Amnag1996
I want to pay my employee a net take-home salary of 12000/-; what can be the best salary structure in which I have to pay the least pf, and CTC is the lowest?
From India, Durgapur
Madhu.T.K
4193

If you are offering the employees a salary of Rs 12000, the best salary structure is like this:

Basic salary Rs 12000
PF @ 12% of Rs 12000 or Rs 1440
CTC = 13440

Don't you require ESI? Since the company has PF, there should be ESI also. That should also be on Rs 12000.

Please be informed that a of salary Rs 12000 per month is just equal to or even less than the statutory minimum wages fixed by the government. Then how can you bifurcate it with components to reduce the cost to company? It is okay, if you are paying more than the statutory salary, there can be some components kept outside the basic salary which would qualify to PF etc but when you are paying a salary of just 12000, there cannot be any adjustment but to pay the PF on the gross total itself.

It is true that definition of wages under the PF excludes HRA but it is difficult to believe that you would give an amount, say Rs 3000 or 4000 as HRA to an employee who is paid only Rs 12000 as total salary!

From India, Kannur
Amnag1996
Yes, we require ESI.
I think my question was not clear enough which lead to the misundestanding i will reframe it again here,
I want my employee to take home net 12,000 salary and desing the structure in a way so that contribution to PF is minimum, I am attaching a example that I have prepared from my best knowledge but i am not sure if it is according to the rules or not so kindly rectify me if needed.

From India, Durgapur
Attached Files (Download Requires Membership)
File Type: png PF EXAMPLE.png (33.0 KB, 21 views)

Madhu.T.K
4193

It is reverse working so that the net salary should be equal to Rs 12000. You can follow the same as you calculated. But remember that there is no law which says that the basic salary should be 50% of the gross salary. Moreover, the way you have attached is not legally fine because the Special allowance is also part of wages on which the PF and ESI should be calculated. Again Bonus should be below the line of Gross salary as it is an annual pay out and not a monthly pay out. If it is shown as part of monthly salary, the same would attract ESI.
From India, Kannur
Amnag1996
Hello Madhu, Can you Kindly design a stucture in which all the thing is legally fine, and i have to pay minimum PF and ESI, if needed i can pay the fee or share me your contact no. Thanks
From India, Durgapur
Madhu.T.K
4193

Hello Sir, this is a forum to provide practical solutions to your problems in a legal framework. That is what I have put in my replies also. Without knowing which state is the business located in, what is the scheduled industry and what is the statutory minimum wages applicable to that industry how can I advise you of a legally enforceable salary structure?
From India, Kannur
Amnag1996
Hello sir,
Sorry fot that, Business have its Regesterd office at Dheradhun, UTTARAKHAND.
We have branch office at Westbengal, and all the employees are from Westbengal itself, Also- Industry is FINANCE.

From India, Durgapur
Madhu.T.K
4193

In respect of employees in West Bengal you have to follow the minimum wages for banking (NBFC?) establishment published by West bengal and others in the Offices of Uttarakhand you have to fix salary according to Uttarakhand notification.

There will be two parts, one Basic wages and the other variable Dearness allowance in the notifications. If you don't pay any DA (VDA) then you have t club both the basic and DA and that should be the basic salary. If the salary offered exceeds this amount, you can pay it under any heads like HRA, Conveyance etc. This is legally okay. And if you take a whole amount as salary and then break it up into components like basic salary (50%), HRA (40%) and Special allowance (10%) then also the employee would be happy to get the same salary. But the employer will face a question when the EPF authorities ask why are you contributing PF only on Basic salary alone? Or after five years of service if an employee leaves you, he may ask for gratuity and you may calculate it on basic salary but he refuses to take it saying that where is it written in the Payment of Gratuity Act that gratuity is payable only on basic salary? The you are stuck, right? Then it will be a question of law to interpret the meaning of basic salary.

It is true that so long as you are paying salary above the minimum wages, you can pay it under different heads and there is no need to include an element called variable dearness allowance. But the issue comes only when a legal battle is made in which the employee questions your act of not compensating the cost of living increase.

Very simple, an employee will be given salary increment for two reasons, one, to reward his performance and another to compensate increase in cost of living. The former is reflected in the form of increase in basic salary and the latter in the form of DA.

Therefore, if you need that your establishment should be legally perfect, please refer to the state's minimum wages notification and then take a call.

From India, Kannur
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