Partner - Risk Management
Sr. Manager Hr/admin
Ashutosh Thakre
Hr Professional
Hr Executive
+2 Others

Thread Started by #Anonymous

Dear Friends,
I am working with a Pharma Pvt. I need your expert advice regarding Basic & PF. My company has hired an old age consultant who doesn't know anything about latest rules and regulations of the legal compliances. We have total 400 employees in our company & we asked him to suggest some ideas of cost cuttings then he suggested us to increase the basic salary of all employees as much as possible and to exempt the employees from PF which may help us to reduce the cost of company. I found the idea is not worth as 40% basic is common rule everywhere. We can not make fool to employees by adopting such useless tricks.
Kindly help me in this which very much important for me. Waiting for the reply.
Thanks & Regards,
Ms. Sneha
5th November 2015 From India, Kolhapur
If you increase basic salary then other Liability like Gratuity ,Leave encashment and other liabilities will increase.
If you want to reduce your Liability then you have to prepare Proper Policies,Pay structure.
you have to work on Performance management system,Manpower Planing and analysis on company direct and indirect expenses.
If you wish to learn Practical HR Things then you can join us on Band app.
5th November 2015 From India, Faridabad
Hi Sneha
As Amit suggested if you increase the Basic wages sure other expenditure also will increase.
One more point you have to keep in mind is if any employee is covered under PF then even if the wages is above 15000/- then it is mandatory to contribute EPF for department. You can't skip the EPF contributions by increasing the wages
5th November 2015 From India, Bangalore
Thank you so much all for your reply.
But i have some queries like Amit sir said it will increase the cost of leave encashment which is not there in our company. We are not in manufacturing we are a Marketing company so it is risky to adopt that leave encashment policy.
Jeevarathnam sir thank you for reply... It means PF is compulsory upto 15000 basic to each & every employee. If any of employee's basic is 30000 it doesn't mean we would exclude him from PF.. Is it..???
My mail id is
7th November 2015 From India, Kolhapur
Dear Sneha, As you have already been deducting the PF, you cannot stop the deductions on the ground that the Basic has increased. You will still need to pay the same. Regards, Ashutosh Thakre
7th November 2015 From India, Mumbai
Your consultant will get you into trouble.
Exemption from PF is available only to an employee who has joined the company above the cutoff limit (currently ₹15000) and who does not have a PF account at time of claiming exemption.
So no, you can not stop PF payments.
8th November 2015 From India, Mumbai
Dear Sneha,
Basic 40 % and HRA 30 % is a mandatory concept of statutory. Accordingly you can structure your pay components. However other than HRA all other components is a must to pay as PF. You can clarify this with Para 2 Section-29 of EPF 1952 . As Amit rightly said any change in Basic will affect the CTC and either the employer or the employee will be benefitted.
Exemption from PF is a lame excuse and not advisable either. As a perfect HR you revise your pay components in accordance with the existing minimum wages act and follow the payment wages act.
Any query in regards to industrial dispute or legal implications you may mail in to my official mail id
Thanks & Regards, Wish You many success to progress
9th November 2015 From India, Chennai
Can you enlighten me, under which law is basic and HRA mandatory to be at 40% and 30% ? To the best of my knowledge, there is no such regulation. Basic can be even 100% of salary. Only in a few states HRA is mandatory. Like in Maharashtra HRA needs to be 5%. It is the wishes of the employer how he wants to structure his wages and salaries. Please be careful of what you write as people will be mislead and will take a wrong decision.

10th November 2015 From India, Mumbai
I do accept Saswat Banerjee.
There is no any regulation for breakups. The only reason for breakups is just to reduce the Tax as well as some of the overheads.
I hope in Maharastra HRA is 50% & not 5%. I hope its just the typing mistake.

10th November 2015 From India, Bangalore
In Maharashtra the HRA is mandatory for 5%. 40% or 50% is for tax benefits.
Also the Mandatory Basic can only be what ever is specified in the the Minimum Wages (applicable to those categories).
The Basic being 35% to 50% of the CTC, is more of a practice and not a mandatory requirement.
Ashutosh Thakre
10th November 2015 From India, Mumbai
There is an act called Maharashtra minimum HRA act
It provides that every worker will be entitled to HRA of 5% of wages.
Ofcourse it's minimum and employer can give more.
The intended effect is that apart from minimum wages the worker gets 5% more.
Effectiveness ? I think none.....
But most laws make years ago are not effective anyway today .

11th November 2015 From India, Mumbai
Mr. Bannerjee,

Please dont go by your knowledge. I have precisely mentioned you the act. Kindly go through that and get refreshed. Why 30 % of HRA is said. Understand that clearly before you get into discussion. HRA is a component where you can have employer benefit by excluding from the PF segment. (Maximum ceiling of 30 % HRA)

We have personally experienced from the EPFO office in regards to the PF payment. Other than HRA every component of your company pay structure whatever way you design has to to be brought into PF deduction.

Why we say Basic 40 % to 60 % ? It is to curtail the cost of employer going high. To restrict the Basic within the minimum criteria of 40 % atleast. If you increase the basic obviously the cost of employer will increase. So we need to sustain with the minimum requirement of fulfilling EPFO act. Just imagine what will happen if you keep Basic 100 %. It may be benefit for the employee and not for the employer. Just be sensible gentleman.

To englighten yourself I suggest you to clarify this point with your Regional Office in person through your known source. We generally dont pay PF for other components. But for your better clarification kindly approach EPFO and the act mentioned.

This I categorically mentioned because we were the victim of PF Office and had to adjust with them. The method you know.

I would appreciate if you can inform me after clarification. Thank you.
12th November 2015 From India, Chennai
Dear Satish,

Excuse me for my blunt reply, but as you have been blunt, i have decided to be very frank in my post.

This is what happens when we do not read the Act properly. The PF officer has taken you for a royal ride. Kindly check the attached circular, which clearly says that PF is only deducted on Basic+DA+any retention allowance. Rest other allowance do not form part of the PF deductions.

Also the Basic being between 35% to 60% is not a rule any where, it is clearly a thumb rule and this is adopted for cost saving purposes on varying basis by companies.

Therefore before we criticize anybody kindly know the facts for sure. The entire intention of asking if there is a law for Basic being mandatory was as you have mentioned that those percentage were mandatory as per statutory law. Which itself is false. None of the statutory rules says any percentage.

The HRA to be 40% or 50% is again only for Tax benefits on HRA as per the IT act. (40% for non metro cities and 50% for metro cities).

So before you can say that we speak only on our knowledge, please be aware of the laws and rules, yourself. If you have any statutory rule, which says any percentage as mentioned by you, please share the official annexure for the same.


Ashutosh Thakre
16th November 2015 From India, Mumbai

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Thank you soo much all for your valuable reply. This will really help me in taking decisions.
One thing i want to make confirm that if we are offering 50000/- to a newly hired employee & if he is already contributing into PF with earlier company then by default we must include him into PF. Is it?
16th November 2015 From India, Kolhapur
Yes you need to include him in the PF, as it was earlier a member of the PF. You can limit the deductions to Rs. 12% of Rs. 15,000/- p.m. thou. Regards, Ashutosh Thakre
16th November 2015 From India, Mumbai
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