Can Employers Avoid Statutory Benefits with a Consolidated Salary? Seeking Expert Advice

Consolidated Salary and Statutory Benefits

My organization is considering adopting an idea where management suggests not providing a break-up of the salary but instead mentioning the monthly package as "Consolidated." The reason behind this is that a consultant has proposed this idea to avoid PF, ESI, and other statutory benefits for the employees.

Questions on Statutory Benefits and Consolidated Salary

1. Is it true that if any amount (monthly salary) is stated in brackets as "Consolidated," the employer can avoid paying PF, ESIC, etc.?
2. If yes, then how will Gratuity be calculated? Similarly, if they wish to deduct one day's salary, what would be the rule, and how would compensation against leave entitlement be calculated?
3. Regarding PF, if an employee is receiving basic + DA Rs. 15,000/-, is it mandatory to provide the PF facility to the employee?
4. Is ESIC necessary to maintain? Even if a consolidated salary is declared, does one still have to deduct ESIC?

I kindly request experts and seniors to guide me as soon as possible. Please provide references to the relevant rules and sections.

With best regards,

Dear Supriya,

Only in the case of the probation period of new employees can we pay a salary as consolidated and avoid PF, ESIC, Bonus, Gratuity, etc. Even though it is not acceptable, it can be considered. ESIC is calculated on gross earnings, so you have to pay it.

Ask your management to eliminate these consultants, as their presence could lead to major non-compliance issues and also impact the ethics of the organization. Consultants should strive to help organizations grow ethically.

Regards,

Karthik
+91 81211 97979

The word "consolidated" as the name of remuneration will not save from the liability of ESI, EPF, gratuity, etc.

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The term "consolidated" when used as the label for remuneration does not exempt from liabilities such as ESI, EPF, gratuity, etc.

Dear Supriya, Who is that consultant that is giving wrong advice? He appears to have taken on consulting activities without sufficient knowledge. As the previous poster has said, the sooner you get rid of him, the better. Otherwise, his wrong advice could land you in trouble.

PF and ESI as Social Securities

PF and ESI are social securities. Employees become eligible for these securities right from their first day.

Secondly, you can take consultants on board provided their association with you is for a limited period. However, there is a limit on how many consultants you can bring on board. The suggestion of assigning employees the status of consultants rests on the gullibility of the PF or ESI authorities. Do you think they will not be able to see through this game? Do you believe that in the history of independent India, nobody has played these tricks?

Thanks,
Dinesh Divekar

Also, I agree with the above seniors regarding their views. It's crucial to eliminate such consultants who may pose significant challenges for you in the future. Additionally, remember to review the profile and client list as well.

Even during probation, ESI and PF are applicable on a consolidated salary. If the salary is not split into basic & da, etc., the whole salary can be treated as such for ESI, PF, gratuity, etc.

As fellow members have already stated, the decision goes against ethics, social security, etc. Moreover, it will attract a higher cost in the long term. The more basic the salary, the higher the cost of Gratuity, Leave Encashment, Employee Compensation, etc. It can also be costly in the short term. For instance, if the desired/expected salary for a position is around 12k, what will you do? Will you pay above 15k for that as well? Furthermore, if the government increases the wages ceiling in the future, you will have to provide unwanted, out-of-turn increments to all employees.

Escaping from statutory benefits is not a solution; instead, you should follow the CTC term and include all benefits in their CTC. The forum is filled with reputable consultants from whom you can seek help.

Hope this idea will work for you.

Dear Sir/Madam,

The consolidated pay will attract ESI, PF, and Gratuity payments and contributions. I think your consultant is advised to club all the allowances as consolidated to fulfill the minimum wages.

However, if your organization is conducting act apprentice programs and providing stipends, it will not attract ESI and PF contributions.

Thanks,
A. Ashokkumar

Your management is taking a big risk if it follows the advice of your consultant. Ask your management if it is willing to pay the PF/ESI/Gratuity on the entire consolidated salary in the absence of a break-up. I am sure the option suggested by your consultant will invite these consequences sooner rather than later.

A S Bhat

Thank you all for the suggestions. I have already put a strong note against that decision. The only thing I really don't know (as I was out of India) is when the PF ceiling has gone up from Rs. 6500/- to Rs. 15000/-. Can anyone please let me know the date and section where it has been amended?

Gratuity and Consultant Status

Moreover, in the Indian scenario, if anyone is working as a Consultant/Advisor, reporting to the office every day, enjoying all the facilities as a regular employee, and with no work breaks, can they claim for Gratuity? Is there any age limit for that? The Consultant's payment is a consolidated salary; hence, no PF or ESIC facility is being enjoyed. However, can the PF and ESIC authority take action in such cases?

Kindly help me. Thank you.