How Can We Revise Our Salary Structure to Offer Better In-Hand Pay Without Legal Issues?

We want to revise our salary structure because people who come for interviews want more salary in hand. We deduct PF, ESIC (if applicable), and PT from the gross salary to arrive at the net salary.

Current Salary Structure

Following is our current salary structure, which has been in place since 2016 and was recommended by our labor consultant:

- Gross: 15,000.
- Basic Salary: 9,000 (60% of Gross).
- HRA: 2,250 (15% of Gross).
- Medical Allowance: 1,500 (10% of Gross).
- Education Allowance: 1,500 (10% of Gross).
- Washing Allowance: 750 (5% of Gross).

Deductions

- ESIC (1.75% of Gross - Washing Allowance) i.e., 250.
- PF (12% of Basic Salary) i.e., 1,080.
- PT: 200

Net Salary: 13,470

The consultant advises that if you reduce the basic salary to, say, 30-40% of the gross, the labor officer will raise objections, and we will have to pay arrears for PF purposes. Hence, it is better to keep it at 60%.

Please review the existing salary structure and provide guidance on how to improve it.

Understanding Exclusions in Salary Components

Instead, you have to understand what components can be excluded. In cash terms, only HRA can be excluded from the gross salary, i.e., 66% to 70% of the salary is covered under EPF. The consultant has added some conveyance allowance as well and made it 60%. Apart from this, food allowance is exempted, but it cannot be paid in cash; it should be in the form of food purchased by the employer and tendered to the employee. If paid in cash, it is subject to EPF and ESI. Similarly, uniform allowance is treated.

In a nutshell, only HRA and conveyance can be excluded. If any other allowance is offered for employees earning a basic salary less than Rs. 15,000/-, then the establishment will face troubles. For basics above Rs. 15,000/-, the department doesn't pay much heed, as their criteria of Rs. 15,000/- is reconciled, and they are receiving contributions of Rs. 15,000 or more.

Please provide a better salary structure so that employees receive more salary in hand. I understand PF and ESIC are statutory deductions, and they help employees in the long run, but employees are more concerned about the in-hand salary to manage monthly expenses.