Can a Company Pay Full ESI and PF for 30 Days While Only Paying 25 Days' Wages? Let's Discuss!

Dear Friends,

I recently came across an issue raised by a very dear friend of mine working in New Delhi. His company is a private limited company and has approximately 700 employees working in various retail outlets. His company has a payday on the 7th of every month and an attendance cycle from the 1st to the 30th of every month. In order to pay salaries on the 1st of every month, starting from this month onwards, he wants to calculate attendance from the 1st to the 25th of February 2008 so that they can pay salaries to all employees on the 1st of March. However, he only wants to pay 25 days of wages, which will result in a problem with ESI and PF contributions due to a shortfall of 5 days.

Now he is facing another issue. He wants to pay full contributions to ESI and PF for 30 days but pay all employees' wages for only 25 days. Consequently, the take-home pay of employees will decrease due to the 5 days of extra PF and ESI contributions. Do you think he can really do that? I personally don't think so. Please discuss/advise on this issue as soon as possible.

Thanks,

Warm regards,

Umesh Chaudhary
welcomeumesh@yahoo.com

Hi,

These are all well-settled issues in HR. The payment cycle runs from the 26th to the 25th. When you make a changeover, you may run the risk of making full payments for 5 or 6 days from the 25th to the 30th. In the next month, you can adjust this, and the cycle will fall into place. This is how all companies operate.

Just check with any nearby company to see how they handle this. Let me reiterate, this is a well-established practice.

Siva

Hi Siva,

Thank you very much for your concern.

You did not understand my question. I am aware of current industry trends, such as the attendance cycle, etc. However, my only concern is:

1. They want to change their attendance cycle to 26th to 25th, but to start off, they need to first pay the salaries from the 1st to the 25th either with a 5-day advance or by deducting 5 days' payment. Paying 5 days' salary is the general industry practice if a company wants to change its attendance cycle. However, in this case, they do not want to pay 5 advance days' salary; instead, they want to deduct the pay for 5 days, which means they only wish to pay the salary for the 1st to the 25th, i.e., 25 days. As a result, there will be a shortfall of 5 days of contribution towards ESI and EPF, as the PF financial year will close on 29th Feb this year.

Another solution they have come up with is that they want to pay full payments to ESI and EPF by paying only 25 days of salary to its employees but deducting ESI and EPF contributions for the full month, i.e., 30 days. I know this is not a general practice anywhere in India. What do you guys say about it?

Warm regards,

Umesh Chaudhary
(welcomeumesh@yahoo.com)

Hi,

It is possible.

Step 1: Calculate salary from the 1st to the 30th.

Step 2: Calculate PF and ESI for the full month.

Step 3: Calculate 5 days' salary.

Step 4: Deduct this from the gross under the special deduction head.

However, in this way, these 5 days' PF and ESI will be calculated again the next month for the same period, and you cannot recover this. The amount paid for PF and ESI will never tally. Logically, a full month's cycle needs to be maintained.

The only alternative method is to adjust 5 days of leave from all employees. There will be no accounting entry, and hence, there won't be any accounting issue involved. But you need to monitor these 5 days separately, and at the time of encashment, adjustments can be made. This is the only plausible solution I can think of.

Siva

Dear All, If the salary cycle is from the 1st to the 30th, can we make the payment on the 15th of every month without any delay?

Regards,
Shreyansh Sharma