Starting a Pvt Ltd Company: How to Handle Employee Salaries Without Profit for 8-10 Months?

Advice Needed for Starting a Pvt Ltd Company

Hello, I need some advice from you. I am starting a Pvt Ltd company and need to appoint 20 employees. However, my company will not make a profit for 8 to 10 months, yet I still have to pay the employees. What is the limit of salary, by rules, that I can pay them?

Complying with Legal Requirements for Employee Compensation

You can start your activities by complying with the minimum wages notified by the State Government for your industry and according to the skill levels of the employees being inducted. In addition, you need to comply with PF & ESI Scheme, Labour Welfare Fund, and Professional Tax requirements as applicable. So, prepare a proper estimate on all these factors to ensure the required legal compliances. You may plan accordingly.

If you have registered your company, the next steps would be planning, organizing, directing, and controlling. As far as HR is concerned, based on the state in which you operate, there are a number of rules to be followed. Compliance is a big deal in India to run any business smoothly. At times, people may find it easy to make a profit but tough to fulfill compliance requirements.

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Salary and Wage Requirements

You need to pay your staff and workers a salary that is above the minimum wages specified for your industry in your state. Note that this is revised every 6 months, and you need to pay the higher wages as soon as they become applicable.

Overtime and Bonus Payments

In addition, you will need to pay overtime if they work beyond 9 hours a day or 48 hours a week. They are entitled to a bonus at 8.33% of Basic + DA, payable once a year (8 months from the end of the financial year), and you also need to pay statutory dues (PF, ESIC, PT).

Market Wage Considerations

Please note that you may not be able to get people to work for you at minimum wages; you need to check the market wages for your industry.

Dear Colleague,

As rightly guided by our colleagues, you need to pay the statutory minimum wages under the provisions of The Minimum Wages Act 1948 applicable to your industry. Check whether you are able to attract talent at this wage level. You also need to mandatorily cover the employees for PF and ESI.

Workforce Composition Strategy

What is best possible is that you may have a mix of workforce like regular employees who have experience and support your business from day one (pay them slightly more than the minimum wages of the Minimum Wages Act) + a few probationers for one year (pay them minimum wages exactly or a consolidated pay not less than minimum wages) + a few apprentices or trainees on a stipend basis for one year (the stipend may be less than minimum wages). In the second year, these trainees can become probationers and then regular employees in the third year. This mix will give you some cost advantage until you reach your break-even point and stabilize your business.

Off-Roll Options

You may also consider taking a few off-roll options by paying minimum wages through manpower agencies (contract arrangement) for those activities that are essential but not bringing revenue to your business or are non-core to your business.

All the very best for your successful endeavor and success.

Understanding Employee Emoluments and Entitlements

The emoluments and entitlements that an employee must receive depend on the type of business you are in and should be in line with government rules and regulations under various applicable laws.

Components of Employee Compensation

Minimum wages, DA, special allowances, HRA, EPF, ESI, MLWF, leave with wages, bonus, and other fringe benefits as applicable will give you an idea to calculate the cost to company (CTC) of employees.

You can seek assistance from business consultants in this regard.

Hi Sir,

My company is a private limited company and has started a project with a government company in U.P. They have requested the PF and ESIC details of employees working for their project on a monthly basis. The employees are laborers, and we pay a monthly gross salary of Rs. 11,000 to them. The segregation under our company policy is as follows:

- Basic: Rs. 4840
- Grade pay: Rs. 1320
- CCA: Rs. 2915
- HRA: Rs. 1265
- Special Allowance: Rs. 660

Deductions:
- PF: Rs. 581
- ESI: Rs. 83

Therefore, the net salary we pay is Rs. 10,336.

Minimum Wage Requirements

However, the government company has rejected this segregation of wages. Please advise me on the minimum gross salary, net salary, and basic pay I need to provide to unskilled laborers under the Minimum Wages Act. The per-day minimum wage was revised in October 2021 to Rs. 546 for unskilled labor in Area B.

The government company insists on a minimum wage of around Rs. 13,000. What should be the basic pay and deductions like PF for these employees? Taking into account the revised per-day minimum wage for unskilled labor, please guide me on the minimum basic, net, and gross salary that I must maintain monthly under this criterion.

Understanding PF and ESIC Deductions

The first thing you need to know is that PF is paid not on the basic salary but on the full salary, excluding HRA, overtime, and other allowances that are specifically for reimbursement of the cost of employment and not given to all employees or all employees in a particular group of employees.

Therefore, on a salary of ₹11,000, PF will be ₹1,168 per month. ESIC is calculated on gross wages, so the deduction will be ₹192.5 per month.

Minimum Wage Considerations

If the minimum wage is ₹546 per day, then the monthly salary will be ₹14,196. The component breakup will make little difference except for the HRA part. Your PF, ESIC, etc., must be paid accordingly.

Incidentally, this is for an 8-hour work shift per day and 6 days of work per week.