How Will the M.P. High Court's Ruling on Allowances Affect Your Company's Wage Budget?

Dear Sirs, What is the impact of the M.P. High Court's recent judgment which laid down the principle for the treatment of certain allowances like conveyance, special allowance, etc., as a component of "Basic Wages" for the purpose of Provident Fund liabilities if the same are being paid uniformly, necessarily, and ordinarily to all employees? The same may be utilized as per the merits of the case.

Possible Solutions

What is the possible way out as it will hike up the company's wage budget?

Please advise.

Thanks,
Sharad

You can add the recent Madras High Court ruling (elsewhere I have posted it in this forum) on these types of allowances as well.

Future Salary Structure Changes

In the near future, there will be only two to three components in the salary structures like Basic and DA, HRA, and some allowances like Washing Allowance, etc. Nowadays, as all the salaries are fixed in CTC, the change in components will not affect much. Modifications within the salary will be made without altering the CTC. For earnings over 15,000, these rulings will not have any significant impact on salary structures.

Let us wait for some more comments from our members...

Regards,
S. Sethupathy, Excellent HR Services, Erode.

Retrospective Implications of High Court Judgments

Regarding the judgments of the High Courts of Madhya Pradesh and Madras, and the Circular dated 23rd May 2011, is it going to have any retrospective implications?

Dear Sethupathy Sir, If we say that a person earning over 15k, these rulings will not make any significant effect. In that case, suppose a person is earning Rs. 60,000/- per month, which includes a basic of Rs. 20,000/- and other components like HRA, Special Allowance, Medical Allowance, etc. In case the employer's contribution is Rs. 2734/- now, it will be hiked to two times because of the inclusion of other components (Special Allowance, etc.) for PF applicability. The overall wage budget of the company is hiked.

Please advise.

Thanks,
Sharad

Dear Sharad, as per statutory norms, you have to contribute only 6500.

Regards,
S. Sethupathy
Erode

My point is that if the company is contributing 12% of the basic salary, even if the basic salary exceeds $6500 (which is common in many large companies), there will still be an impact on the budget.

Thank you.