Understanding Salary Deductions: When and How Should HR Handle Them?

Hi, I am working as an HR manager in an IT company. We have 30 employees in our company, and the salary of the employees is less than $15,000. We calculate salaries very simply. Can you please tell me when we have to make deductions and provide information about the deductions in a proper manner?

Understanding Salary Deductions for IT Company Employees

I am working as an HR manager in an IT company with 30 employees. The salary of the employees is less than 15,000. We are calculating the salary very simply. Can you please tell me when we have to make deductions and also about the deductions in the proper manner?

First of all, check if everyone's salary is above the minimum wages. If not, then adjust it accordingly. For minimum wage rates, refer to your state's wage slab. Since the salary is below 15k and there are 30 employees, both PF and ESI are applicable.

Salary Structure Overview

Let's consider:
- Gross: 15k.
- Basic = 50% of gross.
- HRA = 40% of basic for non-metro, 50% of basic for metro.
- TA = 800/1600.
- Medical = 1250.
- Special = The remaining amount of gross.

Deductions from the Salary

- PF = 12% of Basic.
- ESI = 1.75% of gross.

Take-home pay: Gross - Deductions.

Please note: The basic salary should be at least equal to the minimum wage to ensure proper PF deductions. PF should be calculated based on the minimum wages at least, not any amount below that. You can adjust the special allowance to reach the gross amount of 15k.

This is a basic structure that you may follow.

Best regards

There is no compulsion to split your salary like basic, DA, HRA, etc. You are free to pay salary as 'consolidated' as if all of you are < Rs. 15,000/p.m. No TDS will be attracted. However, check whether Prof. Tax will be applicable as presumably Chandigarh means there is both Haryana and Punjab as well as Union Territory is involved.

EPF (if consolidated more contribution, if split into medical, etc. contribution lowers) & ESI has to be deducted on the similar way as per the act.

In our company, the total strength of the employees is 20, and the minimum salary is $6,000. I just want to know when the company should levy PF on their salary. Please help me to set up their payroll as I am a fresher and don't know much about payroll. Your assistance would be greatly appreciated.

You have mentioned that all employees are drawing a salary of less than 15,000. Since all employees' salaries are less than 15,000/-, you have two ways to bifurcate the salary:

Option 1: For salaries from 10,000 to 14,999, keep their basic as per the minimum wages of your state and HRA at 40% of basic, with the balance in other allowances. Accordingly, you can deduct PF on Basic and DA.

Example:
- Basic: 7,500
- HRA @ 40%: 3,000
- Rest in other allowances
- Deduct EPF at 12% on basic

Option II: For salaries from 7,000 to 9,999, keep basic and DA as per the minimum wage and the rest in allowances.

Example:
- Basic as per minimum wages
- Rest in other allowances
- Deduct EPF at 12% on MW

In both options, TDS is not applicable. If any employee is drawing more than 15,000:

- Keep Basic at 52% of CTC
- HRA at 40% of basic
- Children's education: 200
- Conveyance: 1,600
- Medical: 1,250
- Rest in other allowances

Keep in mind that while fixing the salaries.

Regards,
Eswar