Respected Seniors & Colleagues,
This company in which I am working since last 2.5 years is 34 years old MSME organization. The day from which it began operations, they are paying 'per day salary' till date to all senior employees, operators and even new joinees on contract labor.
For e.g. One senior operator's salary is Rs.751/- per day without any breakup or bifurcation of Basic+DA, HRA, etc. Therefore his monthly basic salary is lump sum of Rs.751*26 = Rs. 19526/-.
The management which was running the company since last 35 years, has changed now and young generations are heading all the operations and various departments as well. If Rs.19526/- is basic monthly salary, then paying Bonus on basis of this will be quite costly to the company even if we pay @ 8.33%.
The same will be case while paying our Gratuity to Left or Retired employees. Even in Leave Encashment this will be a costly overhead.
Thirdly, Provident Fund contribution cost to company is also comparatively high if it is calculated on whole monthly salary instead of calculating on basic part of that salary.
Therefore, as a solution, they are thinking of shifting everyone to 'fixed' OR 'CTC' salary structure wherein Basic salary will be around 40%-50% of the Monthly gross salary.
For e.g. in Rs.19526/- case, Basic will be 40% of 19526 = Rs.7810/- will be basic monthly salary. This will straight away control and reduce as well the company’s cost on payables like PF, Bonus, Gratuity, Leave Encashment, etc.
Now management is of the opinion that all those on ‘per day’ salary should be shifted to ‘monthly’ salary structure ASAP so that company cost can be reduced on other perquisites as well along with the salary.
But my concerns are as below:
- All senior employees are getting salary according to ‘per day structure’ and so are their salary slips. It would be difficult to make them ready for ‘fixed salary’ structure as this might not be acceptable to them
- Once they get the news of fixed salary structure, they might straight away show oppose to it because their yearly bonus will get effected ultimately.
- In term of Provident Fund also they might oppose as their contribution (savings in actual) will decrease comparatively. Even I doubt whether PF department will allow this decrease in contribution of Provident Fund.
- What will be legal implications/after-effects of making this change in salary structure?
All these questions are running through my mind whenever I think of start making a ‘fixed salary’ structure for all.
Therefore, I request members in this fraternity to kindly share their thoughts on above queries and please provide a solution/guidelines in this matter.
From India, Ahmadabad
13This company in which I am working since last 2.5 years is 34 years old MSME organization. The day from which it began operations, they are paying 'per day salary' till date to all senior employees, operators and even new joinees on contract labor.
For e.g. One senior operator's salary is Rs.751/- per day without any breakup or bifurcation of Basic+DA, HRA, etc. Therefore his monthly basic salary is lump sum of Rs.751*26 = Rs. 19526/-.
The management which was running the company since last 35 years, has changed now and young generations are heading all the operations and various departments as well. If Rs.19526/- is basic monthly salary, then paying Bonus on basis of this will be quite costly to the company even if we pay @ 8.33%.
The same will be case while paying our Gratuity to Left or Retired employees. Even in Leave Encashment this will be a costly overhead.
Thirdly, Provident Fund contribution cost to company is also comparatively high if it is calculated on whole monthly salary instead of calculating on basic part of that salary.
Therefore, as a solution, they are thinking of shifting everyone to 'fixed' OR 'CTC' salary structure wherein Basic salary will be around 40%-50% of the Monthly gross salary.
For e.g. in Rs.19526/- case, Basic will be 40% of 19526 = Rs.7810/- will be basic monthly salary. This will straight away control and reduce as well the company’s cost on payables like PF, Bonus, Gratuity, Leave Encashment, etc.
Now management is of the opinion that all those on ‘per day’ salary should be shifted to ‘monthly’ salary structure ASAP so that company cost can be reduced on other perquisites as well along with the salary.
But my concerns are as below:
- All senior employees are getting salary according to ‘per day structure’ and so are their salary slips. It would be difficult to make them ready for ‘fixed salary’ structure as this might not be acceptable to them
- Once they get the news of fixed salary structure, they might straight away show oppose to it because their yearly bonus will get effected ultimately.
- In term of Provident Fund also they might oppose as their contribution (savings in actual) will decrease comparatively. Even I doubt whether PF department will allow this decrease in contribution of Provident Fund.
- What will be legal implications/after-effects of making this change in salary structure?
All these questions are running through my mind whenever I think of start making a ‘fixed salary’ structure for all.
Therefore, I request members in this fraternity to kindly share their thoughts on above queries and please provide a solution/guidelines in this matter.
From India, Ahmadabad
Dear Harshavardhan,
What ever is the mode of calculation either per day or per month, you might have paid it in one instance per month right!!
Having a perception of per day salary is okay for doing costing/calculating productivity.
- All senior employees are getting salary according to ‘per day structure’ and so are their salary slips. It would be difficult to make them ready for ‘fixed salary’ structure as this might not be acceptable to them
Reply: Were they told the daily structure or monthly structure? Even if they were told daily structure now it is made monthly structure, can be convinced.
- Once they get the news of fixed salary structure, they might straight away show oppose to it because their yearly bonus will get effected ultimately.
Reply: Universally the bonus/gratuity etc are calculated on Basic+ DA only,so your management has done a mistake and now it is correcting itself by fixing a basic component in gross. You need to talk to the employees on this.
- In term of Provident Fund also they might oppose as their contribution (savings in actual) will decrease comparatively. Even I doubt whether PF department will allow this decrease in contribution of Provident Fund.
Reply: PF organization should have verified your salary structures earlier as yours is a 34 year old company and even other audits/CA should have suggested on the PF component. I do not think this should be a problem in EPFO.
- What will be legal implications/after-effects of making this change in salary structure?
Reply: As far as you are following Minimum wages to employees and paying all statutory dues like PF,ESI,Medical insurance,Bonus,Leave Encashment,Gratuity etc. there is no problem legally.
All these questions are running through my mind whenever I think of start making a ‘fixed salary’ structure for all.
Reply:- Only option available is tell your Management that as since long the Basic/DA concept was not followed,let the computation in salaries be done through after a proper view taken considering the precedent set in per day salary as it was a total consolidated pay and no split up was there.
In other words Management can take the per day salary into basic component, if it is feasible for them, to avoid the feeling of employees that their Bonus amount/PF contribution gets reduced.
From India, Hyderabad
What ever is the mode of calculation either per day or per month, you might have paid it in one instance per month right!!
Having a perception of per day salary is okay for doing costing/calculating productivity.
- All senior employees are getting salary according to ‘per day structure’ and so are their salary slips. It would be difficult to make them ready for ‘fixed salary’ structure as this might not be acceptable to them
Reply: Were they told the daily structure or monthly structure? Even if they were told daily structure now it is made monthly structure, can be convinced.
- Once they get the news of fixed salary structure, they might straight away show oppose to it because their yearly bonus will get effected ultimately.
Reply: Universally the bonus/gratuity etc are calculated on Basic+ DA only,so your management has done a mistake and now it is correcting itself by fixing a basic component in gross. You need to talk to the employees on this.
- In term of Provident Fund also they might oppose as their contribution (savings in actual) will decrease comparatively. Even I doubt whether PF department will allow this decrease in contribution of Provident Fund.
Reply: PF organization should have verified your salary structures earlier as yours is a 34 year old company and even other audits/CA should have suggested on the PF component. I do not think this should be a problem in EPFO.
- What will be legal implications/after-effects of making this change in salary structure?
Reply: As far as you are following Minimum wages to employees and paying all statutory dues like PF,ESI,Medical insurance,Bonus,Leave Encashment,Gratuity etc. there is no problem legally.
All these questions are running through my mind whenever I think of start making a ‘fixed salary’ structure for all.
Reply:- Only option available is tell your Management that as since long the Basic/DA concept was not followed,let the computation in salaries be done through after a proper view taken considering the precedent set in per day salary as it was a total consolidated pay and no split up was there.
In other words Management can take the per day salary into basic component, if it is feasible for them, to avoid the feeling of employees that their Bonus amount/PF contribution gets reduced.
From India, Hyderabad
Dear Harshavardhan,
Mention might have been made in your post about the total no. of workmen in the industry likely to be affected by the proposed change and whether any trade unions are in existence for them.
That apart, such change in any service conditions listed in the Fourth Schedule of the Industrial Disputes Act,1947 requires the issuance of a 21 days prior notice u/s 9-A of the Act as in effect the proposed changes fall under the conditions enumerated at serial nos (1) and (2) of the Fourth Schedule. However, the proviso (a) to S.9-A further clarifies that where the change is effected in pursuance of any settlement or award, no notice shall be required for effecting any such change. Therefore, it is imperative that you hold negotiation with the workmen or the unions before hand, reach at a mutual consensus and effect a settlement accordingly.
As you've rightly observed, the proposed change of the existing consolidated wages into different components such as Basic, D.A and other allowances would have adverse effects on the fringe benefits of the workmen like EPF, Bonus, gratuity etc., and would not be accepted by them so easily.
If you simply choose to go ahead with a notice u/s 9-A, perhaps you can not implement it as it would lead to industrial unrest. Even the Labor Department whose intervention would be certain upon the 9-A Notice, would also advise you to either resist from implementing the proposed change or modify it with necessary changes protecting the existing indirect/fringe benefits.
Therefore, effecting the change may not be a cake-walk.
From India, Salem
Mention might have been made in your post about the total no. of workmen in the industry likely to be affected by the proposed change and whether any trade unions are in existence for them.
That apart, such change in any service conditions listed in the Fourth Schedule of the Industrial Disputes Act,1947 requires the issuance of a 21 days prior notice u/s 9-A of the Act as in effect the proposed changes fall under the conditions enumerated at serial nos (1) and (2) of the Fourth Schedule. However, the proviso (a) to S.9-A further clarifies that where the change is effected in pursuance of any settlement or award, no notice shall be required for effecting any such change. Therefore, it is imperative that you hold negotiation with the workmen or the unions before hand, reach at a mutual consensus and effect a settlement accordingly.
As you've rightly observed, the proposed change of the existing consolidated wages into different components such as Basic, D.A and other allowances would have adverse effects on the fringe benefits of the workmen like EPF, Bonus, gratuity etc., and would not be accepted by them so easily.
If you simply choose to go ahead with a notice u/s 9-A, perhaps you can not implement it as it would lead to industrial unrest. Even the Labor Department whose intervention would be certain upon the 9-A Notice, would also advise you to either resist from implementing the proposed change or modify it with necessary changes protecting the existing indirect/fringe benefits.
Therefore, effecting the change may not be a cake-walk.
From India, Salem
Dear Umakanthan Sir,
Thank you a lot for the apt and precise reply.
As i mentioned earlier that we are an MSME organization, so the no. of employees whose pay structure and fringe benefits will be affected by the proposed change is 35. But then that will be a majority among our total workforce.
Secondly no trade unions exist in our organization as on date.
But yes, I agree that the proposed change shall be pre-informed and discussed with the people going to be affected by it. I have also suggested this to my boss also. Let's see how things go ahead.
Thank you again!!
From India, Ahmadabad
Thank you a lot for the apt and precise reply.
As i mentioned earlier that we are an MSME organization, so the no. of employees whose pay structure and fringe benefits will be affected by the proposed change is 35. But then that will be a majority among our total workforce.
Secondly no trade unions exist in our organization as on date.
But yes, I agree that the proposed change shall be pre-informed and discussed with the people going to be affected by it. I have also suggested this to my boss also. Let's see how things go ahead.
Thank you again!!
From India, Ahmadabad
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