Is It Fair for Employers to Set Gross Pay as Basic Pay Without Bifurcation?

Employers fix gross pay as basic pay. There is no bifurcation of gross pay. I don't want to bifurcate Basic/HRA/Conveyance, etc. Nowadays, due to these reasons, employers are opting for alternatives, but employees suffer, and the same is accepted by the statutory authority. Is it justified?

Regards,
MK Verma

An employer can fix basic wages as gross if the HRA Act is not applicable to them. There is no law that states the employer should pay other various allowances, except in some states where there is a minimum HRA Act. Basic wages include Dearness Allowance.

Regards,

Your question is a little bit confusing. I will try to reply to it in a simple way.

Understanding the Minimum Wages Act

First of all, the Minimum Wages Act only talks about the MINIMUM WAGES + DA. There is no mention of any type of allowances as such. In a few states, there are obligations with certain conditions. For example, in Maharashtra under the Shop & Establishment Act, 10% HRA is applicable if there are more than 50 employees.

Current Practices in Salary Structuring

Nowadays, most companies are paying wages/salaries higher than the Minimum Wages + DA. To save costs for the company while FFS, the excess portion of the said salary is usually bifurcated under different heads of allowances. Similarly, it is also taken care of for the employees when structuring allowances so that they can benefit from Income Tax benefits like HRA, Conveyance, Medical reimbursement, etc. However, by doing so, companies often face TDS problems (which can be very tedious) due to non-compliance of required documents from employees for their tax savings.

Company's Approach to Employee Costs

In such circumstances, the company (which you mentioned in your post) might be willing to incur more costs on employees FFS, i.e., gratuity, leave encashment, than dealing with these problems. As far as the authorities are concerned, when the company pays gross/lump sum salaries "As per or More than MW + DA," they do not have objections.

Normally, such HR policies are framed by the management in mutual understanding with employees. I hope you are satisfied with this reply.

Regards,
Pramod Thakar
[Phone Number Removed For Privacy Reasons], Pune

Consideration of Gross Pay and Minimum Wages

Consider that the gross pay is more than the minimum wages of the respective state, but the gross pay, which is fixed, exceeds the EPF limit of Rs. 6500/-. Suppose the minimum wages are Rs. 5500/-, but the employee is receiving Rs. 9000/- per month gross, and the same gross amount is fixed as Basic Pay. Here, EPF is not compulsory because the Basic Pay fixed is Rs. 9000/-, which is the same as the gross pay, and the statutory authority has no objection.

In this scenario, the employer can make the decision to exclude the employee from EPF benefits. Secondly, in the same organization, most workers have their Basic Pay fixed as mentioned above, while some have a salary breakdown. Is this correct?

Regards,
MK Verma