Dear Shweta,
You have mentioned it correctly that statute (Payment of wages Act, 1936) prohibits the total amount of deductions from the wages of any employed person not to exceed 50% in a month. Ms Hiral has rightly pointed out that it is impractical to deduct entire salary (Rs. 25k) for four months in order to recover Rs One Lac given to the employee as a salary advance. Did you try to realize how will that man manage his family for four months without salary ? Had he been financially well off, he would not have taken a salary advance of Rs. One Lac. It appears that his financial condition is not good and thinking to deduct entire salary for four months, calls for judicious rethinking. Hiral has rightly suggested, take 12 post dated cheques, it will ensure that your company gets back the loan amount even if the employee choses to leave the company during the recovery period.
Rgds,
Rakesh Pd Srivastav
From India, Gurgaon
32You have mentioned it correctly that statute (Payment of wages Act, 1936) prohibits the total amount of deductions from the wages of any employed person not to exceed 50% in a month. Ms Hiral has rightly pointed out that it is impractical to deduct entire salary (Rs. 25k) for four months in order to recover Rs One Lac given to the employee as a salary advance. Did you try to realize how will that man manage his family for four months without salary ? Had he been financially well off, he would not have taken a salary advance of Rs. One Lac. It appears that his financial condition is not good and thinking to deduct entire salary for four months, calls for judicious rethinking. Hiral has rightly suggested, take 12 post dated cheques, it will ensure that your company gets back the loan amount even if the employee choses to leave the company during the recovery period.
Rgds,
Rakesh Pd Srivastav
From India, Gurgaon
Dear all,
As per thumb rule the net take hope pay should 40% of gross pay.
i.e. 100 is gross then 40 is the deductions hence I suggest to calculate backward i.e. Gross Salary is 25000 then his total allowabe deductions would be 10,000. Now calculate the amount on this Rs.10000 per month deduction.
Further I am not sure about the notional interest applicable on this will be taxable as perks.
Some one CA or Account person can enlight on this.
Ramakant
From India, Pune
As per thumb rule the net take hope pay should 40% of gross pay.
i.e. 100 is gross then 40 is the deductions hence I suggest to calculate backward i.e. Gross Salary is 25000 then his total allowabe deductions would be 10,000. Now calculate the amount on this Rs.10000 per month deduction.
Further I am not sure about the notional interest applicable on this will be taxable as perks.
Some one CA or Account person can enlight on this.
Ramakant
From India, Pune
Dear Vanswetha
At first instance surprised to see the question raised by you, as how much is to be deducted after the employee took the “Salary advance”!
In the industry the general practice is that, there is a prescribed format which needs to be filled by the employee dully mentioning how much he/she is going to remit every month Or in how many month he is going to clear it. If the terms are accepted then only the advance is sanctioned.
Secondly note that – at least 2 sureties will be taken (employees only, and it’s the responsibility of the advance taker to get it) when he is applying, to ensure that in any case if this employee leaves.
Lastly – make a note that the Salary advance is given / approved by the management / MD only, and its his discretion to agree / disagree / how much to deduct or some time to wave off !!.
In general these Salary advances are not shown in the books of accounts – as the Auditors and IT may object. (As per IT rule need to deduct TDS if paid to any em
From India, Hyderabad
At first instance surprised to see the question raised by you, as how much is to be deducted after the employee took the “Salary advance”!
In the industry the general practice is that, there is a prescribed format which needs to be filled by the employee dully mentioning how much he/she is going to remit every month Or in how many month he is going to clear it. If the terms are accepted then only the advance is sanctioned.
Secondly note that – at least 2 sureties will be taken (employees only, and it’s the responsibility of the advance taker to get it) when he is applying, to ensure that in any case if this employee leaves.
Lastly – make a note that the Salary advance is given / approved by the management / MD only, and its his discretion to agree / disagree / how much to deduct or some time to wave off !!.
In general these Salary advances are not shown in the books of accounts – as the Auditors and IT may object. (As per IT rule need to deduct TDS if paid to any em
From India, Hyderabad
Re sending - sorry
Dear Vanswetha
At first instance surprised to see the question raised by you, as how much is to be deducted after the employee took the “Salary advance”!
In the industry the general practice is that, there is a prescribed format which needs to be filled by the employee dully mentioning how much he/she is going to remit every month Or in how many month he is going to clear it. If the terms are accepted then only the advance is sanctioned.
Secondly note that – at least 2 sureties will be taken (employees only, and it’s the responsibility of the advance taker to get it) when he is applying, to ensure that in any case if this employee leaves.
Lastly – make a note that the Salary advance is given / approved by the management / MD only, and its his discretion to agree / disagree / how much to deduct or some time to wave off !!.
In general these Salary advances are not shown in the books of accounts – as the Auditors and IT may object. (As per IT rule need to deduct TDS if paid to any employee from company’s account)This advance is internal matter.
So, if the above written confirmation were not taken kindly ensure the same at least now and get it approved so there is no burden on you / HR.
Do not worry about how much to deduct, they can clear it in a month or 12 months. As you are not going deduct – employee has agreed to payback and management is accepted.
Only thing is you need to ensure the above procedure.
Regards
Musipatla
From India, Hyderabad
Dear Vanswetha
At first instance surprised to see the question raised by you, as how much is to be deducted after the employee took the “Salary advance”!
In the industry the general practice is that, there is a prescribed format which needs to be filled by the employee dully mentioning how much he/she is going to remit every month Or in how many month he is going to clear it. If the terms are accepted then only the advance is sanctioned.
Secondly note that – at least 2 sureties will be taken (employees only, and it’s the responsibility of the advance taker to get it) when he is applying, to ensure that in any case if this employee leaves.
Lastly – make a note that the Salary advance is given / approved by the management / MD only, and its his discretion to agree / disagree / how much to deduct or some time to wave off !!.
In general these Salary advances are not shown in the books of accounts – as the Auditors and IT may object. (As per IT rule need to deduct TDS if paid to any employee from company’s account)This advance is internal matter.
So, if the above written confirmation were not taken kindly ensure the same at least now and get it approved so there is no burden on you / HR.
Do not worry about how much to deduct, they can clear it in a month or 12 months. As you are not going deduct – employee has agreed to payback and management is accepted.
Only thing is you need to ensure the above procedure.
Regards
Musipatla
From India, Hyderabad
Dear members
Please refer to the payment of wages act, which clearly states that only under circumstances provided under the act , the deduction can not exceed 50 % of the Gross Salary.
As a security you can take an undated cheque from the employee for the full amount, so that in the event the employee leaves the services you can recovery the balance amount. If you taking the cheque please ensure to record the reason for taking the cheque and modalities / circumstances under which the cheque would be presented for encashment.
Regards
Preetam Deshpande
From India, Mumbai
Please refer to the payment of wages act, which clearly states that only under circumstances provided under the act , the deduction can not exceed 50 % of the Gross Salary.
As a security you can take an undated cheque from the employee for the full amount, so that in the event the employee leaves the services you can recovery the balance amount. If you taking the cheque please ensure to record the reason for taking the cheque and modalities / circumstances under which the cheque would be presented for encashment.
Regards
Preetam Deshpande
From India, Mumbai
you can follow the rules followed by any bank or finacial institution which gives you so much of loan that its emi does not exeed 50% of anyone salary. because it is provided in RBI guidelines that not more than a percentage of income can be deducted every month.
From India, Kanpur
From India, Kanpur
You need to have a policy on advances to keep it fenced. This means to say what the upper limit is and how it will be recovered.
Usually -
Example one: a company never gives advances, the employee emergency fund if set up, would be used here for a need that arises here.
Example two: If the company does give advances then it safe to keep it to a maximum of 3 months\' basic salary to be deducted at max, over 6 months - NO MORE.
Advances are risky - in that not only are these administratively costly, but the employee can feel that they have an upper hand if they decide to leave. It is better to encourage savings then to help them make a case for a top up and how it would be recovered.
From Tanzania, Dar Es Salaam
Usually -
Example one: a company never gives advances, the employee emergency fund if set up, would be used here for a need that arises here.
Example two: If the company does give advances then it safe to keep it to a maximum of 3 months\' basic salary to be deducted at max, over 6 months - NO MORE.
Advances are risky - in that not only are these administratively costly, but the employee can feel that they have an upper hand if they decide to leave. It is better to encourage savings then to help them make a case for a top up and how it would be recovered.
From Tanzania, Dar Es Salaam
Dear Shweta As per payment of wages act we can deduct maximum 50% salary and for any fine we can deduct 3 % salary in case of any society deduction then we can deduct 75% salary Regards Dilip
From India, Pune
From India, Pune
Hi Sweta
First, you need to stop calling it salary advance.
It is a loan given to the employee.
Under payment of wages act and minimum wages act, there are limits both on amount of salary advance and how much can be recovered.
Since the loan is already given, talking obout how it should have been lower is of no use.
Now, for recovery you have to look at the following :
1. Ask the employee, what he is comfortable with (you gave a large amount, so I assume he is in good terms with the management and they will want him to be comfortable)
2. Ensure that the total amount of deductions from his gross salary (including pf) should not exceed 50% of his gross.
3. Do not consider deducting full salary, or asking him to pay back after getting salary by issuing a cheque to the company. Any amount paid by him to the company is equivalent to deduction and the same rule applies.
4. To avoid a problem in income tax for tds and to avoid getting it clubbed as his income, speak to your auditor and get the proper documentation to be completed
From India, Mumbai
First, you need to stop calling it salary advance.
It is a loan given to the employee.
Under payment of wages act and minimum wages act, there are limits both on amount of salary advance and how much can be recovered.
Since the loan is already given, talking obout how it should have been lower is of no use.
Now, for recovery you have to look at the following :
1. Ask the employee, what he is comfortable with (you gave a large amount, so I assume he is in good terms with the management and they will want him to be comfortable)
2. Ensure that the total amount of deductions from his gross salary (including pf) should not exceed 50% of his gross.
3. Do not consider deducting full salary, or asking him to pay back after getting salary by issuing a cheque to the company. Any amount paid by him to the company is equivalent to deduction and the same rule applies.
4. To avoid a problem in income tax for tds and to avoid getting it clubbed as his income, speak to your auditor and get the proper documentation to be completed
From India, Mumbai
Dear Cite members,
There are various types of advances granted by the companies / establishments to their employees.
Generally, the type of advances comprise of : (i) Salary Advance, (ii) Annual / Festival advance (iii) Special Advanc etc
Salary advance is granted to meet certain urgent and unforeseen expenses and such advance will be paid only afterr completion of certain specified days, say 10 days, from the date of last salary period and the amount of advance will not exceed the amount of salary accrued as on the date of advance paid. Also the salary advance paid in a month is supposed to be recovered in the same month out of the salary payable for the month.
Annual / Festival advance is paid once in a year to meet the expenses of celebtaing any one important fetival of the employee's choice and such advance is limited to a fixed amount as decided by the employer (may be after negotiation by the Trade Unions, if in practice) and recovered in equal monthly instalments, say 10 months.
Special Advance refer to advance that is sought by an employee in case of emergencies ( e.g., to meet urgent medical expenses) or on special ocassions (e.g., employee's marriage or death in the family,etc) and the amount of advance and the no. of instaments for recovery depends upon the company's policy and if there is no such policy, upon the employer's decision ( based on the employee's status. length of service, goodwill earned in the company,etc.).
Regards,
S. Dass,
DGM (Finance & HR).
Multitrack Engineering Pvt. Ltd.
From India, Bangalore
There are various types of advances granted by the companies / establishments to their employees.
Generally, the type of advances comprise of : (i) Salary Advance, (ii) Annual / Festival advance (iii) Special Advanc etc
Salary advance is granted to meet certain urgent and unforeseen expenses and such advance will be paid only afterr completion of certain specified days, say 10 days, from the date of last salary period and the amount of advance will not exceed the amount of salary accrued as on the date of advance paid. Also the salary advance paid in a month is supposed to be recovered in the same month out of the salary payable for the month.
Annual / Festival advance is paid once in a year to meet the expenses of celebtaing any one important fetival of the employee's choice and such advance is limited to a fixed amount as decided by the employer (may be after negotiation by the Trade Unions, if in practice) and recovered in equal monthly instalments, say 10 months.
Special Advance refer to advance that is sought by an employee in case of emergencies ( e.g., to meet urgent medical expenses) or on special ocassions (e.g., employee's marriage or death in the family,etc) and the amount of advance and the no. of instaments for recovery depends upon the company's policy and if there is no such policy, upon the employer's decision ( based on the employee's status. length of service, goodwill earned in the company,etc.).
Regards,
S. Dass,
DGM (Finance & HR).
Multitrack Engineering Pvt. Ltd.
From India, Bangalore
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Advance salary format.xls
Salary advance form.doc