Excellent reply by Mr Banerjee, as well Mr Bhaskar. Very clear, transparent and absolutely no confusion. We, readers, really had good updation in our knowledge. Thank you Sirs, both of you.
From India, Mumbai
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70From India, Mumbai
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Megha,
These types of problems arise only in the software/BPO offices. However, you should check with the Karnataka Minimum Wages periodically, and accordingly, the basic wages in your rolls should not be below the minimum wages (basic+DA). The balance amount can be divided into HRA and other heads. Normally, 50% of the total as basic and 40% of Basic as HRA is advisable. For the persons drawing at par with the minimum wages, the entire amount should be as basic.
From India, Madras
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These types of problems arise only in the software/BPO offices. However, you should check with the Karnataka Minimum Wages periodically, and accordingly, the basic wages in your rolls should not be below the minimum wages (basic+DA). The balance amount can be divided into HRA and other heads. Normally, 50% of the total as basic and 40% of Basic as HRA is advisable. For the persons drawing at par with the minimum wages, the entire amount should be as basic.
From India, Madras
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Also the see the judgement on this subject which may be useful to you (already available in this cite itself)
From India, Madras
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From India, Madras
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Dear Megha,
I second the opinion of Mr. Saswata. Now let us take a case study to explain in a simple way.
For example, you have engaged a salesman in your establishment in Chennai, which falls under the TN Shops & Establishment Act. You are paying him a gross salary of Rs. 10,000/- per month. Normally, as a customary practice, if you keep 40% of GP as Basic Pay for the subject case, it works out to be Rs. 4,000/-.
But, as per TN S&E Act, the minimum wage for a salesman working in Chennai is Rs. 2,578 (Basic wage) + Rs. 2,450 (VDA) = Rs. 5,028 per month.
In such a case, if you do not want to alter the Gross Pay, then you may fix the wage as follows:
a) Basic Pay (incl VDA) - Rs. 5,100 (Rounded off to the higher rate of government-notified minimum wages)
b) HRA (50% of Basic) - Rs. 2,550
c) Conveyance - Rs. 800
d) Other Allowances - Rs. 1,550 (You may have the components as fixed by your company)
To summarize, in cases where 40% of Basic falls below the notified minimum wages, keep the government-notified minimum wages as Basic Pay, 50% of Basic pay as HRA, a conveyance allowance of Rs. 800, and the balancing amount as per your company policy may be added to match the Gross Pay.
By doing this, you are complying with the statutory norms as well as taking care of the tax liability of the employee.
For higher pay bands, you are free to keep the components as long as they do not violate the statutory norms and the tax liability of the employee.
I hope this clears your doubts.
With regards,
P. Vathiraj
Associate Operations Manager
Aparajitha Corporate Service Limited
From India
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I second the opinion of Mr. Saswata. Now let us take a case study to explain in a simple way.
For example, you have engaged a salesman in your establishment in Chennai, which falls under the TN Shops & Establishment Act. You are paying him a gross salary of Rs. 10,000/- per month. Normally, as a customary practice, if you keep 40% of GP as Basic Pay for the subject case, it works out to be Rs. 4,000/-.
But, as per TN S&E Act, the minimum wage for a salesman working in Chennai is Rs. 2,578 (Basic wage) + Rs. 2,450 (VDA) = Rs. 5,028 per month.
In such a case, if you do not want to alter the Gross Pay, then you may fix the wage as follows:
a) Basic Pay (incl VDA) - Rs. 5,100 (Rounded off to the higher rate of government-notified minimum wages)
b) HRA (50% of Basic) - Rs. 2,550
c) Conveyance - Rs. 800
d) Other Allowances - Rs. 1,550 (You may have the components as fixed by your company)
To summarize, in cases where 40% of Basic falls below the notified minimum wages, keep the government-notified minimum wages as Basic Pay, 50% of Basic pay as HRA, a conveyance allowance of Rs. 800, and the balancing amount as per your company policy may be added to match the Gross Pay.
By doing this, you are complying with the statutory norms as well as taking care of the tax liability of the employee.
For higher pay bands, you are free to keep the components as long as they do not violate the statutory norms and the tax liability of the employee.
I hope this clears your doubts.
With regards,
P. Vathiraj
Associate Operations Manager
Aparajitha Corporate Service Limited
From India
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Dear Mr. Vathiraj,
This indeed helps me clarify the issue. Can I request you to give me the break-up for an employee belonging to shops & commercial establishment category in Karnataka? The gross will be 6000 per month. The employee works for a BPO process as an executive.
Thanks,
Megha A
From India, Maisuru
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This indeed helps me clarify the issue. Can I request you to give me the break-up for an employee belonging to shops & commercial establishment category in Karnataka? The gross will be 6000 per month. The employee works for a BPO process as an executive.
Thanks,
Megha A
From India, Maisuru
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Dear Megha,
As per your statement, he is working in the BPO industry, which is covered under the Shops & Establishment Act, and he is an executive, which means he is in the clerical cadre as per the traditional way of ranking.
The minimum wages for that category in Bangalore city are Rs. 5629.20 per month (Rs. 4680.00 as Basic and Rs. 949.20 as VDA), which may be rounded off to Rs. 5700 per month (Rs. 4700 as Basic and Rs. 1000 as VDA).
Since you have mentioned that his gross salary is Rs. 6000 per month, you have to fix Rs. 5700 as Basic and DA as specified in the above paragraph, and the balance amount of Rs. 300 may be fixed as Other Allowances (the nomenclature of the component may be fixed as per your company policy).
Also, for your convenience, I am enclosing the Minimum Wages Notification of Shops & Establishment for the period from 01.04.13 to 31.03.14 for your ready reference.
Regards,
P. Vathiraj
Associate Operations Manager
Aparajitha Corporate Service Limited
From India
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As per your statement, he is working in the BPO industry, which is covered under the Shops & Establishment Act, and he is an executive, which means he is in the clerical cadre as per the traditional way of ranking.
The minimum wages for that category in Bangalore city are Rs. 5629.20 per month (Rs. 4680.00 as Basic and Rs. 949.20 as VDA), which may be rounded off to Rs. 5700 per month (Rs. 4700 as Basic and Rs. 1000 as VDA).
Since you have mentioned that his gross salary is Rs. 6000 per month, you have to fix Rs. 5700 as Basic and DA as specified in the above paragraph, and the balance amount of Rs. 300 may be fixed as Other Allowances (the nomenclature of the component may be fixed as per your company policy).
Also, for your convenience, I am enclosing the Minimum Wages Notification of Shops & Establishment for the period from 01.04.13 to 31.03.14 for your ready reference.
Regards,
P. Vathiraj
Associate Operations Manager
Aparajitha Corporate Service Limited
From India
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Dear Megha,
There is no prescribed rule to maintain a minimum basic. However, some state governments have notified for the deduction of PF on total wages prescribed under minimum wages for different schedules of employment. Payment of wages primarily focuses on timely payment, deductions, and minimum wages, which is the minimum rate of wages per day/per month. These two acts serve different purposes.
The PF and MIS Provisions Act mainly focuses on covered employees (Basic + DA < Rs 6500 pm) and excluded employees (Basic + DA > Rs 6500 pm) if the establishment is covered, along with the rate of contribution. You should also check with the RPFC for provisions regarding the infancy period, as there have been various judgments on that.
To comply, you need to set the basic wages below Rs 6500/- (starting scheme) or you have the option not to cover by declaring them as excluded employees.
Regards,
Mritunjay Nath Sahu
GM (HR)
From India, Vadodara
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There is no prescribed rule to maintain a minimum basic. However, some state governments have notified for the deduction of PF on total wages prescribed under minimum wages for different schedules of employment. Payment of wages primarily focuses on timely payment, deductions, and minimum wages, which is the minimum rate of wages per day/per month. These two acts serve different purposes.
The PF and MIS Provisions Act mainly focuses on covered employees (Basic + DA < Rs 6500 pm) and excluded employees (Basic + DA > Rs 6500 pm) if the establishment is covered, along with the rate of contribution. You should also check with the RPFC for provisions regarding the infancy period, as there have been various judgments on that.
To comply, you need to set the basic wages below Rs 6500/- (starting scheme) or you have the option not to cover by declaring them as excluded employees.
Regards,
Mritunjay Nath Sahu
GM (HR)
From India, Vadodara
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Let me ask a question for you, why is a salary divided into Basic, DA, and other allowances, etc.? And what if it is kept consolidated? The main and obvious reason for such division is to avoid the contribution of PF. Unfortunately, the EPF Act talks of Basic and DA only. Hence, what is not shown as Basic and DA in the salary is not taken for PF contributions. Though there is a limit of Rs. 6,500 per month for PF contributions, one can contribute over and above the limit and the company can also do the same. But to avoid this, the artificial division is made in salary. The ESI act does not make such a classification, so the entire amount has to be considered if the salary is up to Rs. 15,000 per month.
The minimum wage is a form of paying wages which has a Basic Wage as one part and something in tune with the dearness called a special allowance (the name may differ) as the other part. As long as any management is paying not less than the minimum wages declared from time to time, the format or classification of wages becomes immaterial. So, whether 40% of Gross earnings are shown as Basic and the remaining as other allowances makes no difference as far as the MW act is concerned. But it certainly makes a major difference for the PF Act. Hence, the idea of making such artificial or superficial classification of salary was developed just to reduce PF liability, about which none is speaking.
From India, Kolhapur
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The minimum wage is a form of paying wages which has a Basic Wage as one part and something in tune with the dearness called a special allowance (the name may differ) as the other part. As long as any management is paying not less than the minimum wages declared from time to time, the format or classification of wages becomes immaterial. So, whether 40% of Gross earnings are shown as Basic and the remaining as other allowances makes no difference as far as the MW act is concerned. But it certainly makes a major difference for the PF Act. Hence, the idea of making such artificial or superficial classification of salary was developed just to reduce PF liability, about which none is speaking.
From India, Kolhapur
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In recent inspections in many organizations, PF authorities and I had gone through that. One E.O. suggested us to maintain the PF salary should not be lesser than 70% of the total amount.
Regards, T. Muralidaran
From India, Hosur
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Regards, T. Muralidaran
From India, Hosur
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Hi,
This was really helpful information. Thank you so much.
Kindly clarify the following:
We are operating a Software Development firm in Chennai and would like to know the minimum 'Basic' to be paid to the employees as per the Minimum Wages Act of Tamil Nadu for the 2013-14 year.
From India
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This was really helpful information. Thank you so much.
Kindly clarify the following:
We are operating a Software Development firm in Chennai and would like to know the minimum 'Basic' to be paid to the employees as per the Minimum Wages Act of Tamil Nadu for the 2013-14 year.
From India
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