Navigating Allowances and PF: How Do You Balance Compliance and Employee Payouts?

Q1. What is the difference between Other Allowance and Special Allowance?

Q2. Which should be correctly used?

Q3. What is the minimum and maximum amount of PF deduction in Rs. on a monthly basis from an individual?

Q4. Should the Minimum wages component include (Basic + DA + SA) even if the company chooses not to include DA in the salary structure?

Q5. How can we ensure compliance, minimize costs to the employer, and maximize payouts to employees?

Other Allowances and Special Allowances

Other allowances are, by definition, specific. Special allowances may be considered part of the PF salary, especially in states where they are referred to as DA. Rather than labeling an allowance as "other," assign it a proper designation such as HRA, Conveyance allowance, CCA, etc.

PF Contribution Requirements

The legal contribution towards PF salary is fixed at 12% for all. An employee can opt to contribute more than 12%, subject to the employer's approval, as the employer bears administrative charges on the total remittance.

Minimum Wage Compliance

As long as the company meets the mandated minimum wage requirements, the individual components are secondary. It is advisable to refrain from splitting the minimum wages, as this could pose future risks. Deducting PF on the wage component equivalent to the minimum wages is a safer approach.

ESI and PF Cost Management

The ESI cost can be slightly reduced by incorporating a reasonable salary component like Washing Allowance. Washing Allowance, up to approximately Rs. 250 per month, does not fall under ESI coverage. The PF cost for new employees will be zero if the basic CTC component exceeds Rs. 15,000 per month. In cases where the salary of an existing PF member surpasses Rs. 15,000 per month, the employer's share should only be 12% of Rs. 15,000, amounting to Rs. 1800 per month.