Is There a Government Rule for Minimum Basic Salary Percentage in Total Pay?

Hi all,

Can anybody tell me whether there is a government guideline for the minimum basic salary? Here, I am not talking about minimum wages. The question is for the minimum basic salary. What percentage of the total salary should be given as a basic salary? Is there any rule stating that the minimum basic should be 70% of the total/gross salary? Are there any guidelines specifying that the minimum basic salary should be Rs. 2500/- per month? The above are suggestions given to me by some of my friends. They are also not very clear on this. Need your help.

Thanks, Sweety Singh

Hi sweety... I am also looking for the same thing. I would like to know if there is some legal ceiling regarding components of salary, especially basic. Also, to what limit are the other components non-taxable, like Conveyance, Med. allowance, special Allowance, etc. I would appreciate it if you could send me the information about the topic.

Regards,
Vikas

Hi Vikas,

Please see the attachment (everything except the ceiling on basic salary is covered in it with case studies). It will definitely help you.

Please let me know if anything regarding basic salary catches your attention.

Sweety Singh

Dear Sweety,

To the best of my knowledge, there is no such government rule, but you need to protect the minimum wages (i.e., Basic & DA) as fixed by the State Government. Companies also have their own policy devised for deciding Basic looking at the cost implications. I hope this sheds some light.

Regards,
Bhavin Vahia

As far as I know, there is no such government rule or legislation for fixing the minimum basic salary. State governments revise minimum wages twice a year.

I have seen some employers further bifurcating these minimum wages into basic, HRA, and other allowances to reduce their company's share of the amount, which is not legal.

For example, if the minimum wage is Rs. 3510/- in any state, the employer will have to deposit 12% of the above said amount in PF (8.33% in Pension fund and 3.67% in PF).

Regards,
Vikram Singh

Generally, the rule that is followed is that the basic salary should not be less than 35% of the gross salary.

Now, there is another aspect to consider. In the case of minimum wages, the PF has to be deducted based on the unskilled minimum wages at least. This means that the unskilled minimum wage will be considered the basic salary in all three cases (unskilled, semi-skilled, skilled) to avoid any issues during PF inspection.

Regards,
Anu

Hi Vikas,

See the attachment (everything except the ceiling on basic salary is covered in it with case studies). It will definitely help you. Please let me know if anything on basic salary comes to your notice.

Sweety Singh

Hi,

It's a nice presentation. But according to me, it is as per the Income Tax point of view. No labor act provides such groups or such limits. Please note that you have to follow the Minimum Wages Act of the state and industry in which your establishment is covered. Here, the authority defines the basic and DA of the particular industry in a particular state.

I have noticed in many cases that employers give the salary as per the Minimum Wages Act (i.e., total salary as per the act) but they divide it into different components considering their financial burden towards PF, Bonus, ESI, Gratuity, etc.

Regards,
Haresh Shah

Hi Sweetysingh,

You need to pay the applicable minimum wages to all employees as per the notification from the state government. It can be subdivided under any heads, but when it comes to paying statutory benefits, the total minimum wages have to be considered. I am attaching herewith the verdict given by the Asst. PF Commissioner, Faridabad. It clearly states that the basic cannot be split.

Companies can't exploit their employees by splitting the basic to lower levels and paying lesser contributions towards statutory benefits.

Hope this answers your query.

Best Regards,
Shriram

Hello All,

I am also very confused about the minimum basic. I have been told by my accounts that it is 3733, but I wonder. Can anybody help with this?

Regards,
Vibha

Minimum wages consist of a basic rate of wage and Dearness Allowance (which will vary according to changes in the cost of living index announced by the Department of Economics and Statistics).

Apart from the above, there is no specific rule that the basic should be 70% or 35% of the gross salary. It is to be structured according to the convenience of the employer and employee (as they have to bear Income Tax on their earnings). In any salary structure, the basic salary will serve as the base for the entire package (hence it is "BASIC SALARY"), and DA, HRA, CCA, etc., will be calculated as a percentage of the given Basic Salary to arrive at the Gross Salary. The only thing to be aware of is to ensure that you are not paying a gross salary less than the minimum rate of wages fixed by the appropriate government.

Regards, Madhu.T.K

Dear Sir,

Thank you for your explanation about basic. You mentioned that there is no rule on how to split basic and only gross wages should be at least as per the minimum wages specified by the state government. However, if we look at the attachment I sent on 24th July, it states the verdict given by PF Commissioner, Faridabad, that PF calculation has to be based on the basic minimum wages and basic cannot be split for the calculation of PF. Your explanation contradicts the judgment given by the PF Commissioner. Is there any other judgment superseding this one? If yes, please send us the updates.

I believe if governments are specifically splitting minimum wages into basic and DA, there is a reason for it. Had the government given liberty to companies to decide on basic, there would be no measurable yardstick, and companies could set it as low as they wish, affecting the statutory benefits employees receive, such as PF, ESI, Bonus, Overtime, etc.

It would be great if you could shed some light on this as many are still confused about the Basic.

Best Regards,
Shrinkar

Yes, it is quite possible that EPFO shall issue a notification. (Please bear with me, I could not open the file sent by Shrunkar) calling on the employers to fix the basic wages to a limit. This is certainly to avoid contribution towards ESI/EPF, etc., to be reduced to that small amount. For EPF, in fact, Basic + DA wages form the qualifying salary and not the basic salary alone. Under minimum wages, only the basic rate and Dearness allowance are stated. If the employer is willing to pay HRA, CCA, or other allowances like special pay, he can do so, but the total should not be less than the minimum wages. As such, there may be a tendency to fix very low basic wages and pay higher HRA or other allowances so that his contribution towards PF could also be reduced. Here the EPFO shall have interfered and asked to bring the basic wages UP so as to bring up the contribution also. Here again, this is an action of the EPFO after having found that there are so many cases of an attempt to reduce the burden of EPF contribution. It is not as per the EPF Act or Schemes framed thereon as there is no provision in the Act which says that basic wages shall be so much. But it shall be looked at as a ruling made by the EPFO by virtue of the powers conferred to it by the Act in the interest of the employees.

The two concepts, minimum wages and the EPF, are different and have their own objectives and parameters.

Regards,

Madhu.T.K

Dear Sir,

I am still confused about basic wages. If I want to comply with the Minimum Wages Act and the minimum wages prescribed by the government (Basic + D.A.), I need to pay basic as well as DA as per the notification from the government. I need to show the same in the wage register. If I want to reduce the burden of paying a lesser PF amount by showing a lower basic, how can I do it if I have maintained the wage register by showing basic and DA as per the minimum wages prescribed? If I show a lesser basic to reduce the PF burden, then I am not complying with the basic wages prescribed by the government.

Kindly advise.

Best Regards,
Shrinkar

Dear Sweety,

As per the Minimum Wages Act, Basic + D.A + Cost of Living (HRA) constitutes the minimum wage. However, the PF official says that the employer can't split the minimum wage, and for the same reason, the Karnal PF office had issued a circular. Nonetheless, the PF department is also silent on the matter.

Therefore, the best practice is to keep Basic at 30-35% of CTC but not less than the minimum wage. There is no ruling or judgment on this issue yet. To my knowledge, a security company's case is also pending in court regarding the same issue.

Feel free to revert.

Regards,
Lalit
9310692536
Lalit

Dear,

For scheduled industries notified by the Labour Department of the state, the basic wage should not be less than the minimum wages notified for the category. You can pay any amount as basic over and above the minimum wages, but must consider the cost of PF/Bonus/Gratuity/Leave Encashment/LTA/Medical reimbursement which are the indirect costs on the basic wage.

Ak Malhotra

Hi,

According to the EPF Act, EPF should be calculated on basic + DA, and the basic allowance should be more than other allowances. If an employee is receiving 3500/- and the minimum wages are 3700/-, then in this case, increase his salary up to 4000/- and split it into two parts: basic and HRA. Think in favor of the employee; if you deduct EPF and ESI on the minimum wage, what will he get?

Please let me know if you need further assistance or clarification.