I have once again read the definition of wages and find that the lawmakers have scientifically and professionally drafted the definition of wages. To remove any doubt, they have focused on the payment received by the employees by way of salary, allowances, or otherwise along with an exclusion list and a 50:50 condition on all remuneration calculated under the clause. Nowhere have they mentioned the ESIC contribution as the employee is not receiving the same. Therefore, items like premium to Mediclaim Insurance, Group personal Insurance, etc., will not be considered as part of wages since the employee will not receive them.
In the exclusion list, PF contribution, LTA/LTC, Statutory Bonus, etc., have been included with a condition of a 50:50 ratio between allowances and wages (Basic & DA). Therefore, the intention of the lawmakers to decide wages based on all remuneration if received by the employee should be considered to determine wages on a 50:50 basis.
Now, the remuneration structure as mentioned by @HBJ - all the components should be considered as those received by the employee, and then divide it on the basis of 50:50 to arrive at the wages value (Basic and DA). After arriving at the wages value, the monthly gross wages will be after deducting PF, Bonus, and other annualized items from the allowances and adding Basic with net allowances figure.
Obviously, the Basic will increase, monthly gross may change, CTC (on the basis of the components received by the employee) will be the same if the PF contribution is restricted up to ₹15,000 basic, but Gratuity will increase.
There is no ceiling for gratuity calculation.
S K Bandyopadhyay (Howrah, WB)
www.usdhrs.in
From India, New Delhi
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409In the exclusion list, PF contribution, LTA/LTC, Statutory Bonus, etc., have been included with a condition of a 50:50 ratio between allowances and wages (Basic & DA). Therefore, the intention of the lawmakers to decide wages based on all remuneration if received by the employee should be considered to determine wages on a 50:50 basis.
Now, the remuneration structure as mentioned by @HBJ - all the components should be considered as those received by the employee, and then divide it on the basis of 50:50 to arrive at the wages value (Basic and DA). After arriving at the wages value, the monthly gross wages will be after deducting PF, Bonus, and other annualized items from the allowances and adding Basic with net allowances figure.
Obviously, the Basic will increase, monthly gross may change, CTC (on the basis of the components received by the employee) will be the same if the PF contribution is restricted up to ₹15,000 basic, but Gratuity will increase.
There is no ceiling for gratuity calculation.
S K Bandyopadhyay (Howrah, WB)
www.usdhrs.in
From India, New Delhi
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Special allowance posted by you is more than 100% of the basic. Have you noticed it? Apart from it, there are performance incentives as well.
Secondly, by arriving at the basics of bonus calculation: 14000 x 12 months x 8.33% (minimum bonus) comes to one month's salary, i.e., 14000/-. But it is posted below the basic.
Thirdly, the leave encashment formula is not matching any limit. Leave encashment means the EL encashment, and it is half a month's salary plus/minus 2 days.
To save the contribution of the gratuity fund, splits are not a wise idea, especially for an employee who has been in service for 20+ years.
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Secondly, by arriving at the basics of bonus calculation: 14000 x 12 months x 8.33% (minimum bonus) comes to one month's salary, i.e., 14000/-. But it is posted below the basic.
Thirdly, the leave encashment formula is not matching any limit. Leave encashment means the EL encashment, and it is half a month's salary plus/minus 2 days.
To save the contribution of the gratuity fund, splits are not a wise idea, especially for an employee who has been in service for 20+ years.
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Mr. Bandyopadhyay, @Glidor, thank you for the replies. The discussion is very useful for my understanding as well.
@Glidor, I was under the understanding that bonus calculation is based on a maximum of Rs. 7,000 and not according to the higher basic salary. Therefore, a bonus of Rs. 12,600 would be 15% of Rs. 7,000.
Our employees do not take many leaves, so we provide encashment for earned leave (EL) and casual leave (CL). However, I would like to know if Leave Encashment should be calculated based on basic + DA or the full salary. Additionally, is the maximum leave encashment limit 15 days as per the law?
I am considering the increase in Gratuity calculation because if we need to ensure basic + DA amount to be 50% of the monthly salary, the gratuity contribution increases significantly.
I am also seeking clarification on the rule regarding the number of Earned Leaves (EL) in a year and whether Casual Leave (CL), Sick Leave (SL), and Paid Holidays/Paid weekly offs should be included in EL calculation for the next year. According to the Factory Act, one leave is to be given per 20 "worked days." Does this rule apply to daily wage workers only or also to technical and administrative staff?
Thank you once again to everyone for your valuable comments.
From India, Aurangabad
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@Glidor, I was under the understanding that bonus calculation is based on a maximum of Rs. 7,000 and not according to the higher basic salary. Therefore, a bonus of Rs. 12,600 would be 15% of Rs. 7,000.
Our employees do not take many leaves, so we provide encashment for earned leave (EL) and casual leave (CL). However, I would like to know if Leave Encashment should be calculated based on basic + DA or the full salary. Additionally, is the maximum leave encashment limit 15 days as per the law?
I am considering the increase in Gratuity calculation because if we need to ensure basic + DA amount to be 50% of the monthly salary, the gratuity contribution increases significantly.
I am also seeking clarification on the rule regarding the number of Earned Leaves (EL) in a year and whether Casual Leave (CL), Sick Leave (SL), and Paid Holidays/Paid weekly offs should be included in EL calculation for the next year. According to the Factory Act, one leave is to be given per 20 "worked days." Does this rule apply to daily wage workers only or also to technical and administrative staff?
Thank you once again to everyone for your valuable comments.
From India, Aurangabad
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Certainly! Here is the revised version of the user input with corrected spelling, grammar, and proper paragraph formatting:
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1 day EL is earned for every 20 days of attendance (attendance, and it is not paid days). So, in a year with a total of 365 days, the calculation is as follows:
365 - {(52 weekly offs + 3 national holidays + 10 to 12 CL + festive holidays) totaling a minimum of 65} = 280. This means the maximum earned leave, i.e., EL, would be 14 (280/20=14).
Regarding bonus calculation, please note that the limit is now 21000/- and not 7000/-. For more information, please refer to the following link: [Government Hikes Wage Ceiling for Bonus to Rs 21000 Per Month](https://economictimes.indiatimes.com/wealth/personal-finance-news/govt-hikes-wage-ceiling-for-bonus-to-rs-21000-per-month-from-rs-10000/articleshow/50284285.cms?from=mdr).
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I hope this helps! Let me know if you need any further assistance.
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1 day EL is earned for every 20 days of attendance (attendance, and it is not paid days). So, in a year with a total of 365 days, the calculation is as follows:
365 - {(52 weekly offs + 3 national holidays + 10 to 12 CL + festive holidays) totaling a minimum of 65} = 280. This means the maximum earned leave, i.e., EL, would be 14 (280/20=14).
Regarding bonus calculation, please note that the limit is now 21000/- and not 7000/-. For more information, please refer to the following link: [Government Hikes Wage Ceiling for Bonus to Rs 21000 Per Month](https://economictimes.indiatimes.com/wealth/personal-finance-news/govt-hikes-wage-ceiling-for-bonus-to-rs-21000-per-month-from-rs-10000/articleshow/50284285.cms?from=mdr).
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I hope this helps! Let me know if you need any further assistance.
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@HBJ Weekly+ National + Festive leaves are officially closure for workmen, and the employees working on those days are paid in overtime basis, Hope now the doubts would get cleared,
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@Glidor, as per the article cited by you and my understanding, 21,000 is for eligibility, and 7,000 is for calculation. "The Lok Sabha has approved amendments to the Payment of Bonus Act that seek to make more workers eligible for a bonus by raising the monthly pay eligibility limit of employees to Rs 21,000 from Rs 10,000. The bill, tabled in the house earlier this month, also seeks to enhance the monthly bonus calculation ceiling to Rs 7,000 per month from Rs 3,500, thus significantly increasing the bonus amount."
Thanks for EL calculation. Is this applicable to all employees or only daily wage workers?
From India, Aurangabad
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Thanks for EL calculation. Is this applicable to all employees or only daily wage workers?
From India, Aurangabad
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@HBJ EL does not make any difference between daily or monthly workers, but it get accumulated on every 20 days attendance only,
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Payment of bonus is 8.33% or ₹7000, whichever is higher. Above 8.33%, it can be up to 20% with ex gratia. ₹7000 is the minimum bonus ceiling limit, applicable to employees earning below ₹7000 monthly wages.
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Hello All,
According to the new labor code, it states that basic+DA and other allowances should be in a 50:50 ratio. Some have commented that "these allowances" mean components that are computed and are part of the GROSS, while others have said that any payment received by the employee should be considered. This would include LTA, yearly performance bonus, leave encashment, overtime allowance, and Employer's PF.
So, if the CTC is 450,000 then:
BASIC - 24,000
HRA - 12,000
MPP - 4,000
GROSS - 40,000
Employer's PF - 2,800
Gratuity - 1,154
Total Remuneration - 44,034
LTA - 5,000 (paid annually)
Performance bonus - 38,000 (paid annually)
1. Does the above example meet all the rules of the new labor code?
2. Can I consider this 50:50 ratio with monthly gross, or should annual components also be considered during computation?
3. Overtime allowance is not fixed; it depends on the requirement, so how can it be considered at the time of CTC computation? It also varies every month. So, in the months an employee receives this OT allowance, the 50:50 percentage will be impacted.
I would be highly obliged if you could answer my above questions.
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According to the new labor code, it states that basic+DA and other allowances should be in a 50:50 ratio. Some have commented that "these allowances" mean components that are computed and are part of the GROSS, while others have said that any payment received by the employee should be considered. This would include LTA, yearly performance bonus, leave encashment, overtime allowance, and Employer's PF.
So, if the CTC is 450,000 then:
BASIC - 24,000
HRA - 12,000
MPP - 4,000
GROSS - 40,000
Employer's PF - 2,800
Gratuity - 1,154
Total Remuneration - 44,034
LTA - 5,000 (paid annually)
Performance bonus - 38,000 (paid annually)
1. Does the above example meet all the rules of the new labor code?
2. Can I consider this 50:50 ratio with monthly gross, or should annual components also be considered during computation?
3. Overtime allowance is not fixed; it depends on the requirement, so how can it be considered at the time of CTC computation? It also varies every month. So, in the months an employee receives this OT allowance, the 50:50 percentage will be impacted.
I would be highly obliged if you could answer my above questions.
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CTC-Salary Break Up.pdf
CTC Break up.xls