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Thread Started by #rollysrivastava

Please advise...
we at present have our salary structure bifurcated into basic, transport and HRA. Now we want to restructure it and introduce allowances like special allowance, city allowance etc. so as to control the employer's liability (PF contribution, encashment of leaves, gratuity)which is directly effected by basic salary.
My querry is that for people whose present basic salary is more than 6500/- p.m. will it attract any legal implication if their basic salary gets reduced. Eg. Suppose present salary is 10000 basic+ 2000 HRA n we restructure it as 8000 basic+ 2000 HRA+ 2000 SPECIAL ALLOWANCE will it attract any legal complication as we are reducing the basic salary component? Note that we have a cieling limit for PF contribution as 6500/- p.m.
Please clarify
24th April 2007 From India, New Delhi
HRA - 30 % of Basic (Non Taxable on Producing HRA Receipt)
CCA - 40% of Basic (Taxable)
Medical - 15000/12 (Will be Non taxable)
Telephone - Can be Basic / 12 (On Producing Bills can be non taxable but compnay will ahve to pay FBT)
Books and Periodicals - (Taxable)
Special HRA (Taxable)
Food Allownace / Coupons: 1250 (Non Taxable)
Special Allowance (Can keep it Flexible for offer Negotiation and will be taxable)
LTA: One month Basic
Bonus / X-Gratia: One month Basic
Company can also provide loan on lesser intrest, and the intrest benifit can also be the cost of the CTC.
Please do let me know for more clerification.
26th April 2007 From India, Vadodara
Dear Friend You can reduce your basic. Like introudcing points like Basic HRA Conveyance Special allowance (company’s allowance) COLA Shaving allowance’s etc...............
26th April 2007 From India, Mumbai
Dear Jaya Are you very sure that reducing the basic does not attract any legal implication as other benefits also get effected...
26th April 2007 From India, New Delhi
Why are you restructing the basic also. If an employee is getting a basic of 10000 p.m (Basic is a very imp. everything depends on the basic like Allowances, HRA, PF, Gratuity etc..). So if you have to restructure do it on allowances.
Do you have C&B manager in ur org? check with him or any finance person.
26th April 2007 From India, Kalyan
well why we need to restructure basic is because since beginning we have just basic n HRA as cmponents so employees who are older are having basic to the tune of say 25K TO 30K a month. There is no issue of PF as we have a cieling of 6500/- but our liabilities as an employer are high wen it comes to gratuity, bonus, leave encashment etc. coz of high basic salary.
So we thought of reducing basic salary for such employees and thats why wanna knw whether its legal or no.
26th April 2007 From India, New Delhi
You should not reduce the basic salary. Please see the EPF act section 12. Regards, Pradipta
26th April 2007 From India
hi pradipta
well we will not reduce the basic salary for employees getting less than 6500/- basic. We are thinking to reduce basic of employees who are not covered by PF as their basic is more than 6500/-/
26th April 2007 From India, New Delhi
Hi rolly,
As far as I know there should not be any complications for the restructuring of Basic Salary of employees whose PF is not deducted.
The only thing you have to consider or look into the Income Tax Act part which says that Basic should be 60% of gross salary and all the other allowances depends on the basic.
So you can go ahead and you can restructure the same. You can also consult some Accounts people for giving maximum benefits to employees regarding saving the TDS.
Aditya Gupta
26th April 2007 From India, Delhi
dear rolly,
you can reduced the basic,coz according to the act basic should not be less than 35% of the gross salary. beyond this, its management's decision to decide the % of basic according themselves.
well, if you reduce basic..........companmy liability will reduce towards employer Pf as well as employee will get more in hand salary coz employee pf ,esi and EPS will be also reduced respectively.
still any query free to ask
deepika(HR Manager)
26th April 2007 From India, New Delhi
See....Reducing basic salary will not be having any legal implications but this will never attract anyone because in most of the organization the CTC hike normally given on the basic, basic affects a lot on ctc as most of the components calculated on the same........
26th April 2007 From India, Vadodara
thanks for the reply.
So you mean to say that we can reduce basic of those employees also who have less than 6500/- basic as long as it is more than 35% of the total gross salary.
Or it is advisable that we continue with same structure for basic less than 6500/- and alter structure of those who exceed the PF limit.
Another thing- are you sure percentage is 35% of gross?
26th April 2007 From India, New Delhi
Dear Rolly, I donot think any legal problems you would face. But for safety measures check your legal department. As per my knowledge, every thing depends on company to company
26th April 2007 From India, Mumbai
see rolly,

according to the pf act,basic can be 100% of the gross but should not less than 35% of the it depends on your company that what they prefer to decide the % of the varies company to company.

now come to your point.... if employee's basic is less than 6500/- then its mandatory to deduct pf from employee's salary.but if the basic is more than 6500/- then its depends upon the mutual understanding of employer and employee to deduct pf,in this case it is not mandatory.

you want to reduced the company liability towards employer pf.for that you can do one thing you increase the ctc of employee and deduct the employer pf from the employee account coz in ctc employer pf is included...........or you can reduced the basic so that employer pf reduced...............

but one more thing for both employees whose basic is 6500/- or less and whose basic is more than 6500/- ,basic % of the gross should be same.

now its your decision what you want to do in your company...........

26th April 2007 From India, New Delhi
Thankyou so much deepika n one thin more...
as you said - basic % should be same for all employees whether less than 6500/- basic or above pf cieling limit so are u sure you cannot have two salary slabs like say basic -60% for employees under 1.5 lacs p.a. salary and basic 50% for employees over 1.5 lacs p.a. salary.
Is it a legal violation?
26th April 2007 From India, New Delhi
It depends on company to company some could basic as 30% some as 60% etc But still I respect your reply.
26th April 2007 From India, Mumbai
dear rolly,

earlier i worte that basic % should be same,but i discussed with some higher person in account........... basic can be varies employee to can decide % of basic different for defferent employees.

now according to your can divide your salary in basic+hra+specil allownces........and one more thing,you want to reduced the company liability towards employer pf you can do one thing coz for those employees whose salary is more than 6500/- is not manadatory to give employer pf,but still they ask for this,just deduct employr pf from their salary acording to rule.....for this employer libility will not increase.

but very important can apply this rule to only new join employee,coz basis can not be change during employee's employement,anytime whenever you want.......when you are folowing your pervious rule,you will have to follow that rule for the pf.but if you want to reduced basic and add special allownces ,then releive the employee for one month,and again appoint him from stating to company........and apply your rule.

you can add in salary whatever you want(i.e. special allownces),but can not reduced basic in mid session,coz employees and employer pf will be reduced comparitively,and employees can object in this thing.

you can do following things:

1. deduct employer pf from employees salary.

2. cange your rules of leave enchashment,this you can change whenever you want.

3.deduct HRA and add this amount as special allownces.

still query,free to ask.........

27th April 2007 From India, New Delhi
Few points
- In this year increments. do not increase the amount in the basic. do it
on allowances or add few more componenets.
- for increment purpose check this-
27th April 2007 From India, Kalyan
Hi Deepika,
You have been a gr8 help n i am botherin you again.
Even i was kind of certain that basic cannot be reduced within the tenure of the employee n you clarified it as well.
The thing that i want to know that those people whose basic is above 6500/- and thus get fixed PF contri of Rs. 780/- can their basic be reduced for eg. from 20 K a month basic to 12K as their pf contri remains unchanged. Or for them also basic cannot be reduced. Hope i m clear.
27th April 2007 From India, New Delhi
dear rolly, could you make me clear about your example,i.e. reduced 20k to 12k and pf is not that i can help you out?wht you want to say? deepika
27th April 2007 From India, New Delhi
see i mean...
we all know that we can put 6500/- basic as the cieling limit for Pf. Even in our co. we do not pay Pf for over 6500/- basic i.e. all those people who have a basic salary of 6500 or more get fixed pf of Rs. 780/- p.m.
So say, person A gets 20K basic. His pf contribution is 780/- p.m. as we have a cieling.
So if his basic is made 12K per month even then his pf remains 780/- as his basic is still above 6500/-.
Now, what i mean to ask is that such cases which are not effected by decreasing the basic as far as Pf contri is concerned, can they be restructured without making them resign for one month.
Hope i m clear
27th April 2007 From India, New Delhi
dear rolly,

you are in big confusion.your knowledge is wrong that if employee is having 6500/- or more basic then his pf will be 780 fix.

see rolly, first dont say that 24k or 12k monthly is basic of any particular employee.these are gross salary not basic. now gross salary is devided in break-ups like basic+hra+special allownces+conveyance+medical etc(depends company's norms).

now, you can decide in your company the % of basic and % of hra.Example: suppose gross salary is 12,000(12k) of any employee,now you can decide in your company the % of basic(like basic will be 60% of gross,hra will be 30% of gross and special allownces will be rest 10% of gross)

now salary break up of gross-12,000 will be:-

basic-7200(60% of gross)

hra-3600(30% of gross)

Special Allownces-1200(10 % of gross)

now,come to pf,pf never is always 12% of basic(in this case pf will be 864).

and employer pf will be 864 too.(it is also 12% of basic).

Now the salary will be in hand-

12,000-864-864=10,272(now employer pf is deducted from the employee salary)

there is no such type of word of ceiling limit of pf(like780,as you said)but according to the law,again i will say,if employee is having 6500/- or less basic,then pf is mandatory and if basic is more then 6500/-its not mandatorybut pf will will be deduct always 12% of basic..........there is no ceiling limit.

now,if employee's salary is 24 k,then basic will be 14400(according to my example(60% of gross),then pf will be 1728(12% of basic)..................but if we make 12k basic,then respectively pf will be changed..

i hope,i have make you clear enough............still have query free to ask.

27th April 2007 From India, New Delhi
Dear Rolly,
1. Once the basic decided of an employee it can not be reduced because all ohter benefits are depends on the basic. Other allowances can be changed but basic can not be reduced.
2. If the management will talk to the staff/workers and justify them then it can be happened otherwise. you will face a lot of problems like dis-satisfaction of the staff/workers etc.
Ajay Sharma

27th April 2007 From India, Jaipur
hi deepika,
well i guess we need to recheck it.
I am quite certain that an employer can contribute pf on 6500 basic/- even if the basic salary is more than 6500/- (say 10k).
According to PF rules it is manadatory to give PF till 6500/- basic after that employee has an option to give pf on 6500/- or on actual basic @ 12% or not give it at all. It is totally employer's prerogative.
Still i will recheck and please if possible, do recheck it at your end as well.
Many companies give PF on 6500/- basic only though the actual basic may be more than 6500/-.
27th April 2007 From India, New Delhi
Hello ajay AND deepika
thanx for your reply...let me restructure my querry-
Just tell me one thing-if u r clear abt it...
If a person is out of PF and ESI because his salary is more, can we restructure his bifurcation for eg.
present slabs= 14K basic+ 2K HRA
proposed slabs= 12 k basic+ 2K HRA+ 2K special allowance.
Will it attract any legalities. Kindly note that the person is out of PF and ESI.
27th April 2007 From India, New Delhi
Sorry..replying late..but basic cannot be reduced...according to EPF is an can always increase it....coz all the other components r based on some1 said..the best option is to adjusting spl.allw..
27th April 2007 From India, Hyderabad
now i understand your prolem.let me clear.............if once pf is applicable in one's salary,during tenure of employee,pf must be continue.but if employee is out of pf and esi then basic can be reduced whatever you want.but it should be more than 6500/-.
and no legal obligation will attrat this thing.
27th April 2007 From India, New Delhi
now i understand your problem.let me clear.............if once pf is applicable in one's salary,during tenure of employee,pf must be continue.but if employee is out of pf and esi then basic can be reduced whatever you want.but it should be more than 6500/-.
and no legal obligation will attrat this thing.
27th April 2007 From India, New Delhi
hey deepika one thing more...
As you said we can reduce basic if he is out of PF and ESI but reducing basic also effects his gratuity amount n gratuity is also a statutory obligation directly dependent on basic so are you sure is it workable?
Another thing-
If an employee is covered under PF when he joins and after subsequent increments suppose his basic exceeds 6500/-. Can his PF contribution be made at 6500/- basic with mutual consent or he shall have to necessarily contribute @ 12% of actual basic.
And yes, thanx for your reply.
27th April 2007 From India, New Delhi
basic salary is the guidance value of an individuals job position in any organisation. particularly the org. having different pay scales. basic salary will determine the provident fund, gratuity and whatever u claim as any allowance, it all relates with the basic salary. therefore, earned basic should not to be givenup for any reason. whatever u want extra, u claim seperately
28th April 2007 From India, Bangalore
I think you want to control the company overheads due to huge basic pay of your executives. Reducing basic pay will reduce their HRA, Gratuity, PF and all other allowances related to basic pay. It may de motivate your employees. What you can think of doing is that future increases need not be added to basic pay. Either introduce new allowance whic does not have an impact on other overheads such as PF Gratuity HRA etc. or otherwise you can give your executives ad hoc increases every year depending on their performance.
28th April 2007
its true that the person,who is out of pf and esi,his basic can be modified...........but if you are providing gratuty for your employee.then definately it will reduced if you will reduced basic(and morever we cant change basic in this case) the solution is that dont change in basic for old employees.just increae their salary according to the performance in coming months and show that incresed salary as a special allownces.
but for the new joinees ,you can change your salary break up status.
28th April 2007 From India, New Delhi
Hi Rolly
As per my info. about labour laws related to PF and ESIC one can not reduce the basic. even if you do so and in any of Govt Inspection its comes up you need to give lot of explanation to it, as y u did it and even show (proof - hard copy) of this action :)
28th April 2007
Hi Rolly,
Most of the companies workout to make their Payroll a structured one in order to avoid any confussions.For eg .in my company, 40% of CTC is considered as Basic; HRA= 50% of Basic; Covance Allow=9600pa(fixed); Mobile Allow= 15000 Pa(fixed); Rest Amt as Special Allow.
Always keep in mind Low is the Basic Less will the Liabilities for PF;Gratuity and ESIC calculations from Companies pt. of View.
Thats the reason Why generaly companies keep Basic % ages between 35%-45% So that Companies Liability against Statutory compliances can get reduced.
Being HR we have to think and act keeping in our mind all the view points of Companies as well as Employers.Hope this will help you out to restrucure your Salary Structure for the company in right way!!!!
Rachna Sinha
28th April 2007 From India, Hyderabad
Hi Rolly,
Pradipta is right, th eonly 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, incase the basic reduces you need to maintain the PF amount as it is.
28th April 2007 From India, Mumbai
Hi Rolly,
One thing you can experience after this is employee dissatisfaction...
because it will reduce Employer's PF contribution and futher more will reduce the total PF contribution to an account as it is based on the basic salary of an employee.
Better , introduce or restructure you salary structures at the time of salary revisions. Then, you can add such allowances by keeping base salary the same.
Upasna Kaushik
30th April 2007 From India, Delhi
As far as my knowledge goes, you can reduce only to extent ,on which you were paying PF percentage earlier.The Act says that Pf contribution should not be reduced in any case.
For eg 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 6500but if your were paying Pf on 20K i.r 20000*12/100 then you cannot reduce the basic.
30th April 2007 From India, Calcutta
Well thing more which was also discussed alittle earlier in the discussion-
If we contribute PF at the rate of 12% and employee crosses 6500/- basic so can we limit him to fixed PF contri of Rs. 780/- or we will have to continue to contribute at 12% on actual basic.
1st May 2007 From India, New Delhi
Dear rolly,
As i told you earlier,There is no PF ceiling limit like 780/-.if employees basic exceed 6500/-or less than or equal to 6500/-,yet employer and employee pf will be deduct as per 12% of basic.
1st May 2007 From India, New Delhi
Hi deepika,
Well actually i spoke to few of my colleagues on this and as per them also their companies are giving PF on 6500/- only even if the basic is more. Same is there in our company. And the reason they all gave is 6500/- cieling limit which is not mandatory but is a option provided by PF . You may continue to contribute on actual basic or limit it on 6500/-
1st May 2007 From India, New Delhi
Rolly, As i said earlier also, you are right ..we can fix a ceiling of Pf contri to Rs 780 pm in case of salary more than Rs 6500. Regards, Anu
1st May 2007 From India, Calcutta
Dear Rolly
All legal implications are decided with respect to the Basic Salary of an Employee. At the same time point of time this part of the salary is pretty relaxing for an employee. At the present time most of the Allowances are also taxable. now you have to think that which allowances you are going to introduce in the salary break-up.
I'm afraid that you would not be able to achieve the purpose which you are trying to achieve, because:
by decreasing the Basic salary of your Employees they'll become de-motivated (company will shift the burden of Tax from itself to the Employees)
Although allowances are satisfactory but not like Basic salary

I would suggest that if you want to restructure the salary structure apply it to the new comers, not on the existing one, this will create a fuss in your org.
Asif Naqvi[/u][/i]
1st May 2007 From United Arab Emirates, Sharjah
Just to reply your query I dont see any satutory compliences in doing this. But make sure the total salary should be above 10k, otherwise you have to register with ESI.
But I do not think this the best employee friendly salary structure.
1st May 2007
hi maneesh after protracted discussions with forum members i feel there would be a complication involved as reducing basic also effects gratuity which is a statutory requirement. rolly
1st May 2007 From India, New Delhi
i hope u cant suddenly decrease the basic salary as it will afffect the entire benefits of the employees without the prior permission from the statutory authorities. Rukmane
4th May 2007 From India, Madras
You should not reduce basic pay, but at the same time during incriment new allowances can be added and one can intact basic pay same. Further to keep interst of an employees try to add first only that allowances where they can avail tax benefit maximum. this will up to certain extent stop them to raise their voice as there actual incriment will be more then what they are getting value wise per month.
4th May 2007 From India, Vadodara
Thankyou Yogesh for your input. Could you please further advise that what are the kind of allowances (not reimbursement) that can be added so as to provide tax benifit. Rolly
4th May 2007 From India, New Delhi
we can remodel the salary structure only after the employees' consent other wise we can not reduce the basic. if we do unilaterally it will attarct legal action against the management
29th February 2008 From India, Delhi
You can reduce your basic and that will attact employees also for that you can add some allowances like Medical allowance (15000 Max p.a), LTA, Uniform Allowance. This will help u in restructuring because basic is taxable and if you split that taxable basic into non taxable allowances your employees will be happy as taxable income is reducing.
31st March 2010 From India, Visnagar
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