Madhu.T.K
Industrial Relations And Labour Laws

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Hi All,
please let me know if the Basic Salary (fixed component) can be set at 100% of Gross rather than 30-60%, and can there be multiple salary slabs based on employment category?
Your urgent input will be appreciated.
Regards

You can fix the basic salary as 100% of gross salary. Salary is bifurcated into HRA, Conveyance etc so as to make the salary attractive to the employees with respect to income tax. For the employer bifurcation will give lesser cost to company because certain mandatory contributions to statutory funds and payments to employees are based on basic salary. Therefore, if you put the salary as consolidated amount without bifurcation into basic salary, HRA, conveyance etc, all such payments, like contribution to PF, payment of Bonus, gratuity, leave encashment etc will be based on that consolidated salary.
Regards,
Madhu.T.K

Hi Madhu,
Thanks for your reply. Much appreciated.
As you mentioned that if Basic Salary is set at 100% of gross, then PF contributions etc will be based on that amount itself. Now, we understand that PF contributions is up to a limit of Rs 6500 (fixed component). If we set the basic salary at 100% of gross without any bifurcation, and if the employees' gross is Rs 6500, will that mean the PF contribution need not be deducted?
Also, if the Gross salary is Rs 6500 for full attendance in a month, then for 90% attendance in that same month the gross drops to Rs 5850/-. In this case will this qualify for PF deductions? or will it be on "gross before attendance deduction" rather than "gross after attendance deduction"?

It is true that in the case of PF your liability is restricted to 12% of Rs 6500.
In the case of an employee getting more than 6500 as basic salary but at the same time due to leave without pay he has earned less than the actual gross salary but more than Rs 6500, then PF needs to be calculated on this 6500 itself and not on the amount arrived at after reducing it by proportionately to the loss of pay. Obviously, if there was a basic salary and by means of a few days LOP his basic pay has become less than Rs 6500, then you need to pay PFon that reduced amount only. For statutory payments, what is actually received or receivable is considered and if the amount receivable is more than 6500, Pf should be calculated on 6500 and if it is less than 6500 (also if the PF qualifying salary, ie, basic salary, is less than 6500) then PF should be on than lesser amount.
Madhu.T.K

HI Madhu,
Thanks once again.
To sum it up, our understanding is that if the basic salary(100% of Gross) after LOP is less than Rs 6500/-, then PF contribution is mandatory on the prorated figure, and if it is equal to or more than Rs 6500/- after LOP, then PF contribution is NOT mandatory since it would have crossed the limit of PF perview.
Please correct me if im wrong.

Let me say like this: If PF qualifying salary (let it be basic salary, basic + DA or consolidated sum) is less than 6500 after LOP, then contribution should be made on that amount and if the pF qualifying salary is still more than Rs 6500 even after LOP, then contribution should be made on Rs 6500. In the latter case, no proportionate deduction of salary on 6500 should be made on the LOP days so as to decide on the PF qualifying amount.
PF once started will have to be continued even if the salary increases beyond Rs 6500.
Madhu.T.K

Hi Madhu.
There is a small confusion.
As far as our understanding is, Rs 6500 basic salary is above the PF qualifying salary. So PF contribution ceases in this case.
Citing an example: If the basic(100% of gross) is Rs 6500/- (Note that the PF has ceased in this case since it is above the PF qualifying salary) and the employee is present only for 10 days in the month, his basic(100% of gross) drops to Rs. 3,300 approx. The next month he is present all days. In this case is it possible that we deduct PF for one month (10 days) and then next month make no deduction due to full attendance?

An employee once covered under PF will continue to be covered irrespective of any change in his salary. Therefore, there is no question of non coverage once his salary becomes more than Rs 6500. Of course, if at the time of his joining his PF qualifying salary is more than Rs 6500, you can exclude him right from the beginning but not possible after giving coverage. This applies to an employee who was earlier covered by PF under his earlier/ previous employer but remains unsettled on leaving that establishment but joins your company at a PF qualifying salary of more than Rs 6500.
Regards,
Madhu.T.K

So if his PF qualifying salary is more than Rs 6500 at the time of joining, irrespective of LOP he will NOT be covered under PF? But if at the time of joining his PF qualifying salary is less than Rs 6500, irrespective of LOP, there WILL be PF coverage? Am I right?
If yes then, what happens if the employee joins at 6000/-, gets an increment to 6500/-, and wishes to stop his PF contribution? Does he have the right to stop? As a company are we required to get that in writing from the employee that he wishes to cease his PF contribution?

Dear,
If at the time of joining, basic salary of employee is more than Rs 6500/- then he has option of not going for PF coverage. If opts so, even if his basic salary is less than Rs 6500/ due to Leave without pay in any specific months, then we are not required to deduct his Pf contribution.
Hope this will clear your doubt.
Thanks,
Santosh


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