calculation. My query is, in the above case, should the new ruling be followed considering that all components are not universally paid to all employees?
Please guide me on this matter.
Regards,
Priya
From India, Mumbai
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The Supreme Court has never said that Special Allowance should be part of PF qualifying wages, but the court has only said that special allowance paid to all employees should be part of wages. If any allowance is paid to a particular category of employees depending on the risk involved or special skill required to do that work, that can be excluded from wages. There can be cash handling allowance for those who handle cash, night bata for people who work night shifts, and these are special allowances. Since these are not paid to all employees, you can exclude them from PF qualifying wages.
If your Basic + DA part is reasonably good, then there will not be any problem. The problem comes only when the PF qualifying salary is very low and you don't even consider dearness allowance in the salary. Obviously, a salary much lower than the statutory minimum will be under scrutiny by the EPF Authorities, even though they cannot direct the employers to pay as per minimum wages.
Moreover, if the PF qualifying salary is more than Rs 15,000, nothing said in the Court ruling will apply.
From India, Kannur
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If your Basic + DA part is reasonably good, then there will not be any problem. The problem comes only when the PF qualifying salary is very low and you don't even consider dearness allowance in the salary. Obviously, a salary much lower than the statutory minimum will be under scrutiny by the EPF Authorities, even though they cannot direct the employers to pay as per minimum wages.
Moreover, if the PF qualifying salary is more than Rs 15,000, nothing said in the Court ruling will apply.
From India, Kannur
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Dear HR fraternity,
Due to amendments/judgments on wage components, we wish to restructure the wage structure to benefit from PF & ESI exemption, which are as follows:
Wage/Salary Components
---------------------------------
- Basic
- HRA
- Washing Allowance (Max-1000)
We propose to restructure the total gross salary into the above three components by fixing 61%, 35%, and 4% respectively. Also, we seek clarification/best advice on other allowances such as Attendance Bonus, Night Shift Allowance, Overtime wages, etc., in view of PF judgment/ESI amendment.
Regards,
Krishna Kumar
From India, Hyderabad
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Due to amendments/judgments on wage components, we wish to restructure the wage structure to benefit from PF & ESI exemption, which are as follows:
Wage/Salary Components
---------------------------------
- Basic
- HRA
- Washing Allowance (Max-1000)
We propose to restructure the total gross salary into the above three components by fixing 61%, 35%, and 4% respectively. Also, we seek clarification/best advice on other allowances such as Attendance Bonus, Night Shift Allowance, Overtime wages, etc., in view of PF judgment/ESI amendment.
Regards,
Krishna Kumar
From India, Hyderabad
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No comments if you wish to get out of ESI and EPF. Yes, you can get out of these social security schemes if you do not engage in any business. If you do conduct business, especially with the assistance of employees, you must provide them with all the benefits that are available to them. It is important to understand that these benefits represent the minimum and withholding them is unethical and goes against moral principles. Additionally, if you offer a competitive salary, it may not be necessary to provide ESI or PF contributions. Employees can then manage their own medical insurance and retirement planning. Therefore, consider setting their salary at Rs 21,001 to begin with, which would allow you to avoid paying 0.75% towards ESI and around Rs 1,800 for PF.
From India, Kannur
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From India, Kannur
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Good Morning Madhu garu,
Your comments are perfect! If the salary is more than 21000, automatically the employees are exempted under the ESI Act, and they will manage their medical issues. OK.
In view of changes in PF & ESI matters, the applicable wages to the employees/workers ranging from 15000 to 21000, which wage structure is the best one? Currently, we are having more than 5 wage components, and we wish to rationalize and restrict them to three components as mentioned in my previous query. The components such as HRA and Washing Allowances are already existing in our current wage structure. Also, a sudden increase in salary/wage is not in the hands of the HR Department.
Even though if we implement the proposed salary structure, the TAKE HOME SALARY of the employee/worker will also be reduced to that extent. It is a major concern for the industry in the case of low-salaried employees/contract workers, whose salaries are being protected in terms of the Minimum Wages Act.
Further, we wish to know how to calculate Gratuity and Leave Encashment of an employee? Whether it is only on Basic Wage or PF Gross (Basic + Children Edn. + Washing Allow.) as directed by SC.
In view of the above, your expert advice is helpful to the HR community to avoid any show-cause notices from the respective departments.
Regards, Krishna Kumar
From India, Hyderabad
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Your comments are perfect! If the salary is more than 21000, automatically the employees are exempted under the ESI Act, and they will manage their medical issues. OK.
In view of changes in PF & ESI matters, the applicable wages to the employees/workers ranging from 15000 to 21000, which wage structure is the best one? Currently, we are having more than 5 wage components, and we wish to rationalize and restrict them to three components as mentioned in my previous query. The components such as HRA and Washing Allowances are already existing in our current wage structure. Also, a sudden increase in salary/wage is not in the hands of the HR Department.
Even though if we implement the proposed salary structure, the TAKE HOME SALARY of the employee/worker will also be reduced to that extent. It is a major concern for the industry in the case of low-salaried employees/contract workers, whose salaries are being protected in terms of the Minimum Wages Act.
Further, we wish to know how to calculate Gratuity and Leave Encashment of an employee? Whether it is only on Basic Wage or PF Gross (Basic + Children Edn. + Washing Allow.) as directed by SC.
In view of the above, your expert advice is helpful to the HR community to avoid any show-cause notices from the respective departments.
Regards, Krishna Kumar
From India, Hyderabad
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I have already given so many comments on the applicable wages for PF, Gratuity, leave encashment, Bonus, etc. To repeat in a single sentence, the wage taken for deducting the salary of an employee if they have taken LOP is the wage for deciding PF, Gratuity, or retrenchment allowance or anything. For example, if your salary is Rs 15,000, of which you have fixed Rs 6,000 as Basic salary and you have been deducting PF on this amount only. Similarly, you take this amount for computing Bonus, leave encashment, and obviously, gratuity. But if the employee takes leave without pay, you will deduct Rs 500 from their salary. This is one 30th of 15,000. If their salary is Rs 6,000 and all the other components are just allowances, why can't you deduct only Rs 200, being one 30th of Rs 6,000?
Basic Salary means the salary as per the contract of employment. Anything paid in addition to this is an allowance, and only such allowances can be excluded from PF, Gratuity, etc. Obviously, for PF, the employer even has the privilege of restricting it to Rs 15,000. Even HRA is part of the salary if paid to all employees without considering whether they live in a rented house or not. Washing allowance paid to employees to whom you have not provided a uniform is also a part of the salary even for calculating ESI.
Restructuring the salary, keeping the cost-to-company unchanged based on changes in the law is unfair. If permitted, then poor employees will become victims even when there is a hike in salary by means of a notification from the government. The employer will not hesitate to add the electricity charges of a ceiling fan put for an employee or the tea and snacks the employer provides for the employee to make it equal to the statutory salary. Therefore, I will never give advice on how you can restructure your salary to protect your employer. I will only advise that PF is an investment and whatever deduction the employee may have in their take-home salary is only temporary. Being an HR person, convince the employees that a higher contribution would result in higher PF and higher pension.
From India, Kannur
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Basic Salary means the salary as per the contract of employment. Anything paid in addition to this is an allowance, and only such allowances can be excluded from PF, Gratuity, etc. Obviously, for PF, the employer even has the privilege of restricting it to Rs 15,000. Even HRA is part of the salary if paid to all employees without considering whether they live in a rented house or not. Washing allowance paid to employees to whom you have not provided a uniform is also a part of the salary even for calculating ESI.
Restructuring the salary, keeping the cost-to-company unchanged based on changes in the law is unfair. If permitted, then poor employees will become victims even when there is a hike in salary by means of a notification from the government. The employer will not hesitate to add the electricity charges of a ceiling fan put for an employee or the tea and snacks the employer provides for the employee to make it equal to the statutory salary. Therefore, I will never give advice on how you can restructure your salary to protect your employer. I will only advise that PF is an investment and whatever deduction the employee may have in their take-home salary is only temporary. Being an HR person, convince the employees that a higher contribution would result in higher PF and higher pension.
From India, Kannur
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SUPREME COURT ORDER ON EPF - GWALIOR HIGH COURT.pdf
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