Nandhini Moorthy
Hi, I need few clarification and confirmation regarding to update in salary beak up details

Basic Pay : Gross *40%
HRA : 50% in basic pay
Medical allowances : Gross *17 %
Conveyance allowance: 1600 pm
Special allowance: 16%
Other allowance: 7 %

Is this the correct one? Can we include a special allowance of 22% instead of mentioned 7%?

Can special allowance exceed medical allowances?

Kindly do the needful

From India, Chennai
PROFESSIONALS AND BUSINESSES PARTICIPATING IN DISCUSSION
Madhu.T.K
Industrial Relations And Labour Laws
Nanu1953
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Madhu.T.K
3761

You can have your own structure for the salary. But what is the funda for having a bifurcation like this? When an employee takes a leave without pay, you will certainly deduct that day's salary on the total. If that is true, his salary for all other purposes including leave encashment, calculation of gratuity, PF contribution (subject to whatever threshold limit is available under the Act) is the total salary only. Now, if you want to have a system where the clerks in the Payroll department may be given a task and the pay slips generated should look very smart, then you can split the salary as you like.
From India, Kannur
nanu1953
275

Instead of framing one traditional remuneration structure and labor codes are knocking at door, it is better to restructure remuneration close to as per definition of wages under labor codes. As remuneration structure will random vary from organization to organization, it should be better to frame the structure as per guide line of definition of wages as follows:-

1. Determine CTC considering all components of remuneration including point (b) of the exclusion list if any. ( x)


2. Deduct Gratuity, ESIC Employer contribution if any and any insurance premium from CTC. (y)

3. If there are any others components - not payable to employees may be deducted from CTC. These will vary randomly from organization to organization. (z)

4. As per definition of Wages Basic & DA should be 50% of ( x - y -z ) . As labor codes has not yet been implemented , it may be 35 to 40% as present and when the codes will be implemented it may be enhanced to 50% at that time. There will be less problem when the labor codes will be implemented.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi
Madhu.T.K
3761

Even after the implementation of the new Labour Codes, you can continue to have the same salary break up. What makes it different from the present system is that Basic wages now has been misinterpreted but in the new code the "contributing" wages has been described, though with lot of confusions, Under the old system basic wages mean the total wages as per contract of employment. In the New Codes a description is given for basic wages that if you have more than 50 percent of allowances other than basic pay and dearness allowance, then the amount which exceeds that 50% shall be treated as part of wages. Unfortunately that 'allowances' include overtime wages, provident fund contributions including interest(!), bonus, conveyance allowance (which is excluded from the ESI contribution as per recent Supreme Court verdict) and commission based on sales. Nowhere it is stated that the basic wages should be 50% but when you calculate certain contributions you have to consider these allowances. Which all are the contributions? Pf has a capping of Rs 15000. ESI has its own limit for coverage like Rs 21000. Bonus has a limit of Rs 21000 with a calculation limit of Rs 7000 or minimum wages whichever is higher. These minimum wages or 15000, 7000, 21000 nothing has changed. In this scenario, I don't think that we should keep the Basic + DA at 50%. Moreover, when you deduct the loss of pay wages on the gross salary, what is the relevance in saying that your gratuity is based on your basic salary only????
From India, Kannur
nanu1953
275

I have explained the definition of wages as per different labor codes ( all have same definition) ) in this forum several times. However, once again explaining the same as below:-

1. Wages as defined has no relevance with contribution to PF, ESIC, Bonus calculation, gratuity calculation etc. Once wages ( Basic & DA ) is determined, contribution will be on the basis of the same. For determination of Basic & DA, CONTRIBUTION TO PF, ESIC ETC HAS NO EFFECT. Today the cap for PF contribution is 15K, ESIC 21K, Bonus eligibility cap 21 K etc. Tomorrow all of them will change with the years to go as a natural increase. Where the Basic and DA will be less than 15K after restructuring of wages as per new codes, then PF contribution will be on BASIC + DA + Other allowances as per Apex court verdict subject to cap of 15K. Gratuity as on date paid on the basis of last drawn Basic and DA which will continue even after implementation of wage code. I have came across with two situations - in one case at Odisha the labor officer instructed to pay gratuity on minimum wages as the Basic & DA was less than minimum wages prevailing at that time of payment which was appeared to me logical but not on gross salary. Another case where the gratuity scheme is with Vesuvius India Ltd ( MNC ) is up to 10 years of service the gratuity will be paid on 15 days basis, > 10 years but < 20 years of service - 21 days basis and for 20 years and more service on the basis of 26 days with no upper limit. But the calculation on the basis of Basic only not on monthly gross.

I hope all Indian organizations are paying gratuity on the basis of last drawn basic & DA not on monthly gross even after the verdict of Apex court regarding PF contribution. There is no harm in paying more gratuity if the organization has capacity to pay. Any payment of gratuity beyond the calculation of PG act will be taxable.

2.It is true that in the definition of wages no where it is mentioned that Basic & DA will be 50% ( of what ?). What is mentioned that if the payment made to employee under clause (a) to (i) of the exclusion list if more than 50% of all the remuneration calculated under this clause, then the excess amount above 50% will add back to Basic & DA.

Now what is all the remuneration calculated under the clause is Basic & DA and the allowances under (a) to (i) of the exclusion list. In the above paragraph as mentioned in the definition of wages it is crystal clear that 50% will be allowances including Emploer's PF contribution, OT etc. and automatic (100 - 50 ) = 50% will be basic and DA of all the remuneration calculated under this clause. It is simple arithematics.

3. As on date the PF contribution is paid on most of the allowances excepting few, ESIC contribution on monthly gross except conveyance allowance, Bonus eligibility on the basis of Basic & DA - not on monthly gross and Gratuity on the basis of last drawn Basic and DA not on monthly gross. After implementation of Labor codes, the liability of PF & Gratuity will be more for employers.

4. My personal view is until there is any specific court verdict about the calculation of the Gratuity, all the employers in India will follow the existing practice except very few organizations who may pay Gratuity beyond the statutory method/limit.

Restructuring of the existing remuneration package will be must for majority Indian organizations to avoid any future complications. There are many opinions about the new labor codes - likings and dis-likings which in future will be resolved through different court cases.

I personally feel that all labor laws are made for broadly two reasons - welfare, social security measure etc. as India is considered as welfare state and another for control, discipline, rules & regulations, health & safety etc. That is why most of the court verdicts are in favor of employees. Even 240 days/190 days work in the 5th year for payment of gratuity is a outcome of the same. Employees are always weaker section of the society than employer - therefore, such court verdicts are always welcome.

If any of the above explanation is appeared as misinterpretation, requesting to come forward and post proper interpretation for the knowledge of myself and other members.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi
Madhu.T.K
3761

I agree, but the issue is with the allowances which would form part of basic salary. I strongly feel that the salary for all purposes should be the one which is agreed between the employer and the employee and for that components of the salary has no relevance. If you hire a worker for a day to work in your home to you will agree to pay, say, Rs 800. He will work for 8 hours. Suppose he is asked to work for 2 more hours, he will ask for additional 100 rupees for each hour and obviously, you will agree. It is on the presumption that his wages fr the day is Rs 800 that you are agreeing to give Rs 100 for each additional hour. Will you say that out of Rs 800, your overtime qualifying wages or the basic wages is only Rs 200 and accordingly you will be paid only Rs 25 per hour? Or will he agree for that? Now, suppose he is completing the assigned work in 7 hours and you will deduct Rs 100 from 800 and will pay only Rs 700. It will be okay for him because he has worked only for 7 hours even though he would not get a job for one hour for that day. Will it be okay for you if he says that out of Rs 800 his basic wages is only Rs 25 and therefore, you can deduct only Rs 25 and pay Rs 775 for that day? Like that what is the total wages that is the qualifying wages for all purposes.
From India, Kannur
nanu1953
275

We may think in different way and there is no harm. But we all follow the law of the land. Whatever I have explained in several posts that is on the basis of the definition of wages which is common in all labor codes.

As per definition of wages there are Basic and DA as well as allowances. Obviously, after the implementation of Labor codes no employer will consider entire monthly gross as Basic and DA. Already for the definition of wages, Basic & DA will increase from existing for majority organizations. Therefore, the question will not arise to define wages/salary as monthly gross ( Basic, DA and all allowances ).

Usually when we hire a worker for some work at home, it is always contract for the job. Which is say for a plumber to repair the specific problem occurs at home how much will be required to pay. There is no contract for hourly basis. It may take 2 hours or 5 hours and it will be required to pay say 500/- for the job.

If the said worker is working in a factory, there will be bifurcation of Rs. 800/- as daily rate as Basic & DA as well as other allowances. Now if the worker engaged for OT , the daily ordinary rate which is 100/- per hour will be required to pay @ 200/- per hour. For working say 3 hours it will be 600/- extra should be divided in to 55% as Basic and DA as well as 45% as other allowances approximately to maintain 50:50 condition after considering employer's PF contribution on extra Basic and DA which will add to other allowances.

The objective of law makers is very simple. As on date many employers are paying Basic & DA as 25 to 40% of monthly gross to avoid more gratuity, bonus liability. PF is safe for Apex court verdict. Moreover, smart employer along with smart HR professionals will design pay structure where monthly gross will be less as well as Basic & DA will automatically will be less resulting less liability to Gratuity, PF, Bonus etc. For higher level employees more component will be on quarterly, 6 monthly, yearly basis to fulfill their remuneration need.

That is the reason the law maker has been considered monthly as well as yearly along with employer contribution to PF, Pension fund etc. which all are payable to any employee including value of house accommodation, lighting etc. ( applicable for big industry house - steel plant, power plant etc.) in the exclusion list (a) to (i). But no where it is mentioned that the Employer's ESIC contribution which is not payable to any employee.

The definition of wages has some twist and all organizations should think it properly starting from Total CTC level and then judiciously to judge the payable amount before determination of Basic & DA.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

USD HR Solutions – To Strive towards excellence with effort and integrity

From India, New Delhi

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