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What is the use of bifurcating salaries into many parts?

Example - If the gross salary for new employees = 15000/-. Isn't it more convenient for the employer to let it be 15000/- rather than breaking it up since, with this salary, the employer needs not pay any PF. Just ESI would be enough but if he breaks into parts, he will have to pay both ESI and PF.

Another Query - How to combat when new employees join and don't agree to deduct PF and ESI amount from salary? Does the employer need to pay both side's contributions in such cases? This generally happens in small shops.

Also,

can Gross be divided into 2 parts as Basic + DA and HRA? Is it acceptable? Can we club and show Basic + DA? Is there any fixed proportion for Basic/DA/HRA, etc or can we make any proportion? Does this clubbing harm the firm in any way?

From India, Bengaluru
Dear Friend,
First, we have to understand the concept of wages.
The share of the produce paid to labour for its production activity under the contract of employment, either express or implied is called ' wages '. It was in kind only in the barter economy. When money has become the medium of exchange, the concept of wages changed into (1) Nominal Wage or Money Wages and (2) Real Wage. While the first one refers to the total amount of money paid to the labour in the process of production, the second one i.e., real wage means translation of money wages into real terms or in terms of commodities and services that money can buy. It follows, therefore, that though money wages remain the same, real wages are reduced by the hike in the prices of commodities and services. The inevitable conclusion thus becomes is that real wages also includes extra supplementary benefits along with the money wages. Hence the bifurcation.
Base or primary wages refers to the basic pay which is fixed in the wage/salary structure. Supplementary compensation in the structure refers to fringe benefits such as housing, medical aid, paid leave, retirement benefits etc., paid in addition to basic wages. Normally, the fringe benefits which have to be paid periodically along with basic wages to keep the money wages on par with real wages is called allowances. Of these allowances, those allowances viz., dearness allowance, retention allowance are taken into account along with basic wages for the purpose of computation of fringe benefits like bonus, gratuity, contributions to social security measures. In the absence of bifurcation, the entire gross wages should be taken into account for the calculation of fringe benefits which are the indirect financial commitments of the employer. That's the reasoning for bifurcation of the wage/salary into basic and other allowances. There is no statutory compulsion for bifurcation of wages for wages is to be taken as a single package only as a mutual consideration under the contract of employment. However, to curb the tendency of tactful avoidance of indirect commitments by some employers by means of bifurcation of the wage structure, the Code on Wages,2019 has redefined the term wages u/s 2(y) which you should go through in order to find out the answer for your last query.

From India, Salem
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