40% Of Gross Salary As Basic. Is It Legally Correct? - CiteHR
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Excellent reply by Mr Banerjee, as well Mr Bhaskar. Very clear, transparent and absolutely no confusion. We, readers, really had good updation in our knowledge. Thank you Sirs, both of you.
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Megha,
This type of problems arise only in the software/BPo offices. However you chek with Karnataka Minimum Wages periodically and accordingly the basic wages in your rolls should not below the minimum wages (basic+da). Balance amount you can divide into HRA and Other heads. Normally 50% of the total as basic and 40%of Basic as HRA is advisable. For the persons drawing at par of minimum wages the entire amount should be as basic.
Also the see the judgement on this subject which may be useful to you (already available in this cite itself)

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Dear Megha,

I second the opinion of Mr. Saswata. Now let us take a case study to explain you in a simple way.

For example, you have engaged a salesman in your establishment at Chennai, which is coming under TN Shops & Establishment Act. And you are paying him a gross salary of Rs. 10000/- pm. Normally, as a customary practice,if you keep 40% of GP as Basic Pay for the subject case, it works out to be Rs. 4000/- .

But, as per TN S&E Act, the minimum wage for a salesmen who is working in Chennai is Rs. 2578 (Basic wage) + Rs. 2450 (VDA) = Rs. 5028 per month.

In such a case, if you do not want to alter the Gross Pay, then you may fix the wage as follows: -

a) Basic Pay (incl VDA) - Rs. 5100 (Rounded off to the higher rate of government notified minimum wages)

b) HRA (50% of Basic) - Rs. 2550

c) Conveyance - Rs. 800

d) Other Allowances - Rs. 1550 (You may have the components as fixed by your company)

To put it in a nutshell, in such cases where 40% of Basic falls below the notified minimum wages, keep the government notified minimum wages as Basic Pay and 50% of Basic pay as HRA, A conveyance allowances of Rs. 800 and the balancing amount as per your company policy may be added to the component to match the Gross Pay.

By doing this, you are complying with the statutory norms as well as taking care of the tax liability of the employee.

For higher pay band, you are at will to keep the components as long as it does not violate the statutory norms and the tax liability of employee.

Hope it will clear your doubts.

With regards,

P. Vathiraj

Associate Operations Manager

Aparajitha Corporate Service Limited
Dear Mr Vathiraj,
This indeed helps me clarify the issue.
Can I request you to give me the break-up for an employee belonging to shops & commercial establishment category in Karnataka?
The gross will be 6000 per month.
The employee works for a BPO process as a executive.
Thanks
Megha A
Dear Megha,
As per your statement, he is working in BPO industry, which is covered under Shops & Establishment Act and he is an executive which means he is in clerical cadre as per the traditional way of ranking.
And the minimum wages for those category in Bangalore city is Rs. 5629.20 /- per month (Rs. 4680.00 as Basic and Rs. 949.20 as VDA) which may be rounder off to Rs. 5700/- per month (Rs. 4700 as Basic and Rs. 1000/- as VDA).
Since you have mentioned that his Gross salary is Rs. 6000/- per month, you have to fix Rs. 5700/- as Basic and DA as specified in the above paragraph and the balance amount of Rs. 300/- may be fixed as Other Allowances (nomenclature of the component may be fixed as per your company policy).
Also, for your convenience, I am enclosing the Minimum Wages Notification of Shops & Establishment for the period from 01.04.13 to 31.03.14 for your ready reckon.
Regards,
P. Vathiraj
Associate Operations Manager
Aparajitha Corporate Service Limited

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Megha,
There is no prescribed rule to maintain minimum basic .However, some of the state government have notified for deduction of PF on total wages prescribed under minimum wages for different schedule of employment. Payment of wages primarily tells on timely payment and deduction and minimum wages is the minimum rate of wages per day/per month. These two acts are for different purpose.
PF and Mis Provisions Act talks mainly on covered employee(Basic +DA<Rs 6500 pm) and excluded ( Basic +DA.>Rs 6500pm) if establishment is covered and rate of contribution. You also need to check from RPFC the provisions of infancy period if you could avail as there are various judgments on that.
You need to fix the basic wages below Rs6500/- (starting scheme)or you also have option not to cover by declaring them as excluded employee.
Mritunjay Nath Sahu
GM(HR)
Let me ask a question for you, why a salary is divided into Basic, DA and other allowances etc. and what if it is kept consolidated? The main and obvious reason for such division is to avoid contribution of PF. Unfortunately, the EPF Act talks of Basic and DA only. Hence what is not shown as Basic and DA in the salary is not taken for PF contributions. Though there is limit of Rs. 6500 p. m. for PF contributions, one can contribute over and above the limit and the company can also do the same. But to avoid this, the artificial division is made in salary. But the ESI act does not make such a classification and so, the entire amount has to be considered if salary is upto 15,000 pm.

The minimum wages is a form of paying wages which has a Basic Wage to one part and something in tune with the dearness called special allowance (name may differ) to the other part. As long as any management is paying not less than minimum wages declared from time to time, the format or classification of wages becomes immaterial. So whether 40% of Gross earnings are shown as Basic and remaining as other allowances make no difference as far as MW act is concerned. But it certainly makes a major difference for PF Act. Hence, the idea of making such artificial or superficial classification of salary was developed just to reduce PF liability about which none is speaking.
In recent Inspections in many organisation PF Authorities and i had gone through into that. One E.O suggested us to maintain the PF Salary should not be lesser than 70% of total amount.
Regards,
T Muralidaran
Hi,
This was really helpful information. Thank you so much.
Kindly clarify the following :
We are operating a Software Development firm in Chennai and would like to know the minimum 'Basic' to be paid to the employees as per Minimum Wages Act of Tamilnadu for 2013-14 Year.
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