Query on Basic Salary Percentage from Gross Salary
I have a query and hope you will solve it. Is there any law that defines the percentage of basic from gross salary?
I have noticed in many companies that out of 200 employees, some receive a salary breakdown including basic, HRA, conveyance, and special allowance, while others only receive basic as gross. I would like to know how to determine the basic percentage in this scenario.
For example, an employee with a salary of ₹30,000 would have a breakdown of basic 60% (₹18,000), HRA 40% of basic (₹7,200), conveyance ₹1,600, and the rest ₹3,200 in special allowance. Based on this breakdown, the employee is exempted from PF deduction.
Another example is an employee with a gross salary of ₹15,500. Most employers prefer not to contribute to the employer PF, so they show ₹15,500 as basic. Is this ethical according to the law, especially considering some employees receive allowances while others do not?
Could you kindly confirm what the appropriate basic percentage of gross should be and in which act it is defined? Is it ethical for employers who practice the above approach?
I would be grateful for your assistance.
Thanks,
Vikas Khatter
From India, Chandigarh
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140I have a query and hope you will solve it. Is there any law that defines the percentage of basic from gross salary?
I have noticed in many companies that out of 200 employees, some receive a salary breakdown including basic, HRA, conveyance, and special allowance, while others only receive basic as gross. I would like to know how to determine the basic percentage in this scenario.
For example, an employee with a salary of ₹30,000 would have a breakdown of basic 60% (₹18,000), HRA 40% of basic (₹7,200), conveyance ₹1,600, and the rest ₹3,200 in special allowance. Based on this breakdown, the employee is exempted from PF deduction.
Another example is an employee with a gross salary of ₹15,500. Most employers prefer not to contribute to the employer PF, so they show ₹15,500 as basic. Is this ethical according to the law, especially considering some employees receive allowances while others do not?
Could you kindly confirm what the appropriate basic percentage of gross should be and in which act it is defined? Is it ethical for employers who practice the above approach?
I would be grateful for your assistance.
Thanks,
Vikas Khatter
From India, Chandigarh
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In India, there is no mention in labor laws of a 60/40 ratio of gross salary to choose between basic salary and allowance. Both examples pertaining to payment methods, as cited by you, are legally correct; hence, they cannot be disputed, as employers and employees are free to agree on the terms of the payments as they see fit. Actually, what has been done in the former cited example is a methodology adopted to save salary income from tax, and cash, i.e., take-home money, will be less, which can be converted as earned salary. HRA and conveyance expenses are allowed up to a limit under income tax deduction.
In your second citation, normally freshers do insist on having maximum earnings in cash at hand. When an employee does not want to contribute to PF in order to meet his family's expenditures at this point in time, it could be a legally right strategy, since PF up to a limit of Rs. 15,000 per month is coverable, and a little more than the PF limit could only allow this to happen.
Regards,
RDS Yadav.
From India, Delhi
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In your second citation, normally freshers do insist on having maximum earnings in cash at hand. When an employee does not want to contribute to PF in order to meet his family's expenditures at this point in time, it could be a legally right strategy, since PF up to a limit of Rs. 15,000 per month is coverable, and a little more than the PF limit could only allow this to happen.
Regards,
RDS Yadav.
From India, Delhi
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But we have seen pf authorities visit our premises for audit then they make an objection. And impose breaken of rules of uniformity of salary component.
From India, Chandigarh
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From India, Chandigarh
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Mr. RDS Yadav has rightly explained the basis of salary breakup. I would like to add that the basic salary should not be less than the minimum wages specified in the applicable Minimum Wages Notification. The employer is free to structure the salary above the minimum wages.
However, in the case of PF, if the employee was previously a member of EPF, the employer cannot stop PF contributions merely by paying more than 15K. The employee can be excluded only if the initial wages exceed the wage ceiling in the Act. You may consider consulting a professional regarding any objections raised by PF authorities, as this requires a thorough study of PF wages, membership, and other components.
Your employer may not be aware, but by increasing the basic wages, they are incurring additional costs towards bonus, gratuity, leave encashment, retrenchment benefits, etc. I suggest conducting proper costing under different compliances before implementing the salary structure.
I hope you find this information useful. Fellow members are welcome to shed more light on the issue.
Regards,
[username]
From India, Delhi
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However, in the case of PF, if the employee was previously a member of EPF, the employer cannot stop PF contributions merely by paying more than 15K. The employee can be excluded only if the initial wages exceed the wage ceiling in the Act. You may consider consulting a professional regarding any objections raised by PF authorities, as this requires a thorough study of PF wages, membership, and other components.
Your employer may not be aware, but by increasing the basic wages, they are incurring additional costs towards bonus, gratuity, leave encashment, retrenchment benefits, etc. I suggest conducting proper costing under different compliances before implementing the salary structure.
I hope you find this information useful. Fellow members are welcome to shed more light on the issue.
Regards,
[username]
From India, Delhi
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Company Remuneration Policy and PF Officials
PF officials are not authorized to decide a company's remuneration policy or employees' entitlements. Your company's salary structure and policy should be legally compliant. If it meets legal requirements and PF officials are still imposing anything contrary to standard practice, you need to object. However, ensure your salary structure is vetted first; I hope it's fair and legally correct. If any specific objections have been reported at any time, please write to me for a suitable response.
Regards,
RDS Yadav
[Email Removed For Privacy Reasons]
From India, Delhi
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PF officials are not authorized to decide a company's remuneration policy or employees' entitlements. Your company's salary structure and policy should be legally compliant. If it meets legal requirements and PF officials are still imposing anything contrary to standard practice, you need to object. However, ensure your salary structure is vetted first; I hope it's fair and legally correct. If any specific objections have been reported at any time, please write to me for a suitable response.
Regards,
RDS Yadav
[Email Removed For Privacy Reasons]
From India, Delhi
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I would like to draw your attention to the order of the Hon'ble Presiding Officer, EPF Appellate Tribunal, New Delhi, in the matter of Delight Services vs. RPFC, Indore (Order ATA No. 743 (8) 10 Dated 30.11.2015).
And
The judgment of the Hon'ble Punjab and Haryana High Court in the matter of Asst P.F. Commissioner, Gurgaon against M/s. G4S Security Services (India) Ltd., 2011 LLR 316 P&H HC, which is upheld by the Division Bench, L.P.A. No. 1139/2011 (O&M) on 20th July 2011, 2011 LLR 943, as well as the Hon'ble Delhi High Court in the matter of Group 4 Securitas Guarding Ltd. vs. EPF Appellate Tribunal and others, WP (C) 4408 of 2000, decided on 20.09.2011, wherein they have clarified the definition of "Basic Wages" as defined under Section 2(b) read along with Section 6 of the Act, 1952.
In view of the above, the definition of Basic Wages is out of the purview of PF Authorities. (Copy of judgment attached herewith)
Regards,
Suresh
Hon'ble Presiding Officer Appellate Tribunal, New Delhi.
EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL
NEW DELHI
ATA No. 743 (8) 2010 Dated 30/11/15
Delight Services .......... Appellant
Vs
RPFC, Indore .......... Respondent
Present:
1. ORDER
Dated: 26.11.2015
Sh S.K. Gupta, Advocate for the Appellant
Sh. Shivnath Mehanta, Advocate for the Respondent
By the present appeal filed by the appellant under Section 7-I of the Employees' Provident Fund & Miscellaneous Provision Act, 1952 (hereinafter referred to as "the Act"), the appellant seeks quashing of the order dated 24.09.2010 passed on 29.09.2010 by the respondent under Section 7 A of the Act.
The brief facts emerging from the appeal are that the appellant is a contractor engaged in the work of supplying labor to various industries. The provisions of EPF & MP Act are applicable to the appellant establishment, which is registered at Code No. MP/17836, and it has been diligently depositing the contributions of its employees. The respondent served the appellant with a notice observing that the salary/wages shown are negligible, even lesser in comparison to the minimum basic wages as notified under the Minimum Wages Act, and further observed that PF contribution on wages less than minimum wages is not justifiable and defeats the very purpose of the social welfare legislation aimed at providing old age social security in the name of PF and Pension to the poor workers. Contribution has been assessed in the tune of Rs. 1,37,599/- on the basis of the minimum wages of semi-skilled employees. The appellant provides labor to hospitals and nursing homes, call centers, which were not subjected to the Minimum Wages Act at all. The provisions of the Minimum Wages Act have not been made applicable to these classes of establishments, hence this appeal.
Shri S. K. Gupta, Counsel for the appellant, contended that the impugned order was passed without application of mind in a highly laconic manner as a matter of routine.
Counsel for the appellant further contended that the appellant establishment is depositing PF contribution according to law, and the respondent, with malafide intention, inflicted a notice to the appellant establishment, directing the appellant establishment to change the policy regarding payment of salary to employees according to minimum basic wages. Whereas the respondent was not supposed to direct the appellant establishment to change the policy of salary of employees of the appellant establishment.
Counsel for the appellant further contended that as per law, the appellant establishment is liable to deduct PF contribution on the basis of basic wages as defined under Section 2(b) of the Act, read with Section 6 of the Act, but the respondent, without considering written objections and written representations, passed the impugned order against the principles of natural justice. The respondent was having no power under the Act to direct any employer on how and in what manner an employee is to be paid. In support of his argument, counsel for the appellant cited a case law titled Assistant PF Commissioner vs. G4S Security Services (India) Limited 2011 LLR 316 P&H HC.
Per contra, learned counsel for the respondent contended that the EPF Act is meant to provide social and financial security to the downtrodden section of society at the time of their retirement, death during service, medical treatment, etc. The EPF Act is social welfare legislation that cannot be done away with, and strict adherence to its provisions is mandatory. Under this Act, the employer is duty-bound to pay the minimum wages to every employee, and thereafter, the employer is also duty-bound to pay the Provident Fund contributions on time.
Counsel for the appellant further contended that a notice was served upon the appellant establishment for making contributions under Section 7 A of the Act, and as the appellant establishment was found paying the PF contribution on wages lesser than the minimum wages prescribed for employees under the category of semi-skilled, the appellant evaded an amount of Rs. 5,37,072/-, so the respondent was having no option but to assess the amount of Rs. 1,37,599/- under Section 7A of the Act. There is no illegality in the order of the respondent, hence the appeal filed by the appellant may be dismissed.
I have given my thoughtful consideration to the submissions made by learned counsels for the parties and have also perused the material on record.
The primary contention on behalf of the appellant is that respondent 1 is not empowered to direct the appellant establishment to pay minimum wages to its employees and further to pay PF contribution on the basis of minimum wages.
Admittedly, there is no dispute regarding the applicability of the provisions of the Act to the appellant establishment and that PF Code No. MP/17836 is allotted to the appellant establishment.
As per Section 6 of the Act, the employer is supposed to contribute/pay in the Fund on the basis of the basic wages, dearness allowance, and retaining allowances for the time being payable to each of the employees.
As per the case of the appellant, the appellant is depositing PF contribution as per law, i.e., on the basis of basic wages, dearness allowance, and retaining allowances.
In the case in hand, the controversy is with regard to basic wages. 'Basic Wages' has also been defined in Section 2(b) of the Act, which is reproduced here:
Section 2(b) "basic wages" means all emoluments which are earned by an employee while on duty [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus commission, or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any present made by the employer.
Section 2(b) of the Act does not prescribe how much amount shall be considered as basic wages. So now this is to be seen by this Tribunal whether the respondent is empowered to direct the appellant establishment to pay minimum wages to the employees. During the course of the argument, no provision of the Act was cited by counsel for the respondent which could reveal that 'Commissioner' is empowered to direct the employer to pay minimum wages to the employee.
Bifurcation of wages below minimum wages or basic wages and DA, etc., are issues completely out of the purview of PF authorities. PF authorities have no jurisdiction to ensure compliance with the Minimum Wages Act or to issue any direction in this regard. Wages are to be determined as a decision between employee and employer, and further, the authority appointed under the Minimum Wages Act is only empowered to raise issues regarding minimum wages to be given to the employee.
Being a quasi-judicial authority, the respondent has statutory power to direct the appellant establishment to deduct PF contribution on the basis of Section 6 of the Act only.
Keeping in view all the circumstances, this Tribunal reached a considered opinion that the order dated 24.09.2010 passed by the respondent under Section 7 A of the Act is illegal, hence set aside. A copy of the order be sent to parties. File be consigned to the record room after due compliance.
From India, Thane
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And
The judgment of the Hon'ble Punjab and Haryana High Court in the matter of Asst P.F. Commissioner, Gurgaon against M/s. G4S Security Services (India) Ltd., 2011 LLR 316 P&H HC, which is upheld by the Division Bench, L.P.A. No. 1139/2011 (O&M) on 20th July 2011, 2011 LLR 943, as well as the Hon'ble Delhi High Court in the matter of Group 4 Securitas Guarding Ltd. vs. EPF Appellate Tribunal and others, WP (C) 4408 of 2000, decided on 20.09.2011, wherein they have clarified the definition of "Basic Wages" as defined under Section 2(b) read along with Section 6 of the Act, 1952.
In view of the above, the definition of Basic Wages is out of the purview of PF Authorities. (Copy of judgment attached herewith)
Regards,
Suresh
Hon'ble Presiding Officer Appellate Tribunal, New Delhi.
EMPLOYEES PROVIDENT FUND APPELLATE TRIBUNAL
NEW DELHI
ATA No. 743 (8) 2010 Dated 30/11/15
Delight Services .......... Appellant
Vs
RPFC, Indore .......... Respondent
Present:
1. ORDER
Dated: 26.11.2015
Sh S.K. Gupta, Advocate for the Appellant
Sh. Shivnath Mehanta, Advocate for the Respondent
By the present appeal filed by the appellant under Section 7-I of the Employees' Provident Fund & Miscellaneous Provision Act, 1952 (hereinafter referred to as "the Act"), the appellant seeks quashing of the order dated 24.09.2010 passed on 29.09.2010 by the respondent under Section 7 A of the Act.
The brief facts emerging from the appeal are that the appellant is a contractor engaged in the work of supplying labor to various industries. The provisions of EPF & MP Act are applicable to the appellant establishment, which is registered at Code No. MP/17836, and it has been diligently depositing the contributions of its employees. The respondent served the appellant with a notice observing that the salary/wages shown are negligible, even lesser in comparison to the minimum basic wages as notified under the Minimum Wages Act, and further observed that PF contribution on wages less than minimum wages is not justifiable and defeats the very purpose of the social welfare legislation aimed at providing old age social security in the name of PF and Pension to the poor workers. Contribution has been assessed in the tune of Rs. 1,37,599/- on the basis of the minimum wages of semi-skilled employees. The appellant provides labor to hospitals and nursing homes, call centers, which were not subjected to the Minimum Wages Act at all. The provisions of the Minimum Wages Act have not been made applicable to these classes of establishments, hence this appeal.
Shri S. K. Gupta, Counsel for the appellant, contended that the impugned order was passed without application of mind in a highly laconic manner as a matter of routine.
Counsel for the appellant further contended that the appellant establishment is depositing PF contribution according to law, and the respondent, with malafide intention, inflicted a notice to the appellant establishment, directing the appellant establishment to change the policy regarding payment of salary to employees according to minimum basic wages. Whereas the respondent was not supposed to direct the appellant establishment to change the policy of salary of employees of the appellant establishment.
Counsel for the appellant further contended that as per law, the appellant establishment is liable to deduct PF contribution on the basis of basic wages as defined under Section 2(b) of the Act, read with Section 6 of the Act, but the respondent, without considering written objections and written representations, passed the impugned order against the principles of natural justice. The respondent was having no power under the Act to direct any employer on how and in what manner an employee is to be paid. In support of his argument, counsel for the appellant cited a case law titled Assistant PF Commissioner vs. G4S Security Services (India) Limited 2011 LLR 316 P&H HC.
Per contra, learned counsel for the respondent contended that the EPF Act is meant to provide social and financial security to the downtrodden section of society at the time of their retirement, death during service, medical treatment, etc. The EPF Act is social welfare legislation that cannot be done away with, and strict adherence to its provisions is mandatory. Under this Act, the employer is duty-bound to pay the minimum wages to every employee, and thereafter, the employer is also duty-bound to pay the Provident Fund contributions on time.
Counsel for the appellant further contended that a notice was served upon the appellant establishment for making contributions under Section 7 A of the Act, and as the appellant establishment was found paying the PF contribution on wages lesser than the minimum wages prescribed for employees under the category of semi-skilled, the appellant evaded an amount of Rs. 5,37,072/-, so the respondent was having no option but to assess the amount of Rs. 1,37,599/- under Section 7A of the Act. There is no illegality in the order of the respondent, hence the appeal filed by the appellant may be dismissed.
I have given my thoughtful consideration to the submissions made by learned counsels for the parties and have also perused the material on record.
The primary contention on behalf of the appellant is that respondent 1 is not empowered to direct the appellant establishment to pay minimum wages to its employees and further to pay PF contribution on the basis of minimum wages.
Admittedly, there is no dispute regarding the applicability of the provisions of the Act to the appellant establishment and that PF Code No. MP/17836 is allotted to the appellant establishment.
As per Section 6 of the Act, the employer is supposed to contribute/pay in the Fund on the basis of the basic wages, dearness allowance, and retaining allowances for the time being payable to each of the employees.
As per the case of the appellant, the appellant is depositing PF contribution as per law, i.e., on the basis of basic wages, dearness allowance, and retaining allowances.
In the case in hand, the controversy is with regard to basic wages. 'Basic Wages' has also been defined in Section 2(b) of the Act, which is reproduced here:
Section 2(b) "basic wages" means all emoluments which are earned by an employee while on duty [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:
(i) the cash value of any food concession;
(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house rent allowance, overtime allowance, bonus commission, or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any present made by the employer.
Section 2(b) of the Act does not prescribe how much amount shall be considered as basic wages. So now this is to be seen by this Tribunal whether the respondent is empowered to direct the appellant establishment to pay minimum wages to the employees. During the course of the argument, no provision of the Act was cited by counsel for the respondent which could reveal that 'Commissioner' is empowered to direct the employer to pay minimum wages to the employee.
Bifurcation of wages below minimum wages or basic wages and DA, etc., are issues completely out of the purview of PF authorities. PF authorities have no jurisdiction to ensure compliance with the Minimum Wages Act or to issue any direction in this regard. Wages are to be determined as a decision between employee and employer, and further, the authority appointed under the Minimum Wages Act is only empowered to raise issues regarding minimum wages to be given to the employee.
Being a quasi-judicial authority, the respondent has statutory power to direct the appellant establishment to deduct PF contribution on the basis of Section 6 of the Act only.
Keeping in view all the circumstances, this Tribunal reached a considered opinion that the order dated 24.09.2010 passed by the respondent under Section 7 A of the Act is illegal, hence set aside. A copy of the order be sent to parties. File be consigned to the record room after due compliance.
From India, Thane
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