Are We Calculating Salaries Fairly? Seeking Advice on Basic Salary and Employee Concerns

Salary Structure and Employee Concerns

Hello everyone, please advise! We are paying a basic salary to our employees as per the minimum wages, which is 16,064/- for the unskilled category. We pay the EPF on the full basic salary. When calculating Bonus/Gratuity, we base it on the basic salary, which is currently 16,064 as per MW. However, our employees are complaining day by day. They insist that their basic salary should be 40 to 50% of their CTC, and the calculation of Bonus/Gratuity should also be based on 40 to 50% of their CTC.

So, I would like to know if we are doing this correctly, or should we implement these changes according to the employees' requests?

Your precious response is awaited.

Thanks & Regards, Vishal Bhardwaj

Dear Vishal,

It appears that the employees of your organization are receiving a Basic Salary as per Minimum Wages (MW), and you are also paying the PF contribution on the entire Basic, i.e., beyond the statutory limit. If there is no other component in your monthly gross, then the CTC will be the Basic Salary, Employer contribution of PF & ESIC, Statutory Bonus as per the Payment of Bonus Act, and Gratuity impact as per the Payment of Gratuity Act.

The claim of your employees regarding Basic Salary, Bonus, and Gratuity should be paid 40-50% of CTC. I could not find any rationale behind the claim.

You are paying Basic as per MW, which is perfectly okay. I do not know whether you are paying Bonus as per the Payment of Bonus (PB) Act or not. You may calculate Bonus as per the PB Act considering Gross profit, Available surplus, Allocable surplus, Set on & Set off. Gratuity liability should also be calculated as per the Payment of Gratuity (PG) Act.

Thanks & Regards,

S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]
USD HR Solutions – To Strive towards excellence with effort and integrity

Dear Mr. S K Bandyopadhyay, we're providing three more allowances to our employees, namely HRA/CCA & Conveyance.

Below, I've outlined the structure of how we're paying wages to our employees. In relation to this, one of our employees raised a concern that their basic salary should be 50% of their CTC, and based on that amount, gratuity and bonus should be calculated. The employee claims that 50% of their CTC is approximately INR 26,044, which they believe is too high.

Wage Structure

BASIC HRA CON MEDICAL GROSS PF NET PAY ER PF 13% CTC
16,064 11,312 11,312 11,312 50,000 1,928 48,072 2,088 52,088

Please advise me on this matter. Are we currently following the correct procedure, or should we make adjustments in this area?

Thanks & Regards,
Vishal Bhardwaj

It appears from your second post that the employee is also receiving HRA, Conveyance Allowance, and Medical Allowance, in addition to Basic, and the monthly gross is 50,000/-. Considering the employer's portion of PF contribution, you have determined the CTC.

It also appears that the employee is eligible for a Statutory Bonus as per the Payment of Bonus Act. If not, the organization is enjoying a bonus holiday. There are also Gratuity, possibly a canteen subsidy, the company's transport, LTA, etc., under CTC.

The employee who has raised the question regarding Basic, Gratuity, and Bonus believes that Basic should be 50% of CTC, and accordingly, the Gratuity and Bonus have to be calculated. The employee is probably aware of the definition of Wages as per the new Labour codes (yet to be implemented). To determine wages (Basic & DA) as per the wage code is 50% of the total remuneration (payable amount to any employee - not monthly gross or CTC), and keeping this in mind is probably the cause of the claim by the concerned employee. Obviously, there will be more Gratuity and more contribution to PF (as your organization is paying PF contribution beyond the statutory limit of 15,000/- per month). But the Bonus will not change if it is paid as per the Payment of Bonus Act.

My personal opinion is that your existing remuneration structure is more inclined towards allowances. Basic may be 40-42% of the monthly gross. In that case, when Labour codes are implemented, some small corrections will be sufficient.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity

Statutory Contributions and Employee Demands

Employees cannot dictate how you should pay statutory contributions. It is surprising that employees themselves are demanding that their contribution to PF and payment of bonus and gratuity should be on 40% of gross salary, which is less than the amount you consider for payment. Though you need not pay the PF on Minimum Wages fixed by the government, i.e., Rs 16,064, you should never do it on a salary less than Rs 15,000. Again, payment of Bonus and Gratuity on statutory salary are requirements of law, and you should not dilute it.

Salary for Trainees

Since these trainees are not apprentices engaged following the Apprentice Act, you should pay the salary equal to the notified minimum wages for the sector. That shall consist of a basic pay and a dearness allowance. Please follow the notification.

Please see this attached salary break format. It will help you make changes as per your company's requirements.