New CTC Break up post New social Security Code 2020 being implemented by Government from April 2021

Hello All,

Kindly ignore my last post and consider this one

Acc to the new labor code, it is stating that basic+DA and other allowance should be in 50:50 ratio. Few have commented that "this allowances" means components which consists and are part of GROSS and few have said that any payment received by the employee so it means that we should consider LTA+yearly performance bonus+leave encashment+overtime allowance+Employer's PF.

So if CTC is 450000 then

BASIC-18750

HRA-9375

MPP-5000

GROSS-33125

Employer's PF-2250

Gratuity-901

Total Remuneration-36276

LTA-5000(paid annually)

performance bonus-10000(paid annualy)

1. is the above example meeting all the rules of the new labour code?

2. can I consider this 50:50 ratio with monthly gross or annual component should also be considered while computation?

3. overtime allowance is not fixed ofcourse, it depend on the requirement so how can it be considered at the time CTC computation. It also varies every month so the month an employee gets this OT allowance, then the 50:50 percentage will get impacted.

I would be highly obliged if you can answer my above question

Answer to your queries are as follows:-
1. Yes.
2. Annual cash components . In this case excluding Gratuity (as totally exempted in the wage definition).
3. OT is really difficult to calculate. It will vary every month and to be added to Wage. The objective of the law makers to minimise OT by optimum man power planning.
S K Bandyopadhyay (Howrah, WB)

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Thank you Mr Bandyopadhyay
1.Every month, We have shift allowance for few employees and it varies although. So do we have to consider it under "wages" for PF?
2.And yearly components, like one time payment, leave encashment, LTA, performance bonus, long term service bonus should also be considered under wages?
3. We have been paying PF contribution on actual BASIC of the employee. Now can we consider to pay on PF wage ceiling which is 15000/- or we cannot do it now ?
Thank you in advance

Answer to your questions 1, 2 & 3 all are "YES ". This is really a challenge to the HR professionals how to reschedule the remuneration structure in the new regime. This will vary from organization to organization.
S K Bandyopadhyay ( Howrah, WB)

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can anyone assist me on new wage code ctc part.
our company only includes HRA in CTC structure and conveyance for only sales team.
in this scenario can anyone suggest for best ctc structure which include pf, esic, pt.

Dear Sam,
Your CTC structure may be Basic, HRA, Employer's portion of PF & ESIC, Statutory Bonus and for Sales team Conveyance will also add.
In your existing structure add all components except ESIC for each employee. 50% of that is Basic and rest 50% divided to others ( HRA, Employer's portion of PF, Statutory Bonus, Conveyance -as applicable )
Thanks & Regards,
S K Bandyopadhyay ( Howrah, WB)

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In my opinion the salary should mean all allowances which an employee gets while on duty or on leave irrespective of any ratio like 50:50. It shall exclude only such payments which the employer is liable to pay like PF, ESI, Bonus and Gratuity. If we allow only excess of 50 percent of other components (components other than basic wages) to be added to basis wages or wages, simply, that will give the employers an opportunity to keep the basic salary at such a low level and allowances at a high level and even by adding the 'excess' the salary which qualifies for PF, Bonus or gratuity would be less.

I would say that the compartmentalisation of salary itself is a wrong practice when we consider the total salary (basic plus all allowances) for deduction for leave without pay. Very simple, if you take a few days leave without pay, it will be the gross salary which is subjected to deduction and not the basic pay alone.

In some PSUs like banks, the officers get rent allowance depending upon their grades and city. This is called HRA. This is an allowance which is not forming part of salary and if that officer is on leave without pay, his HRA is paid in full whereas deduction is made only from other components of salary. at the same time in many private establishments the HRA is a part of salary. The gross salary includes this HRA and is proportionally reduced when you take a leave without pay. Similar is the case with other allowances.

The definition of wages in the new labour code will also take different interpretations by various authorities and courts in due course. I don't find that the intention of the law making authorities is fair towards employees. For an employee whatever is the amount offered to him for his service is his salary. He is not bothered about the components but will expect that he would get his retirements benefits based on that salary that he gets. Unfortunately he will see a very small amount as his retirement benefits just because the employer had considered only a small component as wages. Taking the gross salary for deduction for not working and taking the basic salary and excess of 50% of other allowances (as per new code) for payment of statutory benefits including gratuity is unfair. his is going to be challenged in the same way in which PF qualifying salary was challenged.

Please follow the link
Madhu T K: Payment of Gratuity and Gratuity Qualifying Salary