Salary Split for Tax Savings: How Does It Affect Leave and Settlement Calculations?

Dear All,

We have an employee whose salary was broken into 2 phases to save on tax. An appointment letter was issued in his name, and another one in his wife's name. His wife is not an employee.

For example, X - CTC was 42000 and Y (wife) - CTC was 29000.

1) Just wanted to know, now when the employee takes leave, will the deduction happen on both the above CTC's?
2) At the time of full and final settlement if PL is left to be paid (15 days PL), will the calculation be done only on X's CTC or on both the CTC's?
3) If the employee has completed his service and is applicable for Gratuity, will the calculation apply to both the CTC's or only to X's CTC?

Thank you.

Hi Selvin,

From an HR point of view, do not encourage this type of case in your organization. Since you have issued separate appointment letters to them, it shows they are two separate employees of the company with separate employee codes. This is a mutual understanding between the employee and the company.

1) Just wanted to know, now when the employee takes a leave, will the deduction happen on both the above CTCs? - Since both are separate employees, you have to mark Leave without Pay to both of them for the same date. (You have to exhaust his wife's leave on an annual basis based on how much leave he has balance in his account).

2) At the time of full and final settlement if PL is left to be paid (15 days PL), now will the calculation be done only on X's CTC or on both the CTCs? - If you will practice the above while doing the F&F, both have the same number of leave balances in their accounts. Both employees have to give resignation, and you have to settle their accounts separately.

3) If the employee has completed his service and is applicable for Gratuity, will the calculation imply on both the CTCs or only on X's CTC? - Based on the above, you can settle their accounts. It will impact his actual salary (including both).

For further clarification, kindly send an email to me at amareshanand007@gmail.com.

Amaresh

Hi Selvin,

There are many other ways to save tax, and I doubt this is legal. Anyway, since you asked, here are my thoughts.

1) Just wanted to know now when the employee takes a leave, will the deduction happen on both the above CTC's - The deduction will happen from both CTCs, else the employee actually gets to take double the leave available to him.

2) At the time of full and final settlement if PL is left to be paid (15 days PL). Now will the calculation be done only on X's CTC or on both the CTC's - PL has to be paid for only one person. Again, you cannot permit the employee to get benefited from leave encashment that he is not really eligible for.

3) If the employee has completed his service and is applicable for Gratuity, will the calculation imply on both the CTC's or only on X's CTC - On both the CTCs.

Regards,
Sree

Dear Selvin,

I think whatever your company has done is illegal on the face of it. You will have to process both employees separately because both of them ought to be on the payroll separately. I do not find any complexity in this. Just treat it as two employees leaving at the same time. That's it.

Regards,
Hrishikesh

Just wondering, is this legal? It's really unheard of. It would be really dangerous for your company if found out during an audit since you are helping employees evade taxes, if I am not wrong. I guess your company is taking quite a risk to save employees' taxes and paying extra from the pocket. Creating fictitious employees would mean that you would be paying additional PF/Gratuity. It's complex. Can someone give some insight into this, please? It really surprised me.

Dear Selvin,

I believe no HR or management team would accept this type of process in any company. To address any doubts, please see below for suggestions and findings.

With reference to your post, you have clearly indicated that you have segmented the salary to show that both the husband and wife are employed at the same company. In this scenario, it is crucial to ensure that both employees' names are accurately recorded in the attendance register, and they are both signing in (from the perspective of auditors and Labor Laws). Additionally, does the company possess the personal records of both employees?

Regarding leaves, it is important to note that each employee's entitlement is distinct, and you cannot combine their leave accounts for deductions. Based on your statement that the employee's wife is not employed at the company, if you have maintained attendance records, the wife's records would likely indicate her absence when the husband is present.

You cannot aggregate the leave entitlements of both the husband and wife for the purpose of full and final settlement in the case of PL or earned leave. These should be settled separately, and the deductions for leave must also be handled individually based on the records.

Remember, the records and documents play a significant role in the court of law.

Regarding gratuity, I am unsure, so I will refrain from commenting on that matter.

Regards,
Deepak

Dear Selvin,

If you are showing both the names (Mr. X & Mrs. X) separately in the payrolls:

(a) ALL leaves will be accounted for in both the names and can't be clubbed as one.
(b) The same applies for deductions as well.
(c) Gratuity also needs to be calculated separately.

It is advised to classify the second part of pay as "Contract Employment," which does not attract any statutory deductions other than the TDS, and that too only if it exceeds the prescribed limits. However, this pay component would not be considered for Gratuity, etc.

Dear Seniors,

Thank you all for providing your valuable ideas and thoughts.

Secondly, this process is entirely illegal. Once there are two appointment letters, it is evident that there are two employees and, accordingly, all the dues and payments, including statutory deductions, should be made.

Thanks and regards,
Pranab

Without questioning why and how you bifurcated, solve the problem once and for all by treating them as separate entities (husband and wife) having worked. Do not publicize it, lest you are heavily penalized by IT sleuths!

HC. Subbaramu
Bangalore

[QUOTE=Selvin;986801]
Issue on Full and Final Settlement

Dear All,

We have an employee whose salary was broken into 2 phases to save on tax. An appointment letter was issued in his name, and another one is in his wife's name. His wife is not an employee. For example, X - CTC was 42000, Y (wife) - CTC was 29000.

1) Just wanted to know, now when the employee takes leave, will the deduction happen on both the above CTCs?

2) At the time of full and final settlement if PL is left to be paid (15 days PL), will the calculation be done only on X's CTC or on both the CTCs?

3) If the employee has completed his service and is eligible for Gratuity, will the calculation apply to both the CTCs or only to X's CTC?


Dear friend,

Had there been an award like the Nobel or Pulitzer Prize for violation of rules; you/your company would have won it!!!

This is the MOST CREATIVE and INGENIOUS practice for evading Tax and inflating EMPLOYEE COUNT, that I have ever come across.

By any chance, was there any exchange of such know-how or any Outsourcing arrangement with the erstwhile Satyam Computers service Ltd.???

Kindly enlighten us more on this subject; as many members (including me) are not aware of such STRANGE practices.

Warm regards.

It is illegal. The company will have to face a lot of problems if a person who is working receives split salary, especially if it is under another person's name. If anything happens to him while he is in service, either he has to receive lower compensation or if anything happens to the person who is not an employee, the company has to give more.

Dear Selvin,

- The practice followed by your company is unethical and illegal. In case your employer becomes aware that you have published the unscrupulous practice followed by your company on Citehr and are openly soliciting advice on it, you may face problems and a tough time.
- You seem to be a novice in the HR field. Be careful and tactful.
- Regarding your query, the answer is simple. You have divided the salary of one employee between two people for his and your convenience, so when calculating anything, the treatment will be the same for both individuals.
- Try to stop this kind of illegal and unethical practice and do not be a party to it.

Thanks & Regards

Selvin,

Issue on Full and Final Settlement

Dear All,

We have an employee whose salary was divided into two phases to save on tax. An appointment letter was issued in his name, and another one in his wife's name. His wife is not an employee.

For example,
- X - CTC was 42000
- Y (wife) - CTC was 29000

1) I want to know if when the employee takes leave, will the deduction happen on both the above CTCs?
2) At the time of full and final settlement, if PL is left to be paid (15 days PL), will the calculation be done only on X's CTC or on both the CTCs?
3) If the employee has completed his service and is eligible for Gratuity, will the calculation apply to both the CTCs or only to X's CTC?