Understanding Basic Salary: Is There a Rule for It Being 40% - 60% of Gross Pay?

Hi everyone, I have a small doubt regarding employees' basic salary. Is there a rule in any act stating that an employee's basic salary should be a minimum of 40% - 60% of the gross salary? Alternatively, are there any industry rules regarding the basic salary? Please share your insights.

Regards,
Vinay Kumar

No, there is no such rule about it. It depends on how you deal with your employer and how your performance is. You can only give your best, and the rest depends on the employer.

Dear MM, you are providing incorrect information.

Basic Salary Criteria Based on Location

Dear Vinay, what you are saying is true. Basic salary has criteria based on location; it is calculated according to metro cities and non-metro cities.

- For Non-Metro: 40%
- For Metro: 60%

Thanks & Regards,

I too think it should be between 40% - 60%. But, Mr. Girish, is it specific to any industry? I belong to the manufacturing industry in Tamil Nadu. I think it should be a minimum of 50% here. Please advise.

Thanks,
Sethu

Setting HRA Allowances for Daily Wage Workers

If the company is considering offering HRA allowances to daily wage workers, how should we set it? Should it be based on a percentage or a fixed allowance? If we choose a percentage, it will vary each month due to the calculation being based on the daily basic salary.

Please suggest the right approach.

Thank you.

Understanding Basic Wages Under EPF & M Act, 1952

Dear Young Talents, according to the latest pressure (for the past 2 years) from RCPF, Chennai - as per the EPF & M Act, 1952, under Sec. 2(B), basic wages mean all components excluding HRA, OT, incentive, or bonus.

In the past, we used to calculate EPF for only basic + DA (like in the Gratuity Act).

Other components - you may call it DA, conveyance allowance, education allowance, special allowance, management allowance, books & periodicals, etc. - come under the purview of basic wages up to Rs. 6,500/- (the maximum limit up to which we have to contribute EPF to employees). Beyond that, you need not pay EPF unless the employer and employee agree to pay EPF for more basic wages.

A few years back, EPF authorities in Chennai insisted on 60% basic on gross salary - but there is no mention of this in the EPF Act.

Hence, you are all hereby requested to go through the bare Act of EPF & M Act, 1952 - Sec. 2(b) and decide.

No 40% or 60% according to the area - I think that the locality EO's (Enforcement Officer) is misleading the particular HR person.

City Compensatory Allowance (CCA)

CCA is decided based on the place where we live - metro, non-metro, or hill place (Ooty - Hindustan Photo Films Mfg. Co. Ltd. pays HRA (Hill Compensatory Allowance) - a Government of India enterprise).

Any other views - please provide here in this forum or contact me.

With regards,

K. Gopalakrishnan

Sriperumbudur

[Phone Number Removed For Privacy Reasons]

A very clear reply from Mr. Gopalakrishnan. It's very true that nowadays companies in Chennai have started to change their basic salary to 60% from gross. This change is purely because of the PF enforcement officer. We have also adjusted our structure in accordance with their instructions; in fact, we now maintain 70% as basic from gross. One more unfortunate thing is that EPF will start penalizing those who do not maintain a basic salary of 60% or more.

Regards,
Madhan

I think the Basic & HRA proportion should be 2:1, irrespective of metro or non-metro. You will get the tax benefit in either case.