New HR in Manufacturing: How Do I Tackle Salary Components and Allowances?

Dear Friends,

I have joined as a HrR with a Manufacturing company whose operations will be started in near future. This company is located in B class town in Andhra parades. I want suggestions in Preparing Salary components and salary structure. I need Clarification on following.

• On what bases Dearness allowance is calculated??? Is it a compulsory component? If it is soo, what should the calculation.

• Employees will be provided transportation facility…… will conveyance component applicable in this case.

Thanks & Regards,

Deepti Bandi.

Hi Deepti,

My name is Venkat. As per the Factories Act, Basic & DA will be decided. Since you are working in a manufacturing company, your company will fall under the Factories Act. Other components such as HRA, TA, CCA, etc., will be decided by the management. All statutory requirements like PF, ESI, PT are mandatory as per the Act. I hope this information will give you an idea to prepare salary components and salary structure.

Regards,
Venkat
9885688919

Feel free to call me for any clarifications.

Thank you a lot for the inputs provided, Mr. Venkat. I have one more doubt. I have seen organizations deduct 12% of the basic as PF irrespective of their basic. Whereas, in a few companies, they deduct 12% or Rs. 750, whichever is the lowest. How do we decide on this??

Hi, I am studying HR and want to know the salary structure/components in terms of mandatory and non-mandatory elements specific to Maharashtra state.

Hi Deepti,

No mention for the above. Deepti, the query which you asked about the 12% PF is mandatory as per the act in any organization. The basic condition is if the employee's basic exceeds Rs. 6500, it is the company's management decision to provide the maximum PF deduction.

That is, if the employee's salary is Rs. 10000, as per the PF act, his PF contribution is Rs. 780 (6500*12%), whereas if the management is willing to pay the maximum PF, his PF contribution will be Rs. 1200 (10000*12%).

This is for your kind information.

Regards,
Venkat

Hi Ashwini,

I just want to know where you are working. If you are working in a manufacturing industry, your company structure will fall under the Factories Act. Please go through the act.

Regards,
Venkat
9949577142

Dear Deepti,
1. Dearness Allowance amount is declared twice a year. As on 31st March and 30th September every year, as a ritual. Labour department does it. I advice you to view the same in "Shops and Establishments Act" "Labour department of AP" web site for updates.

Dear Deepti Bandi,
1. Dearness Allowance is not calculated by an individual organisation.
2. DA is dependent on Cost of Index or Cost of living in the given area.
3. Arriving at DA is a continuous process based on price movements of certain defined food items etc.
4. Adopt the DA declared under shops and establishments act,
5. view the web site of Labour department of AP to know the uptodate DA rates / amounts
6. DA us revised twice a year on 31st March & 30th Sept.
7. DA component is not compulsory in the pay structure. However, you must ensure the Pay is more than the minimum wages which includes DA.
Hope you are amply clarified.
V V Prasad CS

Dear Deepti,

First of all, Dearness Allowance (DA) will be applicable in case of payroll workers only who work on the plant. It will not be applicable for other employees. DA will be calculated based on the Consumer Price Index figure, which you can obtain from The Employers Association in your district.

Thank you.

Dear Mr. Prashad,

Could you please provide me with the DA point for last year, 2009, for Gujarat?

Regards,
Ashish

Hi Friends,

Looking forward to your suggestions on the pay structure of an IT company. The number of employees is less than 20. Is PF applicable to such a company? Does the Minimum Wage Act apply to IT & Software companies?

Regards,
Charu Trehan

Mrs. Deepti Bandi,

I am happy for your evincing interest in the legislations for knowledge gain. I would similarly advise HR friends to acquire legal knowledge as well, for HR is often dictated by enactment.

A few tips to facilitate your going through the legislation:
1. The Minimum Wages Act is applicable only to employees drawing a salary up to the limit prescribed in the act. Namely, it would be around Rs. 6,500/- per month based on your locational zone and nature of the individual's designation.
2. For these posts, as per minimum wage requirements, Dearness Allowance (DA) is compulsory.
3. For employees drawing more than this salary, you need not implement DA.
4. The purview of the Labor department ceases after this limit.

Up to this limit, simply follow the DA schedules released by the Labor department. Beyond that, you need not follow DA, as it would be cumbersome.

Once you complete the pay structure up to this stage, you will gain firsthand knowledge. It is better to take up the development of the pay structure beyond this limit subsequently.

V. V. Prasad CS

Don't give DA; better give CTC with the following combination: basic, HRA, conveyance, LTA, PF, medical reimbursement, reimbursement of premium paid for mediclaim policy. If you give driver salary, petrol, installment, etc., it is all taxable, and you will end up in trouble.

Hi,

I am working in a software testing company. Can you help me to understand which acts are mandatory to be adhered to in this case, as well as the pay structure and statutory reports required for such a company?

I have a query with DA. My CTC consists of Basic + DA, and I have been working in an organization for the past 2 years. Should my CTC also increase if the DA percentage increases? I am in the service provider industry and may or may not work in a plant depending on the project I am assigned to.

Thanks, Mayank