Navigating Salary Structuring in BPOs: How to Handle DA, PF, and Minimum Wages Concerns?

Hi all,

I am Samir working in a BPO. I just came across a few problems (five) during Salary Structuring, and I need your help with the same.

1. Do we have to show DA (Dearness Allowance or Cost of Living Allowance) separately?

2. Is DA (Cost of Living Allowance) different from HRA?

3. As of now, our management does not intend to go for PF or ESIC registration, so I have to prepare a structure with Basic + DA greater than 7500. However, if later on, management decides to register for PF:
a. Is it possible to reduce the Basic and DA once it is given?
b. If we prepare a structure without showing DA separately, how could PF be calculated?

4. I have noticed that some BPOs include monthly gratuity contribution in the employee's salary. Is this the correct method? As far as I know, it is the company's responsibility and should be given after the employee completes 5 years, faces permanent disability, or dies on the job. Employers cannot include this contribution or LIC premium (gratuity policy) in the employee's salary from the beginning.

5. I have also seen some structures in BPOs where the Basic and DA are less than the government-specified rates. Is this not a breach of the Minimum Wages Act? Please shed some light on how salary is calculated under the Minimum Wages Act.

Waiting for your response.

Thanks,
Samir.

Hi Samir,

I am Samir, working in a BPO.

I just came across a few problems (five) during Salary Structuring and I need your help with the same.

Sure, we would endeavor to solve as much as we can.

1. Do we have to show DA (Dearness Allowance or Cost of Living Allowance) separately?

Yes.

2. And is DA (Cost of Living Allowance) different from HRA?

Yes, they are different.

3. As of now, our management does not intend to go for PF or ESIC registration, so I have to prepare a structure with Basic+DA greater than 7500.

But if later on the management intends to go for PF registration,

a. Is it possible to reduce the Basic and DA once it's been given?

b. If we prepare a structure without showing DA separately, how would PF be calculated?

PF registration is mandatory and a statutory requirement. Rs 7500 would help you skip ESIC contribution but not PF.

IF Registered for PF:

a. Yes, you can, but not too often; as a part of the rationalization of salaries, if done once a year. This is a must to justify to the PF authorities in case of a query or PF audit, but it wouldn't make much difference. Avoid this if you can. First, have a game plan for your compensation strategy.

b. If no DA is shown separately, that means no DA; therefore, PF would be calculated on the basis of 12% of Basic (otherwise Basic + DA).

4. Also, I have seen a few BPOs include monthly gratuity contribution in an employee's salary. Is this the correct method?

Frankly, even I don't subscribe to the same, but it was well justified by one of the members, Anilanand, in response to my query on this matter. (Please search for gratuity contribution for his response.)

As far as I know, it is the company's responsibility and could be given after the employee completes 5 years, or in case of permanent disability to work, or if the employee dies on the job. The employer cannot include that contribution or LIC premium (gratuity policy) in the employee's salary from the beginning.

Yes, I subscribe to the same. The LIC policy is a benefit and should be out of purview. However, if the number of employees is substantial, then it may be considered as part of CTC depending upon the Management's view.

5. I have also come across a few structures in BPOs in which the Basic and DA are less than the government-specified rates. Is this not a breach of the Minimum Wages Act?

I am not aware of this. I will check and revert. Please share the structure for us to comment on the same.

Hope this helps.

Cheers,

Rajat

Thank you, Rajat Sir, for your views.

I have another question:

Do we have to give DA compulsory for all?

Say, if we don't give DA, does this invite penalties?

And please find below pay structure in one BPO in Mumbai. Giving name would not be proper.

Below is the description of salary for an Associate for the month of July 2004:

Month Arrears Total

Basic 2888.00 95.00 2983.00

HRA 1155.00 57.00 1212.00

Conveyance 1200.00 39.00 1239.00

Others all 1325.00 34.00 1359.00

Medical Reimbursement 625.00 27.00 652.00

LTA .00 8.00 8.00

Performance Reward 241.00 8.00 249.00

Incentive 1000.00 0.00 1000.00

Meal Allowance 750.00 24.66 774.66

CCA 750.00 0.00 750.00

Gross Earnings 10226.66

Deductions

PF 347.00 11.00 358.00

PT 200.00 .00 200.00

Gross Deductions 558.00

Net Salary 9668.66

And I have Minimum Wages Rates Declared for Oct 2005 to March 2006:

Basic DA HRA Total

Skilled 3300 275 181 3756

Semi-Skilled 3230 275 176 3681

Unskilled 3131 275 171 3577

Although we cannot compare the July 2004 and Oct 2005 structures, this does give a fair idea.

Also, I have seen a recently opened Domestic Call Center giving 1800 Basic.

Please help me understand the structure better.

Again, thanks,

Samir.

Hi Samir,

DA is compulsory for the workers but not for staff in the private sector. The structure is okay and doesn't violate the laws as such. Here the basic is on the lower side to reduce the statutory dues. Minimum wages are for the workers.

Hey, let me confirm your doubts once again through others.

Regards,
Rajat

Hi Sameer,

Please call me just Rajat, not sir, as we are all students, and you are teaching me as well. 😊

I checked with the consultants, especially on minimum wages and DA. We confirm that DA is not compulsory.

Secondly, the salary structure:

And please find below the pay structure in a BPO in Mumbai. Giving the name would not be proper.

Below is the description of the salary for an Associate for the month of July 2004.

| Month | Arrears | Total |
| --- | --- | --- |
| Basic | 2888.00 | 95.00 | 2983.00 |
| HRA | 1155.00 | 57.00 | 1212.00 |
| Conv | 1200.00 | 39.00 | 1239.00 |
| Other all | 1325.00 | 34.00 | 1359.00 |
| Medical Rem | 625.00 | 27.00 | 652.00 |
| LTA | 0.00 | 8.00 | 8.00 |
| Performance Reward | 241.00 | 8.00 | 249.00 |
| Incentive | 1000.00 | 0.00 | 1000.00 |
| Meal All | 750.00 | 24.66 | 774.66 |
| CCA | 750.00 | 0.00 | 750.00 |
| Gross Earnings | 10226.66 |

Deductions:

| PF | 347.00 | 11.00 | 358.00 |
| PT | 200.00 | 0.00 | 200.00 |
| Gross Deductions | 558.00 |

Net Salary: 9668.66

And I have Minimum Wages Rates Declared for Oct 2005 to March 2006:

| Basic | DA | HRA | Total |
| --- | --- | --- | --- |
| Skilled | 3300 | 275 | 181 | 3756 |
| Semi Skilled | 3230 | 275 | 176 | 3681 |
| Unskilled | 3131 | 275 | 171 | 3577 |

Since the salary of the Associate exceeds the minimum wages, which is Rs 3756, one does not violate the act.

Cheers,
Rajat

Thank you, Rajat :D That was a very good point to remember that DA is not compulsory, great... :) And now I understood, so we have to see the total of Basic + DA + HRA (combined) and see that it is above the government-specified standard. It is irrelevant if the basic, in particular, is below, but if the combination of all three is above, then it is not violating the Minimum Wages Act. Am I right? Please guide me, Samir.