Bijay_majumdar
Freelancer In Hr &indirect Taxes For
+1 Other

Hello, In the new wage code it has been mentioned that Basic Salary should be 50% of gross salary less allowances.

My questions are in lines of that

1) While calculating Gross salary is HRA as an allowance be reduced from Gross Salary (considering that the HRA is 50% of Basic in case of Metro).

2) Can Medical and Travel Allowance be reduced from Gross Salary for calculating the Basic salary.

3) Is performance-linked bonus to be considered as part of Gross salary. Further, if Performance linked Bonus(if is not considered to be part of Gross salary) can it be as high as 30% of CTC?

4) Finally what is the concept of Basic salary is it on Gross Salary or CTC (which takes into account gratuity, Group personal accident insurance policies, Performance linked bonus, Employer PF contribution)

Please clarify.

From India, Mumbai
Usually basic salary or wage is notified for all class of employment.
Similarly The DA or special allowances are also notified.
In general Basic wages are considered as Basic wage plus the DA.
As per new code.excluding HRA, any other allowances if given and croses more than the 50% of the basic wage then it is required to be merged with Basic to arrive at calculation of basic wage revised.
The concept of CTC has nothing to do with this.
Other heads like Bonus gratuity, leave with wages etc are calculated as per the applicability and entitlement towards employee fringe benefit.
For calculating CTC as a part of budgetary expenses all heads needs to be inculded which determines the cost incurred towards hiring an employee.
Hope this helps.

From India, Vadodara
Thanks for the response.
Can u further clear my these queries.
My questions are only specific to wage code
That is it mandatory to have a BASIC salary of upto 50%?
That as per the PF judgment of Supreme court all other allowances and specifically Special allowance will also be considered as BASIC. So is that applicable here too. BASIC + Special allowance = BASIC Salary for the 50% threshold?
Is performance linked bonus part of Gross Salary as per the new wage code>

From India, Mumbai
Explanation on Wages Definition under Wage Code and other Codes ( Same definition in all Codes)

There are 3 important steps in the definition of wages -

1. Wages means all remuneration by way of salaries, allowances or otherwise & includes Basic Pay, Dearness Allowance & Retaining Allowance if any.

2. Exclusion List –

(i) Statutory Bonus,( yearly component -part of CTC )

(ii) Value of any house accommodation or the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of the wages.

(iii) Any contribution paid by the employer to any pension or provident fund,

(iv) Any conveyance allowance or the value of any travel concession (LTA, LTC etc.- Yearly component part of CTC),

(v) Any sum paid to the employed person to defray special expenses entitled on him by the nature of his employment,( May be Incentives- production, profit sharing etc.)

(vi) House Rent Allowance,

(vii) Remuneration payable any award or settlement between the parties or an order of a court or tribunal,

(viii) Overtime,

(ix) Commission Payable to the employee

3. If the payment made by the employer to the employee as per exclusion list exceeds 50% of the all remuneration (CTC) calculated under this clause, the amount which exceeds 50% shall be deemed as remuneration & shall be accordingly added in wages.

As the exclusion list is exhaustive & if any employer is interested to pay to any other pocket other than exclusion list (e.g. CCA, any kind of Incentive, Leave Encashment, Insurance etc. as a part of CTC) may or may not be considered as a part of the wages.( Not properly explained under wage code ). Some of the above items may be covered under exclusion clause 2(v) above.

To determine the wage structure for any employee let us consider the following examples :

Option - 1

Monthly CTC : 20000/-

Basic : 10000/-,

Employer PF : 1200/-,

Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).

Therefore, the other allowances will be (10000-1200-833) = Rs. 7967/- (Appx. 40% of 20000/-).

Hence, the Monthly Gross salary will be (10000+7967) = 17967/-

Therefore, as it appears that basic is becoming 60% appx. & other allowances are 40% at the monthly gross level

This % will again be changed ( more Basic % ) due effect of OT, LTA, Higher % of Bonus etc..

Option – 2:

Monthly CTC : 41667/-

Basic : 20833/-,

Employer PF : 2500/-,(Paid 12% of entire Basic)

Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).

Therefore, the other allowances will be (20833-2500-833) = Rs. 17500/- (Appx. 42% of 41667/-).

Hence, the Monthly Gross salary will be (20833+17500) = 38333/-

The equation will again be changed if there is LTA or other payments.

Option - 3

Monthly CTC : 41667/-

Basic : 20833/-,

Employer PF : 1800/- (PF Basic restricted to 15000/-),

Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).

Therefore, the other allowances will be (20833-1800-833) = Rs. 18200/- (Appx. 43% of 41667/-).

Hence, the Monthly Gross salary will be (20833+18200) = 39033/-

In all the cases, if we consider higher percentage of bonus & overtime, it will be safe side to make Basic 65% to 70% of the monthly gross salary & 35% to 30% is the other allowances within the exhaustive list of exclusion ( HRA, Conv. etc.)

For argument shake if we consider Basic is 50% of Monthly gross then in a monthly gross of 20,000/- basic will be 10,000/- and other exclusion allowances will be 50%. Employer contribution to PF is also in the exclusion list which is in this case 12% of 10,000/- = 1200/- per month. If that is add back to other allowances as per proviso, the other allowances will be 11,200/- which is more than 50% of monthly gross. Not complying the definition of wages.

Therefore the calculation of New Remuneration structure should start from CTC and CTC may be as per guideline of exclusion list provided in the definition of wages.

S K Bandyopadhyay ( Howrah,WB)

+91 98310 81531

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From India, New Delhi
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