In our company allowance are basic, da, hra, conveyance, medical, child, and special allowance.
Pl. Guide me which of allow. Are considered for pf deduction
9th May 2019 From India, Mohali
Dear Friend,
Except HRA, all other allowances considered as Basic.
9th May 2019 From India, Mumbai
Thanks sir for your prompt reply
Can we exclude employee from epf if basic and other allowances more than 15000
9th May 2019 From India, Mohali
request you to give us an example
9th May 2019 From India, Mumbai
Pl. see below example
Basic 11125
DA 3894
Conv 890
Special Allow 1720
Gross 17629
Pl. tell me in above case PF applicable or not
9th May 2019 From India, Mohali
if all allowances are more than 15000, in that case PF is to deducted or not
9th May 2019 From India, Mohali
If this is the salary on his joining, then he can be excluded.On the other hand, if he has been a member of PF (existing member) you should continue contributing at least on Rs 15000. This applies to a new joinee whose salary at the time of joining your establishment is more than Rs 15000 but was a PF member with his previous company and he has not withdrawn that PF on leaving that company.
9th May 2019 From India, Kannur
In appointment letter we are mentioning only Basic salary and Basket , here basket means-allowances in which employee are claiming as per the convenience of income tax rules, like H R A, Conv. etc
In this scenario although we are paying different components ( H R A , Conv. ) in salary slip ,but same are not mentioned in appointment letter as we stated above
Please let us know for the existing employee can we increase H R A ( here basic will remain same ) and merged all other allowances in H R A subject to maximum of 50% or 40 % to overcome the liability of P F
R K dixit
14th May 2019 From India, New Delhi
My advise is NO, because even HRA as a component of salary which is also part of the gross salary earned by an employee while on duty or on leave should be part of PF qualifying salary. What we have to note is that it is the salary including HRA which is considered for deducing salary if one has taken a few days leave without pay or it is the same gross salary including HRA which is paid if he is on leave with pay. that means if he is paid HRA outside the salary, based on the category of city of residence and employee grade, like what is being given to officers of public sector banks, then only it can be excluded from PF qualifying salary.
15th May 2019 From India, Kannur
Is there a limit on HRA as a % of Basic. Typically companies have 60% of Basic to 100% of baic. Can HRA be more than 100% of Basic?
31st May 2019 From India, Gurgaon
Dear Pradip,
Keep HRA 40% for non metro and 50% for metro for the purpose of exemption under Income Tax act.
31st May 2019 From India, Mumbai
For Income Tax purposes - yes, the 40% or 50% rule will apply. But, if HRA is say 100% of Basic, would it be excluded from PF computation.
4th June 2019 From India, Gurgaon
There is no such rule that you can keep the HRA at 40 or 50% of Basic. Even under Income Tax, we have different situations for exemption and it is not a flat 40 or 50% of basic wage. In the case of employees who reside in his own house how does it work? All that you have to note is salary is the amount agreed by the employee to do a certain work and it is that salary which is taken in to consideration when he absents without pay and it is that salary which is paid if he is on leave with pay. As such the gross salary is the salary which should qualify for PF subject to the ceiling which at the present rate is Rs 15000. After all, it is matter of Rs 1800 and I don't understand why the employers are again bifurcating this amount and showing a very small amount as basic wages and a huge amount as HRA? Is it that people work just to pay rent?
4th June 2019 From India, Kannur
I guess people want to keep Basic low as it has Gratuity implication.
4th June 2019 From India, Gurgaon
Under Payment of Gratuity Act also the meaning of Salary is the same and I am sure the next battle will be for that. Many establishments now provide their gratuity fund based on the basic salary of the employees. But under the Payment of Gratuity Act also the wages means all emoluments which an employee earns while on duty or on leave. Here also the same principle that I have explained in the previous post can be applied. That is, if the wages paid for your paid leave or the wages deducted for your unpaid leave is based on gross wages, this is the wages as per agreement and there cannot be any dilution in itand this should be the base for calculation of Gratuity also.
4th June 2019 From India, Kannur
Dear Madhu Sir,
Can you please share different situations for claiming exemption under HRA (please mention the section) for our knowledge.
4th June 2019 From India, Mumbai
HRA is paid only to persons who work for us in the location but having his own house in some other place. Now when you hire a person, there will be an understanding that he has to stay in the location where he has to work and in order to make him available in the location we will offer, IN ADDITION TO SALARY, an amount with which he can take a house on lease. This is called HRA. Depending upon the category of employees, you can have different slabs of HRA. It can be a dormetry kind of arrangement with common bath room etc, the rent of which is paid by the employer himself, in the case of workers; it can be flats in the case of middle level employees or furnished villas for others. The cost of rent can be added to your CTC but not in GROSS SALARY. Obviously, for local employees or people from the same locality, this will not be available. That is not at all an issue also. Why we pay to to some employees? because we need them to be available in the place of operation.
In the above arrangement, if an employee could not come to office for, say, four days, due to some reasons and since he had no leave to his credit the days were marked as Leave without Pay, then he will get the HRA in full but four days salary on the basis of gross salary only be deducted. In the case of HRA as a component of gross salary he will not get it. The first case recognises that he is still in the locality though could not come to office and as such he should pay rent to the landlord in full even though he did not go to office for a few days (for the landlord whether he goes to office or not is not at all an issue). The when it is a part of gross salary he will lose it for four days. If it is lost there should be a reason. The reason is that he didnot attend to his office and as per terms and conditions of employment, HRA is a part of gross wages and that will be proportionally deducted when he is absent.
When HRA is paid over and above salary, that can be exempted from PF. But when it is included in the gross salary, it should be considered as part of PF qualifying salary
4th June 2019 From India, Kannur
Dear all
I have a query related to new pf ruling by SC
In our company we have allowance such as basic+da, hra, conveyance, & medical allowance.
Bt only to 50% of employees we give all of the above components & remaining 50% employee only Basic +DA & hra
As per SC rule spl allowance should be included in pf calculation
But my query is in the above case should the new ruling be followed in this case? Bcoz all of the components are not universally paid to all employees
Pls guide me
4th June 2019 From India, Mumbai
The Supreme Court has never said that Special Allowance should be part of PF qualifying wages but the court has only said that special allowance paid to all employees should be part of wages and if any allowance is paid to a particular category of employees depending upon the risk involved, or special skill required to do that work, that can be excluded from wages. There can be cash handling allowance to those who handle cash, night bata for people who work in night shifts, and these are special allowances and since these are not paid to all employees you can exclude them from PF qualifying wages.
If your Basic + DA part is reasonably good, then there will not be any problem. Problem comes only when the PF qualifying salary is very low and you don't even consider dearness allowance in the salary. Obviously, a salary much lower than the statutory minimum will be under scrutiny by the EPF Authorities even though they cannot direct the employers to pay as per minimum wages.
Moreover, if the PF qualifying salary is more than Rs 15000, nothing said in the Court ruling will apply.
6th June 2019 From India, Kannur
Dear HR fraternity,
Due to amendments / judgments on wage components, we wish to restructure the wage structure to get benefit from PF & ESI exemption, which are as follows:
Wage / Salary Components
Washing Allowance (Max-1000)
We propose to restructure the total gross salary into the above three components by fixing 61%, 35% and 4% respectively.
Also we seek clarification / best advice on the other allowances such as Attendance Bonus, Night Shift Allowance, Overtime wages etc., in view of PF judgment / ESI amendment.
Krishna Kumar
23rd June 2019 From India, Hyderabad
No comments if you wish to get out of ESI and EPF. Yes, you can get out of these social security schemes if you do not do any business. If you do any business and that also with the help of employees, they should be given whatever benefits are available to them. You should understand that these are very minimum amounts and taking these from them is unethical and against moral law. Again,if you give a good salary, certainly, you need not have to give ESI or PF. They will manage their medical insurance and old age living. Therefore, fix their salary at Rs 21001 to start with and avoid paying 0.75% of it as ESI and some 1800 as PF.
24th June 2019 From India, Kannur
Good Morning Madhu garu,
Your comments are perfect!
If the salary is more than 21000 automatically the employees are exempted under ESI Act and they will manage their medical issues. OK.
In view of changes in PF & ESI matters, the applicable wages to the employees / workers ranging from 15000 to 21000, which wage structure is the best one? Currently, we are having more than 5 wage components and we wish to rationalise and restrict them to three components as mentioned in my previous querry. The components such as HRA and Washing Allowances are already existing in our current wage structure. Also, a sudden increase of salary / wage is not in the hands of HR Department.
Even though if we implement the proposed salary structure, the TAKE HOME SALARY of the employee / worker will also be reduced to that extent. It is a major concern for the industry in the case of low salaried employees / contract workers, whose salaries are being protected in terms of the Minimum Wages Act.
Further, we wish to know how to calculate Gratuity and Leave Encashment of an employee? Whether it is only on Basic Wage or PF Gross (Basic + Children Edn. + Washing Allow.) as directed by SC .
In view of the above your expert advice is helpful to the HR community to avoid any show-cause notices from the respective departments.
Krishna Kumar
25th June 2019 From India, Hyderabad
I have already given so many comments on the applicable wages for PF, Gratuity, leave encashment, Bonus etc. To repeat in a single sentence,the wage which is taken for deducting the salary of an employee if he had taken LOP is the wage for deciding PF, Gratuity or retrenchment allowance or any thing. If for example, your salary is Rs 15000 and of which you have fixed Rs 6000 as Basic salary and you have been deducting PF on this amount only. Similarly,you take this amount for computing Bonus, leave encashment and obviously, gratuity. But if he takes a leave without pay, you will deduct Rs 500 from his salary. This is one 30th of 15000. If his salary is Rs 6000 and all the other components are just allowances, why can't you deduct only Rs 200, being 0ne 30th of Rs 6000?
Basic Salary means the salary as per contract of employment. Anything that you pay in addition to this is allowance and only such allowances can be excluded from PF, Gratuity etc. Obviously, for PF, the employer even has the privilege of restricting it to Rs 15000. Even HRA is part of salary if it is paid to all employees without considering whether he lives in a rented house or not. Washing allowance paid to employees to whom you have not provided uniform is also a part of salary even for calculating ESI.
Restructuring the salary keeping the cost to company unchanged based on changes in law is unfair. If it is permitted, then poor employees will become victims even when there is a hike in salary by means of a notification from the government. The employer will not hesitate to add the electricity charges of a ceiling fan put for an employee or the tea and snacks the employer provides for the employee in order to make it equal to statutory salary. Therefore, I will never give an advise as to how can you restructure your salary in order to protect your employer. I will only advise that PF is an investment and whatever deduction the employee may have in his take home salary is only temporary and being an HR person convince the employees that higher contribution would result in higher PF and higher pension.
25th June 2019 From India, Kannur
Thank you very much sir.
Krishna Kumar
25th June 2019 From India, Hyderabad
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