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Rahul Chhabra
Hr Professional
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Friends, Please clarify the following for employees from IT (Information Technology/Software) industry :
- Can an employer limit the basic to just Rs.15,000 even for an employee with CTC of 12L by paying the rest under 'Special Allowance' category so that the burden on gratuity for the employer be reduced? Is this not illegal?
- Is there a provision for an employee drawing a CTC of Rs.12L, to pay more than 12% of the basic of Rs.15,000 (Rs.1,800) as employee contribution for PF. In such a case, is the employer obligated to match employee's contribution?

Dear OOT,
1. Can an employer limit the basic to just Rs.15,000 even for an employee with CTC of 12L by paying the rest under 'Special Allowance' category so that the burden on gratuity for the employer be reduced? Is this not illegal?
Response - Yes, as far as the employer is paying above the minimum wages, can limit the basic pay to Rs. 15,000 even if the total compensation is 12 LPA. Though this is a very primitive approach and is neither Fit not competitive.
2. Is there a provision for an employee drawing a CTC of Rs.12L, to pay more than 12% of the basic of Rs.15,000 (Rs.1,800) as employee contribution for PF. In such a case, is the employer obligated to match employee's contribution?
Response - Yes, the employee can pay over and above the 12% of 15,000 as Voluntary PF. however this does not obligate the employer to match employee's contribution.
Regards
Rahul

Dear Rahul,
Thanks for your useful reply. Appreciate it.
Continuing with this, do you mean to say that for computation of gratuity, only this Basic of Rs.15,000 is taken into consideration (ofcourse, there is no DA component in the salary). The reason, I am asking this follow up question is that I remember to have read somewhere that in such circumstances, the Special allowance, which cannot be justified as one-time payment like bonus/performance incentive also has to be added with Basic for computing the gratuity.
Please comment. Thanks in advance.

For computation of Gratuity, only Basic and DA are taken into account irrespective of what other allowances are paid to an employee. Regards Rahul
Rahul, thanks again for your response.
Dear Rahul As per GO of States or Central Special Allowance is also known as DA Regard,
Hi, Thanks for your response. Can you please share any such GO? Regards OOT
Dear OOT,
The definitions of salary or wages under EPF Act & Gratuity Act is two different things. Don't extend same components to each other. You should follow the definitions given therein, these Acts, which are as follows:
THE EMPLOYEES' PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS
ACT, 1952 [(Act No. 19 of 1952) [4th March, 1952:
xxxxx
"2. Definitions. - In this Act, unless the context otherwise requires,-
(b) “Basic wages” means all emoluments which are earned by an employee while on
duty or [on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-
(i) The cash value of any food concession;
(ii) Any dearness allowance (that is to say, all cash payments by whatever name
called paid to an employees on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;
(iii) any presents made by the employer;
XXXX""
And the Gratuity Act -Payment of Gratuity Act, 1972
Section 2 -
(s) "wages" means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which arc paid or arc payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowances. xxxx"
Pl.note these definitions are not interchangeable.

Reply to the query has become complicated now. Please conclude in YES or NO
Hi Kumar, Thanks for your detailed response. Appreciate your help.

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