Hi, I need a few clarifications and confirmations regarding the update in salary breakup details.
Basic Pay: Gross * 40% HRA: 50% of basic pay Medical Allowances: Gross * 17% Conveyance Allowance: 1600 pm Special Allowance: 16% Other Allowance: 7%
Is this the correct breakdown? Can we include a special allowance of 22% instead of the mentioned 7%? Can the special allowance exceed medical allowances?
Kindly do the needful.
From India, Tirupur
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Basic Pay: Gross * 40% HRA: 50% of basic pay Medical Allowances: Gross * 17% Conveyance Allowance: 1600 pm Special Allowance: 16% Other Allowance: 7%
Is this the correct breakdown? Can we include a special allowance of 22% instead of the mentioned 7%? Can the special allowance exceed medical allowances?
Kindly do the needful.
From India, Tirupur
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You can have your own structure for the salary. But what is the funda for having a bifurcation like this?
When an employee takes a leave without pay, you will certainly deduct that day's salary from the total. If that is true, his salary for all other purposes including leave encashment, calculation of gratuity, PF contribution (subject to whatever threshold limit is available under the Act) is the total salary only.
Now, if you want to have a system where the clerks in the Payroll department may be given a task and the pay slips generated should look very smart, then you can split the salary as you like.
From India, Kannur
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4477When an employee takes a leave without pay, you will certainly deduct that day's salary from the total. If that is true, his salary for all other purposes including leave encashment, calculation of gratuity, PF contribution (subject to whatever threshold limit is available under the Act) is the total salary only.
Now, if you want to have a system where the clerks in the Payroll department may be given a task and the pay slips generated should look very smart, then you can split the salary as you like.
From India, Kannur
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Instead of framing one traditional remuneration structure and labor codes knocking at the door, it is better to restructure remuneration close to the definition of wages under labor codes. As the remuneration structure will vary randomly from organization to organization, it would be better to frame the structure according to the guideline of the definition of wages as follows:
1. Determine CTC considering all components of remuneration, including point (b) of the exclusion list, if any. (x)
2. Deduct Gratuity, ESIC Employer contribution, if any, and any insurance premium from CTC. (y)
3. If there are any other components not payable to employees, they may be deducted from CTC. These will vary randomly from organization to organization. (z)
4. According to the definition of Wages, Basic & DA should be 50% of (x - y - z). As labor codes have not yet been implemented, it may be 35 to 40% currently, and when the codes are implemented, it may be enhanced to 50% at that time. There will be fewer problems when the labor codes are implemented.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity
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From India, New Delhi
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1. Determine CTC considering all components of remuneration, including point (b) of the exclusion list, if any. (x)
2. Deduct Gratuity, ESIC Employer contribution, if any, and any insurance premium from CTC. (y)
3. If there are any other components not payable to employees, they may be deducted from CTC. These will vary randomly from organization to organization. (z)
4. According to the definition of Wages, Basic & DA should be 50% of (x - y - z). As labor codes have not yet been implemented, it may be 35 to 40% currently, and when the codes are implemented, it may be enhanced to 50% at that time. There will be fewer problems when the labor codes are implemented.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity
Ensure there is a single line break between paragraphs.
From India, New Delhi
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Even after the implementation of the new Labour Codes, you can continue to have the same salary break up. What makes it different from the present system is that Basic wages now have been misinterpreted but in the new code, the "contributing" wages have been described, though with a lot of confusions.
Under the old system, basic wages mean the total wages as per the contract of employment. In the New Codes, a description is given for basic wages that if you have more than 50 percent of allowances other than basic pay and dearness allowance, then the amount which exceeds that 50% shall be treated as part of wages. Unfortunately, that 'allowances' include overtime wages, provident fund contributions including interest(!), bonus, conveyance allowance (which is excluded from the ESI contribution as per a recent Supreme Court verdict), and commission based on sales.
Nowhere is it stated that the basic wages should be 50%, but when you calculate certain contributions, you have to consider these allowances. Which all are the contributions? PF has a capping of Rs 15,000. ESI has its own limit for coverage like Rs 21,000. Bonus has a limit of Rs 21,000 with a calculation limit of Rs 7,000 or minimum wages, whichever is higher. These minimum wages of Rs 15,000, Rs 7,000, Rs 21,000, nothing has changed.
In this scenario, I don't think that we should keep the Basic + DA at 50%. Moreover, when you deduct the loss of pay wages on the gross salary, what is the relevance in saying that your gratuity is based on your basic salary only????
From India, Kannur
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Under the old system, basic wages mean the total wages as per the contract of employment. In the New Codes, a description is given for basic wages that if you have more than 50 percent of allowances other than basic pay and dearness allowance, then the amount which exceeds that 50% shall be treated as part of wages. Unfortunately, that 'allowances' include overtime wages, provident fund contributions including interest(!), bonus, conveyance allowance (which is excluded from the ESI contribution as per a recent Supreme Court verdict), and commission based on sales.
Nowhere is it stated that the basic wages should be 50%, but when you calculate certain contributions, you have to consider these allowances. Which all are the contributions? PF has a capping of Rs 15,000. ESI has its own limit for coverage like Rs 21,000. Bonus has a limit of Rs 21,000 with a calculation limit of Rs 7,000 or minimum wages, whichever is higher. These minimum wages of Rs 15,000, Rs 7,000, Rs 21,000, nothing has changed.
In this scenario, I don't think that we should keep the Basic + DA at 50%. Moreover, when you deduct the loss of pay wages on the gross salary, what is the relevance in saying that your gratuity is based on your basic salary only????
From India, Kannur
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I have explained the definition of wages as per different labor codes (all have the same definition) in this forum several times. However, once again explaining the same as below:-
Wages as defined have no relevance to the contribution to PF, ESIC, Bonus calculation, gratuity calculation, etc. Once wages (Basic & DA) are determined, the contribution will be based on the same. For the determination of Basic & DA, CONTRIBUTION TO PF, ESIC ETC HAS NO EFFECT. Today the cap for PF contribution is 15K, ESIC 21K, Bonus eligibility cap 21K, etc. Tomorrow all of them will change with the years to go as a natural increase. Where the Basic and DA will be less than 15K after restructuring of wages as per new codes, then PF contribution will be on BASIC + DA + Other allowances as per Apex court verdict subject to a cap of 15K. Gratuity as of the date is paid on the basis of the last drawn Basic and DA, which will continue even after the implementation of the wage code. I have come across two situations - in one case in Odisha, the labor officer instructed to pay gratuity on minimum wages as the Basic & DA was less than the minimum wages prevailing at that time of payment, which appeared logical to me but not on gross salary. In another case where the gratuity scheme is with Vesuvius India Ltd (MNC), up to 10 years of service, the gratuity will be paid on a 15-day basis, > 10 years but < 20 years of service - 21 days basis, and for 20 years and more service on the basis of 26 days with no upper limit. But the calculation is based on Basic only, not on monthly gross.
I hope all Indian organizations are paying gratuity on the basis of the last drawn basic & DA, not on monthly gross even after the verdict of the Apex court regarding PF contribution. There is no harm in paying more gratuity if the organization has the capacity to pay. Any payment of gratuity beyond the calculation of the PG act will be taxable.
It is true that in the definition of wages nowhere is it mentioned that Basic & DA will be 50% (of what?). What is mentioned is that if the payment made to the employee under clause (a) to (i) of the exclusion list is more than 50% of all the remuneration calculated under this clause, then the excess amount above 50% will be added back to Basic & DA.
Now what is all the remuneration calculated under the clause is Basic & DA and the allowances under (a) to (i) of the exclusion list. In the above paragraph, as mentioned in the definition of wages, it is crystal clear that 50% will be allowances including Employer's PF contribution, OT, etc., and automatically (100 - 50) = 50% will be basic and DA of all the remuneration calculated under this clause. It is simple arithmetic.
As of the date, the PF contribution is paid on most of the allowances excepting a few, ESIC contribution on monthly gross except the conveyance allowance, Bonus eligibility on the basis of Basic & DA - not on monthly gross, and Gratuity on the basis of the last drawn Basic and DA, not on monthly gross. After the implementation of Labor codes, the liability of PF & Gratuity will be more for employers.
My personal view is until there is any specific court verdict about the calculation of the Gratuity, all the employers in India will follow the existing practice except very few organizations who may pay Gratuity beyond the statutory method/limit.
Restructuring of the existing remuneration package will be a must for the majority of Indian organizations to avoid any future complications. There are many opinions about the new labor codes - likings and dislikings which in the future will be resolved through different court cases.
I personally feel that all labor laws are made for broadly two reasons - welfare, social security measures, etc. as India is considered a welfare state and another for control, discipline, rules & regulations, health & safety, etc. That is why most of the court verdicts are in favor of employees. Even 240 days/190 days work in the 5th year for payment of gratuity is an outcome of the same. Employees are always the weaker section of society than the employer - therefore, such court verdicts are always welcome.
If any of the above explanations appear as a misinterpretation, I request to come forward and post the proper interpretation for the knowledge of myself and other members.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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Wages as defined have no relevance to the contribution to PF, ESIC, Bonus calculation, gratuity calculation, etc. Once wages (Basic & DA) are determined, the contribution will be based on the same. For the determination of Basic & DA, CONTRIBUTION TO PF, ESIC ETC HAS NO EFFECT. Today the cap for PF contribution is 15K, ESIC 21K, Bonus eligibility cap 21K, etc. Tomorrow all of them will change with the years to go as a natural increase. Where the Basic and DA will be less than 15K after restructuring of wages as per new codes, then PF contribution will be on BASIC + DA + Other allowances as per Apex court verdict subject to a cap of 15K. Gratuity as of the date is paid on the basis of the last drawn Basic and DA, which will continue even after the implementation of the wage code. I have come across two situations - in one case in Odisha, the labor officer instructed to pay gratuity on minimum wages as the Basic & DA was less than the minimum wages prevailing at that time of payment, which appeared logical to me but not on gross salary. In another case where the gratuity scheme is with Vesuvius India Ltd (MNC), up to 10 years of service, the gratuity will be paid on a 15-day basis, > 10 years but < 20 years of service - 21 days basis, and for 20 years and more service on the basis of 26 days with no upper limit. But the calculation is based on Basic only, not on monthly gross.
I hope all Indian organizations are paying gratuity on the basis of the last drawn basic & DA, not on monthly gross even after the verdict of the Apex court regarding PF contribution. There is no harm in paying more gratuity if the organization has the capacity to pay. Any payment of gratuity beyond the calculation of the PG act will be taxable.
It is true that in the definition of wages nowhere is it mentioned that Basic & DA will be 50% (of what?). What is mentioned is that if the payment made to the employee under clause (a) to (i) of the exclusion list is more than 50% of all the remuneration calculated under this clause, then the excess amount above 50% will be added back to Basic & DA.
Now what is all the remuneration calculated under the clause is Basic & DA and the allowances under (a) to (i) of the exclusion list. In the above paragraph, as mentioned in the definition of wages, it is crystal clear that 50% will be allowances including Employer's PF contribution, OT, etc., and automatically (100 - 50) = 50% will be basic and DA of all the remuneration calculated under this clause. It is simple arithmetic.
As of the date, the PF contribution is paid on most of the allowances excepting a few, ESIC contribution on monthly gross except the conveyance allowance, Bonus eligibility on the basis of Basic & DA - not on monthly gross, and Gratuity on the basis of the last drawn Basic and DA, not on monthly gross. After the implementation of Labor codes, the liability of PF & Gratuity will be more for employers.
My personal view is until there is any specific court verdict about the calculation of the Gratuity, all the employers in India will follow the existing practice except very few organizations who may pay Gratuity beyond the statutory method/limit.
Restructuring of the existing remuneration package will be a must for the majority of Indian organizations to avoid any future complications. There are many opinions about the new labor codes - likings and dislikings which in the future will be resolved through different court cases.
I personally feel that all labor laws are made for broadly two reasons - welfare, social security measures, etc. as India is considered a welfare state and another for control, discipline, rules & regulations, health & safety, etc. That is why most of the court verdicts are in favor of employees. Even 240 days/190 days work in the 5th year for payment of gratuity is an outcome of the same. Employees are always the weaker section of society than the employer - therefore, such court verdicts are always welcome.
If any of the above explanations appear as a misinterpretation, I request to come forward and post the proper interpretation for the knowledge of myself and other members.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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I agree, but the issue is with the allowances that would form part of the basic salary. I strongly feel that the salary for all purposes should be the one agreed upon between the employer and the employee, and that the components of the salary have no relevance.
If you hire a worker for a day to work in your home, you will agree to pay, say, Rs 800. He will work for 8 hours. Suppose he is asked to work for 2 more hours, he will ask for an additional 100 rupees for each hour, and obviously, you will agree. It is on the presumption that his wages for the day are Rs 800 that you are agreeing to give Rs 100 for each additional hour.
Will you say that out of Rs 800, your overtime qualifying wages or the basic wages are only Rs 200, and accordingly, you will be paid only Rs 25 per hour? Or will he agree to that? Now, suppose he completes the assigned work in 7 hours, and you deduct Rs 100 from 800 and only pay Rs 700. That would be okay for him because he has worked only for 7 hours, even though he would not get a job for one hour that day.
Would it be acceptable for you if he says that out of Rs 800, his basic wages are only Rs 25, and therefore, you can deduct only Rs 25 and pay Rs 775 for that day? Like that, what is the total wages that qualify for all purposes.
From India, Kannur
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If you hire a worker for a day to work in your home, you will agree to pay, say, Rs 800. He will work for 8 hours. Suppose he is asked to work for 2 more hours, he will ask for an additional 100 rupees for each hour, and obviously, you will agree. It is on the presumption that his wages for the day are Rs 800 that you are agreeing to give Rs 100 for each additional hour.
Will you say that out of Rs 800, your overtime qualifying wages or the basic wages are only Rs 200, and accordingly, you will be paid only Rs 25 per hour? Or will he agree to that? Now, suppose he completes the assigned work in 7 hours, and you deduct Rs 100 from 800 and only pay Rs 700. That would be okay for him because he has worked only for 7 hours, even though he would not get a job for one hour that day.
Would it be acceptable for you if he says that out of Rs 800, his basic wages are only Rs 25, and therefore, you can deduct only Rs 25 and pay Rs 775 for that day? Like that, what is the total wages that qualify for all purposes.
From India, Kannur
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We may think in different ways, and there is no harm. But we all follow the law of the land. Whatever I have explained in several posts is based on the definition of wages, which is common in all labor codes.
As per the definition of wages, there are Basic and DA, as well as allowances. Obviously, after the implementation of Labor codes, no employer will consider the entire monthly gross as Basic and DA. Already, for the definition of wages, Basic & DA will increase from the existing amount for the majority of organizations. Therefore, the question will not arise to define wages/salary as monthly gross (Basic, DA, and all allowances).
Usually, when we hire a worker for some work at home, it is always a contract for the job. For example, if a plumber is hired to repair a specific problem that occurs at home, the payment required will be specified. There is no contract based on an hourly basis. The job may take 2 hours or 5 hours, and the payment will be a set amount, say 500/- for the job.
If the worker is employed in a factory, there will be a bifurcation of Rs. 800/- as the daily rate, with Basic & DA, as well as other allowances. Now, if the worker is engaged for overtime (OT), the daily ordinary rate, which is 100/- per hour, will be increased to @ 200/- per hour for the extra hours worked. For working, say, 3 hours, an extra 600/- should be divided into 55% as Basic and DA, and 45% as other allowances, approximately to maintain a 50:50 condition after considering the employer's PF contribution on the extra Basic and DA, which will add to other allowances.
The objective of lawmakers is very simple. Currently, many employers are paying Basic & DA as 25 to 40% of the monthly gross to avoid additional gratuity and bonus liability. PF is secure due to the Apex court verdict. Moreover, smart employers, along with smart HR professionals, will design pay structures where the monthly gross will be lower, and Basic & DA will automatically be less, resulting in reduced liabilities for Gratuity, PF, Bonus, etc. For higher-level employees, more components will be on a quarterly, semi-annual, or annual basis to meet their remuneration needs.
This is the reason why the lawmakers have considered both monthly and yearly aspects along with the employer's contribution to PF, Pension fund, etc., which are all payable to any employee, including the value of house accommodation, lighting, etc. (applicable for big industry houses - steel plants, power plants, etc.) in the exclusion list (a) to (i). However, nowhere is it mentioned that the Employer's ESIC contribution, which is not payable to any employee.
The definition of wages has some nuances, and all organizations should carefully consider it starting from the Total CTC level and then judiciously determine the payable amount before defining Basic & DA.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To Strive towards excellence with effort and integrity.
From India, New Delhi
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As per the definition of wages, there are Basic and DA, as well as allowances. Obviously, after the implementation of Labor codes, no employer will consider the entire monthly gross as Basic and DA. Already, for the definition of wages, Basic & DA will increase from the existing amount for the majority of organizations. Therefore, the question will not arise to define wages/salary as monthly gross (Basic, DA, and all allowances).
Usually, when we hire a worker for some work at home, it is always a contract for the job. For example, if a plumber is hired to repair a specific problem that occurs at home, the payment required will be specified. There is no contract based on an hourly basis. The job may take 2 hours or 5 hours, and the payment will be a set amount, say 500/- for the job.
If the worker is employed in a factory, there will be a bifurcation of Rs. 800/- as the daily rate, with Basic & DA, as well as other allowances. Now, if the worker is engaged for overtime (OT), the daily ordinary rate, which is 100/- per hour, will be increased to @ 200/- per hour for the extra hours worked. For working, say, 3 hours, an extra 600/- should be divided into 55% as Basic and DA, and 45% as other allowances, approximately to maintain a 50:50 condition after considering the employer's PF contribution on the extra Basic and DA, which will add to other allowances.
The objective of lawmakers is very simple. Currently, many employers are paying Basic & DA as 25 to 40% of the monthly gross to avoid additional gratuity and bonus liability. PF is secure due to the Apex court verdict. Moreover, smart employers, along with smart HR professionals, will design pay structures where the monthly gross will be lower, and Basic & DA will automatically be less, resulting in reduced liabilities for Gratuity, PF, Bonus, etc. For higher-level employees, more components will be on a quarterly, semi-annual, or annual basis to meet their remuneration needs.
This is the reason why the lawmakers have considered both monthly and yearly aspects along with the employer's contribution to PF, Pension fund, etc., which are all payable to any employee, including the value of house accommodation, lighting, etc. (applicable for big industry houses - steel plants, power plants, etc.) in the exclusion list (a) to (i). However, nowhere is it mentioned that the Employer's ESIC contribution, which is not payable to any employee.
The definition of wages has some nuances, and all organizations should carefully consider it starting from the Total CTC level and then judiciously determine the payable amount before defining Basic & DA.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To Strive towards excellence with effort and integrity.
From India, New Delhi
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