How Are Companies Adjusting CTC After PF Changes? Share Your Practices Here

Dear Friends,

Just out of curiosity and to share details with the HR fraternity, I am posting this message. Following the changes in PF contributions, the maximum Employer (ER) contribution is now set at Rs. 2042/- including administrative charges. I kindly request you to share the practices followed at your organization. This query is relevant only for organizations that adhere to the CTC structure.

a) Are you retaining the existing CTC and reducing the net take-home salary of the employees?
b) Or are you revising the CTC to adjust the difference and maintaining the net take-home wages of the employees?
c) Do you follow any other practices? Please elaborate.

Regards,
Jeevarathnam P

You cannot reduce the salary just to make up the CTC. You should pay the additional employer's contribution and prepare a new CTC statement if you want to show that you have done a great thing. In no way can you adjust the CTC by reducing the contribution paid by the employer from the salary of the employee. The same thing will happen when there is a change in other Acts, like the Payment of Bonus Act or the Gratuity Act. After all, CTC is not a legally enforceable pay structure.

Regards,
Madhu.T.K

Dear Jeevarathnam P, please go through the earlier circular/letter issued by PF authorities regarding CTC.

Regards,
Sunil Purohit

Adjusting Gross Salary in Response to New Benefits

Generally, an organization cannot reduce the gross salary of an employee to compensate for new or additional benefits. However, if it is mentioned in the appointment letter that "your emoluments are on a CTC (Cost to Company) basis, in case due to changes in any rules, you become entitled to specific new/additional amounts/benefits under any head (e.g., Bonus, Gratuity, PF, etc.), the components of your CTC will be suitably adjusted by the amount required to be paid under that head," then only the employer can reduce the gross salary.

Regards,
S.L. Chopra

Taking the employees concerned, you can follow a mixed approach, i.e., part of the incremental element is increased in CTC, and part of it is adjusted in the salary. However, you need to be transparent in your approach.

I have one query regarding my friend's company (I will not disclose the name of the company), which is a very renowned name in e-commerce. Their top management has given clear instructions to their finance team and HR team that any changes in policy or anything else should result in the entire PF contribution amount being deducted from the employee's side only (i.e., both employee and employer contribution).

However, what they have chosen to do is revise the CTC of employees and start deducting extra PF contribution (the employer's portion) from the employee's salary.

I want to know how fair this practice is and how an employee can escape from this situation if they face the same issue.

Best regards

Unfair Deduction of Employer's Contribution

The practice of deducting the employer's share of contribution is absolutely unfair. It is against the law as well. Therefore, if the employees question it, the employer will be forced to drop the idea of deducting the employer's share from the employees' salary. When quoting it, I would also mention that any adjustment accepted by the employees (not disputed by the employees) will become a policy, and the authorities cannot question it unless there is a significant salary adjustment, such as reducing the PF qualifying salary, which is not permitted as per section 12 of the Act.

I am confident that whatever the company decides will be accepted by the employees because in such a sector, the supply of labor is very high. On the contrary, where the supply of labor is low and the demand is high, the employer may not be able to make any adjustments, as it would lead to a shortage of manpower.

Trade Union Discussions in Kerala's IT Sector

Very recently, there was a heated discussion in Kerala about "forming Trade Union among employees in the IT sector." In this discussion, the pro-trade unionists (mainly CITU) argued that there is exploitation happening in IT companies, with workers being forced to work longer hours without statutory protection, and so on. In response, IT management representatives defended themselves by stating that they pay high salaries and if their workers join a trade union, they might have to relocate because their work requires them to follow the directives of individuals sitting in the USA or UK. This situation exemplifies an instance where the employer is essentially inviting a trade union into their business.

Regards,
Madhu.T.K