Prvn_garg
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Glidor
Hr Consultant
Masifhe
Hr Assistant
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Respected all, With the reference to supreme court judgment every company is going to change their salary structure . We have many number of workers and their salary approximate 15000 thousand gross salary. Can we make our salary structure 60% basic and 40 % of gross salary. The Minimum wages of all about 6400 rs per month and our structure as per beneath .
Basic HRA CA Uniform Allowance Medical Allowance Gross Salary
6413 2952 2952 1476 967 14760
We want to change it
Basic Salary is 8856 60% ON GROSS SALARY
HRA 5904 40 % GROSS SALARY .
Can we make such structure. Kindly advise me in this context. If anything wrong on aforesaid salary structure then let me know. Your valuable suggestion will be highly appreciated.
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Hi,
You have misunderstood the recent judgement of SC as per my opinion.
All fix components of break up will attract PF as per my understanding. HRA will attract the PF as well.
Otherwise many companies keep HRA only in their salary break up to avoid PF liability.
Request you to read judgement again or go for good consultant.
My OPINION..
HRA is also part of salary as per current apex court verdict,
so to claim HRA as allowance the employer has to either pay the rent directly to landlord or to obtain the rent receipts copy ( form 12BB of income tax will work perfect on the subject)
as per current verdict all components which do not qualify as Exempt allowance under income tax are now to be get added in EPF salary also. (overtime is only exemption, but subject to the permission of inspector of factories /shop & establishment)
Dear All,
I am sorry to state that you are wrong instating that HRA is included for calculation of PF. Please find below the excerpt form the judgement
"The aforesaid provisions fell for detailed consideration by this Court in Bridge & Roof (supra)when it was observed as follows:
“7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with s. 2(b). There is no doubt that "basic wages" as defined therein
means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash.
If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions that presents made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or
payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.
8. Then we come to clause (ii). It excludes dearness allowance, houserent 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.
This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the
exceptions contained in clause (ii) refer to
payments which are earned by an employee in
accordance with the terms of his contract of
employment. It was admitted by counsel on both
sides before us that it was difficult to find any one
basis for the exceptions contained in the three
clauses. It is clear however from clause (ii) that
from the definition of the word "basic wages"
certain earnings were excluded, though they must
be earned by employees in accordance with the
terms of the contract of employment. Having
14
excluded "dearness allowance" from the definition
of "basic wages", s. 6 then provides for inclusion of
dearness allowance for purposes of contribution.
But that is clearly the result of the specific
provision in s. 6 which lays down that contribution
shall be 61/
4 per centum of the basic wages,
dearness allowance and retaining allowance (if
any). We must therefore try to discover some basis
for the exclusion in clause (ii) as also the inclusion
of dearness allowance and retaining allowance (for
any) in s. 6. It seems that the basis of inclusion in
s. 6 and exclusion in clause (ii) is that whatever is
payable in all concerns and is earned by all
permanent employees is included for the purpose,
of contribution under s. 6, but whatever is not
payable by all concerns or may not be earned by all
employees of a concern is excluded for the purpose
of contribution. Dearness allowance (for examples
is payable in all concerns either as an addition to
basic wages or as a part of consolidated wages
where a concern does not have separate dearness
allowance and basic wages. Similarly, retaining
allowance is payable to all permanent employees in
all seasonal factories like sugar factories and is
therefore included in s. 6; but houserent
allowance is not paid in many concerns and
sometimes in the same concern it is paid to some
employees but not to others, for the theory is that
houserent
is included in the payment of basic
wages plus dearness allowance or consolidated
wages. Therefore, houserent
allowance which may
not be payable to all employees of a concern and
which is certainly not paid by all concern is taken
out of the definition of "basic wages", even though
the basis of payment of houserent
allowance
where it is paid is the contract of employment.
Similarly, overtime allowance though it is generally
in force in all concerns is not earned by all
employees of a concern. It is also earned in
accordance with the terms of the contract of
15
employment; but because it may not be earned by
all employees of a concern it is excluded from
"basic wages". Similarly, commission or any other
similar allowance is excluded from the definition of
"basic wages" for commission and other allowances
are not necessarily to be found in all concerns; nor
are they necessarily earned by all employees of the
same concern, though where they exist they are
earned in accordance with the terms of the
contract of employment. It seems therefore that the
basis for the exclusion in clause (ii) of the
exceptions in s. 2(b) is that all that is not earned in
all concerns or by all employees of concern is
excluded from basic wages. To this the exclusion of
dearness allowance in clause (ii) is an exception.
But that exception has been corrected by including
dearness allowance in s. 6 for the purpose of
contribution. Dearness allowance which is an
exception in the definition of "basic wages", is
included for the propose of contribution by s. 6 and
the real exceptions therefore in clause (ii) are the
other exceptions beside dearness allowance, which
has been included through S. 6.”"
It is clearly evident that the SC has used its earlier decision to exclude HRA for calculation of PF as it is not an allowance that is uniformly paid across organization to everybody
Please find attached the judgment too for reference

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HRA by definition is outside the purview of "basic wages" under Section 2 (b) of the Act. Components of wages like incentive bonus earning of which is dependent on the output produced by the employee concerned and such other allowances that are not "universally" applicable to all the employees or a category of employees are not to be included in the basic wages to calculate PF as per the latest judgment of the Supreme Court. Consequently to include HRA for the purpose of calculation of PF would be erroneous.
HRA is a subject of many departments, and if it gets taxable at one place, it would invite the attention of EPF also, thats why we suggest employer to get 12BB declaration from employees so prevent them from any unwanted query from EPF
Dear All
Basic wages Dearness allowance (all cash payments by
whatever name called paid to an employee on
account of a rise in the cost of living)
Retaining allowance
Cash value of any food concession
However, ‘basic wages’ does not include cash
value of any food concession, Dearness allowance,
House rent allowance, Overtime allowance, Bonus,
Commission or any other similar allowance payable
to an employee in respect of his employment, any
presents made by the employer.
As per aforesaid matter HRA exclude from the basic salary .Therefore your are requested to suggest me said salary structure is ok or not .I am not clear yet in this context
Dear All,
Being a HR We have to think both side employer as wall as statutory compliance as per said judgment .Hence i post this matter on best platform where i am seeking your value able suggestion
Hi,
Greetings!!!
I am completely agreed with all the answer but i have one question.
If its all about salary head and break up, Should i keep only HRA in my salary break up to avoid PF Liability, Bonus Liability, Gratuity liability and other all social security benefits ?
E. g
Salary 15,000 CTC
Salary break up
HRA 15,000
Gross salary - 15000
It means only liability of ESIC and professional tax else no liabilities from employer side ? ( Esic applicable area for liability else no liability )
No PF and other liability as salary head is HRA ?
I am raising a question nothing else.
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