Sr. Manager Hr/admin
Dy-manager - Hr & Administration,
Private Consultant On Labour Laws
Assistant Manager - Hr
I strongly disagree with Smirti. But this is my opinion. Seniors should clarify this. But I would like to inform you that HRA is only given as 40% of basic in non-Metros and 50% in case of Metros. As it comes to basic calucaliton it must satisfy two constraints.
1 = > Must satisfy the minimum wages of the State. This is the prime most duty. Eg: MW of unskilled labour in Odisha is Rs. 150.
His emoluments are
Basic : 3900 (3900/26 = 150 i.e Minimum wages is satisfied here)
HRA : 1560
Spl allowance: 540.
Gross : 6000.
Here the basic is 65% of gross. But still this is authorized by the labour officials. Why? Because the MW act is the base for the basic. You can give basic from 30% or what so ever. But pl make sure you satisfy the minimum wages for the concerning state.
2 = > THe basic must nopt be less that 30% of the gross.
Hope it was helpful.
As Yeshwanth advised basic wages should not be lesser than the minimum wages act pertaining to the state wages act.
As per my knowledge there is no any Rules that Basic should be 50% or 60% on the gross. But sometimes PF department will argue with the same as basic should be atleast 50% but you shall defend by saying our basic is above or equal to Minimum wages act and that is the norms of our organisation.
As far as HRA is concerned for Metros 50% & For Non-Metros 40% are exempted from Income Tax.
The salary bifurcation is just to reduce the tax for the employees who are under taxable income and there is no any rule for bifurcation
With reference to your quary, Actually the total wages will be separation of 60 and 40 ratio. The 60 % must be Basic salary and 40% will be divided other allowances like ( HRA -10%), Washing Allow - 10 %) , LTA - 10 % , others - 10 %.
But you have to check Minimum wages also it must me more than covered Basic salary. ( it usefull of submission of ESI contribution otherwise you will be responsible for at time of ESI INSPECTION / EO INSPECTION / GOVT. autharities...
I agree with Sh Jeevarathnam that there is no rule to fix basic into any ratio of 50% or 60% on the gross. The employer normally fix a lower basic so that he has to contribute less PF dues payable to the employees. At times, the employer contracts out any job to the vendor and make him agree to reimburse a lesser amount of PF contribution in respect of the contract labour whereas the vendor has to pay the contribution as per provisions of PF Act . In that case the vendor tries to limit the basic to 50% or 60% on the gross to save money.The PF dept. always insists to pay both the PF contributions (Employer as well as Employee) on the total salary which should not be less than the prevailing minimum rates of wages fixed by the states.
Recently a committee set up by the Labour & Employment Ministry, Govt. of India has submitted its report favouring clubbing of all components except HRA, overtime, bonuses and commission to be consider as part of the salary. This move will result in employers contributing more to EPF accounts of the employees.(copy attached)
Member since Aug 2011
What Yashwanthyashy said is right, as per minimum wages act your basic could be min 30% to 60% of basic. if your basic salary is low it will affect EPF contribution, Gratuity, bonus, paid leave in such kind of places. and that must satisfies with shops and establishments act. Ms.Padmaja's words applicable for only HRA, it could be 40% of basic for non - Metropolitan and 50% of basic for Metropolitan. for knowledge try to know the current CPI(Consumer price index) it will also help in some ways to fix your salary structure.
If i committed any mistakes seniors kindly correct me please.
Different members have their own views as per their working conditions, type of industry, strength of manpower etc.
We had come across a difficult task of convincing the Enforcement Officer, of PF department, during his inspection last year. The inspection was taken place for last 5 years. Finally he agreed for calculation of Basic & DA as 50% of gross salary, 50% of Basic+DA as House Rent Allowance, Rs.1250/- as Medical Reimbursement, Rs.800/- as Transportation / Conveyance allowance, Balance amount out of gross salary, we are giving as Management Allowance. (This we had applied in Mumbai city)
Hope everyone will agree to this.
For calculation of Basic the below points to be considerd.
1. Worker category like Unskilled , Semiskilled and Skilled
2. State basic minimum wages
3. Area of the estaiblisment
Example. In Maharashtra basic wages (monthly) is as per zone where the estaiblishment located
For unskilled = 4000/ & 4500/-
semiskilled =4500/ & 5000/-
skilled=5000/- & 5500/-
+ Special allowances
so we have to fix basic wages accordingly.
As far as my view is concern the basic salary should be kept between 50%-60% of gross salary, but always remember that basic wages can't be kept less than the minimum wages defined by the state time to time.
Thanks & Regards,
Sumit Kumar Saxena