Please help me to understand the PF & ESIC calculation effective from April 1, 2019, as per the Government's new rules and guidelines. Will ex-gratia be included in Gross salary? Also, please explain the meaning of Gross Salary for both EPF and ESIC calculation.
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Hi Sonal Saxena,
Please be aware that there have been no new rules introduced either by the government or by the court. The recent judgment of the Supreme Court only provides an ultimate interpretation of the existing provisions in the act. If you read the judgment, it will become very clear to you what should be considered as 'gross salary'. Ex-gratia (I assume you meant to say this is in lieu of 'bonus'); if so, you need to refer to the interpretations given in the Supreme Court judgment.
From India, Bangalore
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Please be aware that there have been no new rules introduced either by the government or by the court. The recent judgment of the Supreme Court only provides an ultimate interpretation of the existing provisions in the act. If you read the judgment, it will become very clear to you what should be considered as 'gross salary'. Ex-gratia (I assume you meant to say this is in lieu of 'bonus'); if so, you need to refer to the interpretations given in the Supreme Court judgment.
From India, Bangalore
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Gross salary means the salary which you have agreed to be paid to an employee. It is that salary which is considered for deduction when he takes a leave without pay or it is that salary which is paid if he takes leave with pay. Very simple, how is the average salary per day calculated? It is by dividing the gross salary by the number of days in the month. Yes, that gross salary is the salary as per the contract of employment.
Ex gratia is not a monthly payment but it is paid once a year or in a six-month period. Therefore, this is not part of the salary. At the same time, suppose you have offered a remuneration, like, Rs 30,000 as salary and Rs 5,000 every month as ex gratia. Here the amount of ex gratia is fixed and is a specific amount and is not variable depending upon any future happening like production, sales, performance, etc. In such cases, the ex gratia will also become part of the contract of employment and will be assessed as salary.
Under ESI, washing allowance paid to employees who are given a uniform by the company is excluded from wages. At the same time, for provident fund HRA is excluded. But that does not mean that you can pay any amount as HRA and escape from the payment of PF. Only HRA which is paid in addition to salary to those who live in rented houses can be excluded. A similar discussion took place in some other thread in this forum itself. Please check that also.
In any case, the employer's liability to contribute to PF can be restricted to 12% of Rs 15,000. Rs 15,000 is a very small amount and as such the employers who bifurcate this 15,000 into small compartments with a view to reducing their PF contribution should be taking PF only as a statutory requirement and not employee-friendly. It is very unfortunate that the HR people are still asking the same question about which components can be excluded for PF contribution, just to make the employers happy!
From India, Kannur
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Ex gratia is not a monthly payment but it is paid once a year or in a six-month period. Therefore, this is not part of the salary. At the same time, suppose you have offered a remuneration, like, Rs 30,000 as salary and Rs 5,000 every month as ex gratia. Here the amount of ex gratia is fixed and is a specific amount and is not variable depending upon any future happening like production, sales, performance, etc. In such cases, the ex gratia will also become part of the contract of employment and will be assessed as salary.
Under ESI, washing allowance paid to employees who are given a uniform by the company is excluded from wages. At the same time, for provident fund HRA is excluded. But that does not mean that you can pay any amount as HRA and escape from the payment of PF. Only HRA which is paid in addition to salary to those who live in rented houses can be excluded. A similar discussion took place in some other thread in this forum itself. Please check that also.
In any case, the employer's liability to contribute to PF can be restricted to 12% of Rs 15,000. Rs 15,000 is a very small amount and as such the employers who bifurcate this 15,000 into small compartments with a view to reducing their PF contribution should be taking PF only as a statutory requirement and not employee-friendly. It is very unfortunate that the HR people are still asking the same question about which components can be excluded for PF contribution, just to make the employers happy!
From India, Kannur
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As per my consultant, the PF notification of September 2014 is no longer applicable, and he said we need to deduct the pension fund for all employees. The reference he is giving is the recent judgment of the Kerala High Court. However, as per my understanding, there is still no notification from the EPFO. Please guide me if there is any formal information to deduct the pension for all employees.
From Korea
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From Korea
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Amendment of 2014 states that any employee who joins the PF for the first time with an initial salary of not less than Rs 15,000 shall be covered only under PF. It is not mandatory for such an employee to be covered by PF because if he is a new employee and his salary exceeds Rs 15,000, he can be excluded. However, if the company is willing to contribute to PF, he can become a PF member. In such cases, the employer's contribution of 12% is to be deposited only into PF without contributing 8.33% to the pension fund, with the balance going to PF.
You should have contributed your share of 12% to PF. In the future, if there is a guideline that such a member should also receive a pension, then the EPFO will make necessary accounting entries and transfer an amount equal to 8.33% from PF to the Pension Fund. This process is straightforward, and you can continue to contribute the employer's share of 12% to the Provident Fund alone until the EPFO provides communication to separate the Pension Fund and Provident Fund.
From India, Kannur
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You should have contributed your share of 12% to PF. In the future, if there is a guideline that such a member should also receive a pension, then the EPFO will make necessary accounting entries and transfer an amount equal to 8.33% from PF to the Pension Fund. This process is straightforward, and you can continue to contribute the employer's share of 12% to the Provident Fund alone until the EPFO provides communication to separate the Pension Fund and Provident Fund.
From India, Kannur
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Salary Sheet & PF PT Calculation & Challan Nov 2010.xls