Is This Salary Structure Calculation Correct Under the Wage Code 2021? Seeking Your Insights

Dear All,

Please provide your opinion on the salary structure.

Particulars
Amount
Basic 27,750.00
HRA 11,100.00
Medical Reimbursement 1,250.00
Conveyance Allowance 1,600.00
LTA 2,312.50
Furnishing Allowance 22,326.00

Total Gross Salary 66,338.50

Other than the above, an annual bonus at 20% of Basic and PF at 1,800 are considered. As HRD is in the excluded list (Medical + Conveyance + LTA + Furnishing Allowance put together is 27,488.50). Please advise if this is the correct calculation.

Thank you.

Query Regarding Salary Structure under New Wage Code:

Basic + DA = 29,550
HRA = 11,820
Other Allowance = 29,504
Monthly Gross = 70,874 per month

In the above case, excluding HRA, the Basic and Other Allowance are at a 50:50 ratio of the monthly gross.

My query is: is this in accordance with the New Wage Code?

Please suggest.

Thanks & Regards,
Pradeep

Dear Pradeep, as per the new wage code, the wage (basic & DA) should be 50% of all the remuneration. Therefore, remuneration paid on a monthly as well as a yearly basis, excluding Gratuity, ESIC, and any other insurance premium, and any retrenchment compensation, will be part of all remuneration, and 50% of that will be Basic & DA.

I have made many calculations in the past which you will find in my earlier posts. Please follow the same and correct your present calculation accordingly.

Thanks & Regards,

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions

Calculation of Allowances and Basic Wage

The allowances other than Basic+DA are Rs. 11,820 + 29,504 = Rs. 41,324. One half of Rs. 70,874 would be Rs. 35,437. Therefore, the allowance exceeds the one half by Rs. 5,887 (41,324 - 35,437).

Since Basic+DA is only Rs. 29,550, this excess amount of Rs. 5,887 would be treated as basic, and thus, the basic wage would be Rs. 29,550 + 5,887 = 35,437.

Regards, S.K. Mittal

[Phone Number Removed For Privacy-Reasons]

Discussion on Wage Code and HRA Exclusion

As the wage code states:

(y) "wages" means all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes:

(i) basic pay;
(ii) dearness allowance; and
(iii) retaining allowance, if any,

but does not include:

(f) house rent allowance;

Queries Regarding HRA Exclusion

1) What would happen in the above case where HRA is excluded from the wage components?

2) If the employer pays HRA separately, which is not part of the monthly gross salary, what is the statutory obligation?

Please suggest.

Thanks & Regards,
Pradeep B N

Dear Pradeep,

In my opinion, the definition of "Wage" in different labor codes is quite scientific, with no ambiguity but a slight twist in the calculation method. This is the reason for confusion across the country among HR professionals, except for a few.

Definition of Wage

If we examine the definition, it states that wages mean all remuneration by way of salaries, allowances, or otherwise, and includes Basic, DA, and Retaining allowance but does not include the list of items from (a) to (k).

The Twist in Calculation

The twist begins in the proviso where it is mentioned that components between (a) to (i), if they constitute more than 50% of all the remuneration calculated under the clause, will be added back to the wage. It is also stated that the amounts considered should be payable to any person. This is why ESIC, which is not payable to any person, has not been considered, but the employer's PF contribution has been considered as it is payable to any person's account. Similarly, premiums for any insurance not payable to any employee should not be included in the calculation.

Please correct all the calculations as mentioned above accordingly, as they are not correct as per the definition of Wage.

Therefore, as I mentioned earlier, it will be essential to have proper knowledge and understanding while reworking the remuneration structure; otherwise, it will not be correct.

Thanks & Regards,

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions

Salary Breakdown for CTC of 900006 P.A.

For a working CTC of 900006 P.A., here is the breakdown:

1) Basic: 29,300 per month
2) HRA: 11,720 per month
3) Medical Reimbursement: 1,250 per month
4) Conveyance Allowance: 1,600 per month
5) LTA: 2,441 per month

Monthly Gross: 53,856 per month

6) Employer PF Contribution: 1,800 per month
7) Annual Bonus @ 8.33%: 2,440.69

Basic: 29,300, and all allowances: 28,796.69

Net Salary: 53,856 - 1,800 (PF) - 200 (PT) = 51,856/-

Please provide your views.

Regards, Pradeep

Dear Pradeep,

It appears that you are not able to understand the twist of the calculation. If CTC excluding gratuity and insurance premium is 900,006/- P.A., then Basic will be 450,003/- P.A., i.e., 37,500/- P.M. Other allowances, including Employer's portion of PF and Statutory Bonus, will also be 450,003/- P.A., i.e., 37,500/- P.M. Accordingly, you will be required to distribute the other allowances, and if necessary, you may need to drop some items. This is a restructuring of the existing Remuneration Structure.

Moreover, you have mentioned that Annual Bonus (Statutory) 8.33% -- 2440.69, which is 8.33% of your considered Basic. As per PB Act, Bonus calculation should be based on the minimum wages in your case, which is obviously not your considered basic. If we calculate it based on the PB Act, i.e., minimum wages, your calculated amount will be more than 8.33%.

If you find difficulties restructuring the existing remuneration system, seek help from experts available in the market. You may contact me by phone on or after 24th March 2021.

Thanks and regards,

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions

Annual CTC Details

Annual CTC: 900,006 including gratuity.

Part A

1) Basic: 29,300 P.M. (Minimum wages in Maharashtra Zone I Construction Industry: 16,313)

2) HRA: 11,720 P.M.

3) Medical Reimbursement: 1,250 P.M.

4) Conveyance: 1,600 P.M.

5) LTA: 2,441 P.M.

6) Furnishing Allowance: 7,545 P.M.

Part B

7) Employer PF Contribution: 1,800 P.M.

8) Bonus @ 8.33%: 2,440.69 P.M. (Current basic is more than minimum wages)

Summary

Basic: 29,300

All Allowances: 28,796.69 (Including Employer PF & Bonus)

Gratuity: 16,903.85

Monthly CTC: 75,000.54

Annual CTC Including Bonus & Gratuity: 900,006.43

Net Salary

Gross: 53,856

-1,800 (PF) -200 (PT) = 51,856/-

Dear Pradeep,

It appears from your submission that the Monthly CTC, including Annual Bonus and Gratuity, is 75,000/- P.M. As gratuity is out of the scope of the calculation of Total remuneration as per proviso-1 of the Wages definition under the Wage Code, therefore, the total remuneration will be 75,000 minus the gratuity monthly amount (in your case, it may be a maximum of 1,500/- per month) = 73,500/- per month. 50% of the same will be 36,750/- per month as basic. This is not as per your or my wish. This is as per the Wage definition.

The Bonus Act

The Bonus Act is one of the complicated Acts under labor laws. How to calculate the percentage of bonus from gross profit, available surplus, allocable surplus, set on & set off is not very easy. There is a condition under the PB Act called Customary Bonus, which is paid not as per the PB Act. In your case, it is a Customary Bonus, not a Bonus as per the PB Act, as your calculation is based on the current basic, which is more than the minimum wages and not complying with the calculation conditions under the PB Act. You may pay more than the PB Act calculation. As per the new wage code, if you pay a customary bonus, you will also be required to calculate as per the PB Act as mentioned above, and if as per the PB Act calculation it is less, then it will be required to pay the difference. In your case, 8.33% is more than the PB Act calculation. But I am not sure whether your organization is calculating the bonus % as per the PB Act or not, which is a problem for a good number of Indian Organizations - they just pay 8.33%.

Thanks and regards,

S K Bandyopadhyay (WB, Howrah)

CEO-USD HR Solutions