Hi, My company's basic salary percentage is 70%, because of which we end up giving a lot more of PF and gratuity to our employees. I wanted to know if there is any way that we can alter this mistake now and get our basic % reduced?
From India, Mumbai
From India, Mumbai
What is your objective? If you have hired employees to work with you, the salary that is offered to them are the basic salary. You cannot contribute the statutory contributions on a percentage of that salary alone. In the case of PF, it is okay that the maximum contribution that an employer is BOUND to or LIABLE to pay is Rs 1800, being 12% of Rs 15000. In the case of gratuity, it is not the basic pay or 70% alone that should qualify for payment, it is the total salary on which the gratuity should be calculated. There are a few allowances excluded from the term wages and they are, overtime allowance, bonus, commission, house rent allowance and any other allowance. Any other allowance means allowance similar to commission, overtime allowance, bonus or HRA. Some companies have 'other allowance" as a component of salary. Please remember that there is no allowance called, "Other Allowance". There can be allowances for special purposes, like, education allowance which is paid to employees to take care of the education of their children, heat allowance which is paid to those who are exposed to heat as part of their employment, hill allowance which is paid to employees posted in hill areas etc. These are not paid universally to all the employees but are paid only to certain employees. HRA is also paid to those who have reside in rented houses. It is a compensatory allowance paid to an employee who has to reside in a rented house. It is not paid if the employee is residing in his/ her spouse's house. If both wife and husband are working in the same company, HRA will be available only to one perso, either wife or husband. If paid to all, then it will become part of salary.
It is true that the law has been interpreted and misinterpreted by auditors and consultants just to make the employers happy. But the same may not remain to help them always. Allowances camouflaged to deny the employees' benefits will come to light one day. Therefore, when 70% is not as per law, why should you think of further reducing it?
From India, Kannur
4242It is true that the law has been interpreted and misinterpreted by auditors and consultants just to make the employers happy. But the same may not remain to help them always. Allowances camouflaged to deny the employees' benefits will come to light one day. Therefore, when 70% is not as per law, why should you think of further reducing it?
From India, Kannur
Hi,
Thank you for you input. At 70%, we are paying a lot more pf than required, additionally to each worker. Mine is a labour intensive company; and since epf is calculated on basic, we have been paying an extremely excessive amount since years. the reason for me asking this is to know if I can reduce the % across categories, if not for the entire company. Since we have a cap of 1800 Rs. on epf, it's not that beneficial to us right now since we our average salary is low (labour intensive). The purpose of this is to know if I can reduce it in a rightful manner, and not at the cost of any employee
From India, Mumbai
Thank you for you input. At 70%, we are paying a lot more pf than required, additionally to each worker. Mine is a labour intensive company; and since epf is calculated on basic, we have been paying an extremely excessive amount since years. the reason for me asking this is to know if I can reduce the % across categories, if not for the entire company. Since we have a cap of 1800 Rs. on epf, it's not that beneficial to us right now since we our average salary is low (labour intensive). The purpose of this is to know if I can reduce it in a rightful manner, and not at the cost of any employee
From India, Mumbai
EPF is not calculated on Basic pay alone but it is calculated on gross salary excluding house rent allowance paid as a compensatory allowance. Even HRA paid universally to all employees without any reference as to whether they reside in leased accommodation or not and whether their spouses get the benefit of HRA or not can attract PF. But since there is a limit to wages at Rs 15000, no employer is under any obligation to contribute anything above 12% of Rs 15000, ie, Rs 1800. If you have been contributing on salary above Rs 15000, you can very well bring it down to 12% of Rs 15000. In the Maratwada Gramin Bank case the Supreme Court has ruled at an employer who has been contributing to PF on salary above the threshold limit can reduce his contribution to the prescribed percentage on the threshold limit at any time. Therefore, you can reduce the contribution but not below the prescribed limit of Rs 15000.
From India, Kannur
From India, Kannur
Hi,
Thank you again! Our salary structure comprises of basic and hra/ some other allowance. So 70% of our gross is essentially our basic. Most of my employees are are below 15000 when it comes to basic. But we are essentially giving 24% of 70%, which becomes a huge amount wrt the number of employees we have vs 24% of say 35-50% basic.
1. Can I have 70% basic for one class of employees and say, 50% for another class of employees in the same company (in other words, different structures in the same company + lesser amount of pf to the department in this case)
2. How can I reduce the basic % for the entire company at once? Is it possible?
From India, Mumbai
Thank you again! Our salary structure comprises of basic and hra/ some other allowance. So 70% of our gross is essentially our basic. Most of my employees are are below 15000 when it comes to basic. But we are essentially giving 24% of 70%, which becomes a huge amount wrt the number of employees we have vs 24% of say 35-50% basic.
1. Can I have 70% basic for one class of employees and say, 50% for another class of employees in the same company (in other words, different structures in the same company + lesser amount of pf to the department in this case)
2. How can I reduce the basic % for the entire company at once? Is it possible?
From India, Mumbai
How do you give 24% of 70% of salary? Is this 24% inclusive of employees' share? Don't you deduct 12% from the employees?
As already elaborated, if your PF qualifying salary is below Rs 15000, then it will be an issue. It is true that EPF Enforcement Officer cannot question your pattern of salary nor he can direct that you should pay minimum wages. But if the wages on which PF is contributed is less than Rs 15000, then he can certainly direct you to pay it on the "basic wages" as per EPF and MP Act. Basic wages as per the said Act is total salary. Then it will become a legal issue. So far there is no inspection by the officer concerned, you can continue the present system. But again reducing the PF qualifying salary will invite legal consequences. An employer can not reduce the wages on which PF is being contributed. If you do it it will be a violation of section 12 of the EPF &MP Act. At the same time, if you have been contributing on salary above Rs 15000, then you can reduce it to Rs 15000, and such action will not attract section 12. But in your case the PF qualifying wages is already less than Rs 15000. A further reduction in it is not legally possible.
From India, Kannur
As already elaborated, if your PF qualifying salary is below Rs 15000, then it will be an issue. It is true that EPF Enforcement Officer cannot question your pattern of salary nor he can direct that you should pay minimum wages. But if the wages on which PF is contributed is less than Rs 15000, then he can certainly direct you to pay it on the "basic wages" as per EPF and MP Act. Basic wages as per the said Act is total salary. Then it will become a legal issue. So far there is no inspection by the officer concerned, you can continue the present system. But again reducing the PF qualifying salary will invite legal consequences. An employer can not reduce the wages on which PF is being contributed. If you do it it will be a violation of section 12 of the EPF &MP Act. At the same time, if you have been contributing on salary above Rs 15000, then you can reduce it to Rs 15000, and such action will not attract section 12. But in your case the PF qualifying wages is already less than Rs 15000. A further reduction in it is not legally possible.
From India, Kannur
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
Salary-Note.doc
SALARY SHEET CALCULATION.xls