Hi,
I think you want to control the company overheads due to the huge basic pay of your executives. Reducing basic pay will also reduce their HRA, Gratuity, PF, and all other allowances related to basic pay. It may demotivate your employees. One approach you could consider is to not add future increases to basic pay. Alternatively, you could introduce a new allowance that does not impact other overheads such as PF, Gratuity, HRA, etc. Another option is to provide ad hoc increases to your executives annually based on their performance.
Vincent
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1I think you want to control the company overheads due to the huge basic pay of your executives. Reducing basic pay will also reduce their HRA, Gratuity, PF, and all other allowances related to basic pay. It may demotivate your employees. One approach you could consider is to not add future increases to basic pay. Alternatively, you could introduce a new allowance that does not impact other overheads such as PF, Gratuity, HRA, etc. Another option is to provide ad hoc increases to your executives annually based on their performance.
Vincent
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Rolly,
It's true that the person who is out of PF and ESI, his basic can be modified. However, if you are providing gratuity for your employees, then definitely it will be reduced if you reduce the basic (and moreover we can't change the basic in this case). So, the solution is to not change the basic for old employees. Just increase their salary according to their performance in the coming months and show that increased salary as a special allowance.
For the new joiners, you can change your salary breakup status.
Deepika
From India, New Delhi
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It's true that the person who is out of PF and ESI, his basic can be modified. However, if you are providing gratuity for your employees, then definitely it will be reduced if you reduce the basic (and moreover we can't change the basic in this case). So, the solution is to not change the basic for old employees. Just increase their salary according to their performance in the coming months and show that increased salary as a special allowance.
For the new joiners, you can change your salary breakup status.
Deepika
From India, New Delhi
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Hi Rolly,
As per my information about labor laws related to PF and ESIC, one cannot reduce the basic. Even if you do so and in any government inspection, it comes up, you need to give a lot of explanation for it, as to why you did it and even show proof (hard copy) of this action :)
Regards,
Amit
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As per my information about labor laws related to PF and ESIC, one cannot reduce the basic. Even if you do so and in any government inspection, it comes up, you need to give a lot of explanation for it, as to why you did it and even show proof (hard copy) of this action :)
Regards,
Amit
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Hi Rolly,
Most of the companies work out to make their payroll structured in order to avoid any confusion. For example, in my company, 40% of CTC is considered as Basic; HRA = 50% of Basic; Conveyance Allowance = $9600 pa (fixed); Mobile Allowance = $15000 pa (fixed); the rest amount as Special Allowance.
Always keep in mind, the lower the Basic, the lower will be the liabilities for PF, Gratuity, and ESIC calculations from the company's point of view. That's the reason why companies generally keep Basic percentages between 35%-45% so that the company's liability against statutory compliances can be reduced.
Being in HR, we have to think and act keeping in mind all the viewpoints of companies as well as employers. I hope this will help you to restructure your salary structure for the company in the right way!
Regards,
Rachna Sinha
Hyderabad.
From India, Hyderabad
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Most of the companies work out to make their payroll structured in order to avoid any confusion. For example, in my company, 40% of CTC is considered as Basic; HRA = 50% of Basic; Conveyance Allowance = $9600 pa (fixed); Mobile Allowance = $15000 pa (fixed); the rest amount as Special Allowance.
Always keep in mind, the lower the Basic, the lower will be the liabilities for PF, Gratuity, and ESIC calculations from the company's point of view. That's the reason why companies generally keep Basic percentages between 35%-45% so that the company's liability against statutory compliances can be reduced.
Being in HR, we have to think and act keeping in mind all the viewpoints of companies as well as employers. I hope this will help you to restructure your salary structure for the company in the right way!
Regards,
Rachna Sinha
Hyderabad.
From India, Hyderabad
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Hi Rolly,
Pradipta is right, the only issue you will face here is the PF amount. You cannot reduce the PF amount, which means if you reduce the basic, you will still be paying the same PF amount. PF amount cannot be reduced; in case the basic reduces, you need to maintain the PF amount as it is.
Regards,
Resha
From India, Mumbai
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Pradipta is right, the only issue you will face here is the PF amount. You cannot reduce the PF amount, which means if you reduce the basic, you will still be paying the same PF amount. PF amount cannot be reduced; in case the basic reduces, you need to maintain the PF amount as it is.
Regards,
Resha
From India, Mumbai
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Hi Rolly,
One thing you can experience after this is employee dissatisfaction... Why? Because it will reduce the employer's PF contribution and furthermore, it will reduce the total PF contribution to an account as it is based on the basic salary of an employee. It's better to introduce or restructure your salary structures at the time of salary revisions. Then, you can add such allowances by keeping the base salary the same.
Regards,
Upasna Kaushik
From India, Delhi
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One thing you can experience after this is employee dissatisfaction... Why? Because it will reduce the employer's PF contribution and furthermore, it will reduce the total PF contribution to an account as it is based on the basic salary of an employee. It's better to introduce or restructure your salary structures at the time of salary revisions. Then, you can add such allowances by keeping the base salary the same.
Regards,
Upasna Kaushik
From India, Delhi
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As far as my knowledge goes, you can reduce only to the extent on which you were paying PF percentage earlier. The Act says that PF contribution should not be reduced in any case.
For example, if someone was getting 20K as his basic and you were paying only Rs 780 as his PF (6500*12/100), then you can reduce its basic to 6500. But if you were paying PF on 20K i.e. 20000*12/100, then you cannot reduce the basic.
Regards,
Anu
From India, Calcutta
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For example, if someone was getting 20K as his basic and you were paying only Rs 780 as his PF (6500*12/100), then you can reduce its basic to 6500. But if you were paying PF on 20K i.e. 20000*12/100, then you cannot reduce the basic.
Regards,
Anu
From India, Calcutta
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Well, guys, one more thing that was also discussed a little earlier in the discussion - if we contribute to PF at the rate of 12% and an employee's basic salary crosses 6500/-, can we limit him to a fixed PF contribution of Rs. 780/-? Or do we have to continue to contribute at 12% of the actual basic salary?
Rolly
From India, New Delhi
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Rolly
From India, New Delhi
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Dear Rolly,
As I mentioned earlier, there is no PF ceiling limit of 780/-. If an employee's basic salary exceeds 6500/- or is less than or equal to 6500/-, both employer and employee PF contributions will be deducted at 12% of the basic salary.
Deepika
From India, New Delhi
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As I mentioned earlier, there is no PF ceiling limit of 780/-. If an employee's basic salary exceeds 6500/- or is less than or equal to 6500/-, both employer and employee PF contributions will be deducted at 12% of the basic salary.
Deepika
From India, New Delhi
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Hi Deepika,
Well, actually, I spoke to a few of my colleagues about this, and according to them, their companies are also only providing PF on Rs. 6,500, even if the basic salary is higher. The same practice is followed in our company. The reason they all mentioned is the Rs. 6,500 ceiling limit, which is not mandatory but is an option provided by PF. You can choose to continue contributing based on the actual basic salary or limit it to Rs. 6,500.
Rolly
From India, New Delhi
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Well, actually, I spoke to a few of my colleagues about this, and according to them, their companies are also only providing PF on Rs. 6,500, even if the basic salary is higher. The same practice is followed in our company. The reason they all mentioned is the Rs. 6,500 ceiling limit, which is not mandatory but is an option provided by PF. You can choose to continue contributing based on the actual basic salary or limit it to Rs. 6,500.
Rolly
From India, New Delhi
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