I want to pay my employee a net take-home salary of 12000/-; what can be the best salary structure in which I have to pay the least pf, and CTC is the lowest?
From India, Durgapur
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From India, Durgapur
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If you are offering employees a salary of Rs 12,000, the best salary structure is like this:
Basic salary: Rs 12,000
PF @ 12% of Rs 12,000 or Rs 1,440
CTC = Rs 13,440
Don't you require ESI? Since the company has PF, there should be ESI also. That should also be on Rs 12,000.
Please be informed that a salary of Rs 12,000 per month is just equal to or even less than the statutory minimum wages fixed by the government. Then how can you bifurcate it with components to reduce the cost to the company? It is okay if you are paying more than the statutory salary; there can be some components kept outside the basic salary which would qualify for PF, etc., but when you are paying a salary of just Rs 12,000, there cannot be any adjustment but to pay the PF on the gross total itself.
It is true that the definition of wages under the PF excludes HRA, but it is difficult to believe that you would give an amount, say Rs 3,000 or 4,000 as HRA to an employee who is paid only Rs 12,000 as total salary!
From India, Kannur
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4526Basic salary: Rs 12,000
PF @ 12% of Rs 12,000 or Rs 1,440
CTC = Rs 13,440
Don't you require ESI? Since the company has PF, there should be ESI also. That should also be on Rs 12,000.
Please be informed that a salary of Rs 12,000 per month is just equal to or even less than the statutory minimum wages fixed by the government. Then how can you bifurcate it with components to reduce the cost to the company? It is okay if you are paying more than the statutory salary; there can be some components kept outside the basic salary which would qualify for PF, etc., but when you are paying a salary of just Rs 12,000, there cannot be any adjustment but to pay the PF on the gross total itself.
It is true that the definition of wages under the PF excludes HRA, but it is difficult to believe that you would give an amount, say Rs 3,000 or 4,000 as HRA to an employee who is paid only Rs 12,000 as total salary!
From India, Kannur
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Yes, we require ESI. I think my question was not clear enough, which led to the misunderstanding. I will reframe it again here.
I want my employee to take home a net salary of 12,000 and design the structure in a way so that the contribution to PF is minimized. I am attaching an example that I have prepared to the best of my knowledge, but I am not sure if it complies with the rules. Kindly correct me if needed.
From India, Durgapur
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I want my employee to take home a net salary of 12,000 and design the structure in a way so that the contribution to PF is minimized. I am attaching an example that I have prepared to the best of my knowledge, but I am not sure if it complies with the rules. Kindly correct me if needed.
From India, Durgapur
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It is reverse working so that the net salary should be equal to Rs 12,000. You can follow the same method as you calculated. But remember that there is no law which says that the basic salary should be 50% of the gross salary.
Moreover, the way you have attached is not legally fine because the special allowance is also part of wages on which the PF and ESI should be calculated. Again, the bonus should be below the line of gross salary as it is an annual payout and not a monthly payout. If it is shown as part of the monthly salary, the same would attract ESI.
From India, Kannur
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Moreover, the way you have attached is not legally fine because the special allowance is also part of wages on which the PF and ESI should be calculated. Again, the bonus should be below the line of gross salary as it is an annual payout and not a monthly payout. If it is shown as part of the monthly salary, the same would attract ESI.
From India, Kannur
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Hello Madhu, Can you Kindly design a stucture in which all the thing is legally fine, and i have to pay minimum PF and ESI, if needed i can pay the fee or share me your contact no. Thanks
From India, Durgapur
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From India, Durgapur
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Hello, Sir. This is a forum to provide practical solutions to your problems within a legal framework. That is what I have included in my replies as well. Without knowing which state the business is located in, what the scheduled industry is, and what the statutory minimum wages applicable to that industry are, how can I advise you on a legally enforceable salary structure?
From India, Kannur
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From India, Kannur
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Minimum Wages and Salary Structure in West Bengal and Uttarakhand
In respect of employees in West Bengal, you have to follow the minimum wages for banking (NBFC?) establishments published by West Bengal. For others in the offices of Uttarakhand, you have to fix the salary according to the Uttarakhand notification.
There will be two parts: one is Basic wages, and the other is the variable Dearness Allowance in the notifications. If you don't pay any DA (VDA), then you have to club both the basic and DA, and that should be the basic salary. If the salary offered exceeds this amount, you can pay it under any heads like HRA, Conveyance, etc. This is legally okay.
If you take the whole amount as salary and then break it up into components like basic salary (50%), HRA (40%), and Special allowance (10%), then the employee would still be happy to receive the same salary. But the employer will face a question when the EPF authorities ask why you are contributing PF only on Basic salary alone. Or after five years of service, if an employee leaves, he may ask for gratuity, and you may calculate it on basic salary, but he refuses to take it, saying where is it written in the Payment of Gratuity Act that gratuity is payable only on basic salary? Then you are stuck, right? It will be a question of law to interpret the meaning of basic salary.
It is true that as long as you are paying a salary above the minimum wages, you can pay it under different heads, and there is no need to include an element called variable dearness allowance. But the issue arises only when a legal battle is initiated, in which the employee questions your decision of not compensating for the cost of living increase.
Simply put, an employee receives a salary increment for two reasons: to reward performance and to compensate for the increase in the cost of living. The former is reflected in the form of an increase in the basic salary, and the latter in the form of DA.
Therefore, if you want your establishment to be legally perfect, please refer to the state's minimum wages notification and then make a decision.
From India, Kannur
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In respect of employees in West Bengal, you have to follow the minimum wages for banking (NBFC?) establishments published by West Bengal. For others in the offices of Uttarakhand, you have to fix the salary according to the Uttarakhand notification.
There will be two parts: one is Basic wages, and the other is the variable Dearness Allowance in the notifications. If you don't pay any DA (VDA), then you have to club both the basic and DA, and that should be the basic salary. If the salary offered exceeds this amount, you can pay it under any heads like HRA, Conveyance, etc. This is legally okay.
If you take the whole amount as salary and then break it up into components like basic salary (50%), HRA (40%), and Special allowance (10%), then the employee would still be happy to receive the same salary. But the employer will face a question when the EPF authorities ask why you are contributing PF only on Basic salary alone. Or after five years of service, if an employee leaves, he may ask for gratuity, and you may calculate it on basic salary, but he refuses to take it, saying where is it written in the Payment of Gratuity Act that gratuity is payable only on basic salary? Then you are stuck, right? It will be a question of law to interpret the meaning of basic salary.
It is true that as long as you are paying a salary above the minimum wages, you can pay it under different heads, and there is no need to include an element called variable dearness allowance. But the issue arises only when a legal battle is initiated, in which the employee questions your decision of not compensating for the cost of living increase.
Simply put, an employee receives a salary increment for two reasons: to reward performance and to compensate for the increase in the cost of living. The former is reflected in the form of an increase in the basic salary, and the latter in the form of DA.
Therefore, if you want your establishment to be legally perfect, please refer to the state's minimum wages notification and then make a decision.
From India, Kannur
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