Dear All,
I request you all to please share the new CTC break-up/Xls post the new Social Security Code 2020 being implemented by the government from April 2021. Kindly consider 2-3 examples for easy understanding for all.
Thanks & Regards
From India, Mumbai
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55I request you all to please share the new CTC break-up/Xls post the new Social Security Code 2020 being implemented by the government from April 2021. Kindly consider 2-3 examples for easy understanding for all.
Thanks & Regards
From India, Mumbai
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Dear Prasad,
Sec. 2(y) of the Code on Wages, 2019 defines the term "wages" by inclusion and exclusion of certain common components of the wage structure. It further stipulates that whenever the sum of excluded components increases by over 50% of the monthly gross wages, that excess amount would be adjusted against the shortfall in the sum total of the included components, namely Basic, D.A., and Retaining Allowance. Since this restriction acts as a preventive measure against the exploitative tendency of some employers to reduce their indirect financial commitments, you have to devise your CTC structure in such a manner that the sum of basic pay and D.A. does not fall below 50% of the gross monthly salary.
From India, Salem
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Sec. 2(y) of the Code on Wages, 2019 defines the term "wages" by inclusion and exclusion of certain common components of the wage structure. It further stipulates that whenever the sum of excluded components increases by over 50% of the monthly gross wages, that excess amount would be adjusted against the shortfall in the sum total of the included components, namely Basic, D.A., and Retaining Allowance. Since this restriction acts as a preventive measure against the exploitative tendency of some employers to reduce their indirect financial commitments, you have to devise your CTC structure in such a manner that the sum of basic pay and D.A. does not fall below 50% of the gross monthly salary.
From India, Salem
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Explanation on Wages Definition
There are 3 important steps in the definition of wages -
1. Wages means all remuneration by way of salaries, allowances or otherwise & includes Basic Pay, Dearness Allowance & Retaining Allowance if any.
2. Exclusion List –
(i) Statutory Bonus,
(ii) Value of any house accommodation or the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of the wages.
(iii) Any contribution paid by the employer to any pension or provident fund,
(iv) Any conveyance allowance or the value of any travel concession (LTA, LTC etc.),
(v) Any sum paid to the employed person to defray special expenses entitled on him by the nature of his employment,
(vi) House Rent Allowance,
(vii) Remuneration payable any award or settlement between the parties or an order of a court or tribunal,
(viii) Overtime,
(ix) Commission Payable to the employee
3. If the payment made by the employer to the employee as per exclusion list exceeds 50% of the all remuneration (CTC) calculated under this clause, the amount which exceeds 50% shall be deemed as remuneration & shall be accordingly added in wages.
As the exclusion list is exhaustive & if any employer is interested to pay to any other pocket other than exclusion list (e.g. CCA, any kind of Incentive, Leave Encashment, Insurance etc. as a part of CTC) may or may not be considered as a part of the wages.( Not properly explained under wage code )
To determine the wage structure for any employee let us consider the following examples :
Option - 1
Monthly CTC : 20000/-
Basic : 10000/-,
Employer PF : 1200/-,
Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).
Therefore, the other allowances will be (10000-1200-833) = Rs. 7967/- (Appx. 40% of 20000/-).
Hence, the Monthly Gross salary will be (10000+7967) = 17967/-
Therefore, as it appears that basic is becoming 60% appx. & other allowances are 40% at the monthly gross level
This % will again be changed ( more Basic % ) due effect of OT, LTA, Higher % of Bonus etc..
Option – 2:
Monthly CTC : 41667/-
Basic : 20833/-,
Employer PF : 2500/-,(Paid 12% of entire Basic)
Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).
Therefore, the other allowances will be (20833-2500-833) = Rs. 17500/- (Appx. 42% of 41667/-).
Hence, the Monthly Gross salary will be (20833+17500) = 38333/-
The equation will again be changed if there is LTA or other payments.
Option - 3
Monthly CTC : 41667/-
Basic : 20833/-,
Employer PF : 1800/- (PF Basic restricted to 15000/-),
Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).
Therefore, the other allowances will be (20833-1800-833) = Rs. 18200/- (Appx. 43% of 41667/-).
Hence, the Monthly Gross salary will be (20833+18200) = 39033/-
In all the cases, if we consider higher percentage of bonus & overtime, it will be safe side to make Basic 65% to 70% of the monthly gross salary & 35% to 30% is the other allowances within the exhaustive list of exclusion ( HRA, Conv. etc.)
S K Bandyopadhyay ( Howrah,WB)
From India, New Delhi
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There are 3 important steps in the definition of wages -
1. Wages means all remuneration by way of salaries, allowances or otherwise & includes Basic Pay, Dearness Allowance & Retaining Allowance if any.
2. Exclusion List –
(i) Statutory Bonus,
(ii) Value of any house accommodation or the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of the wages.
(iii) Any contribution paid by the employer to any pension or provident fund,
(iv) Any conveyance allowance or the value of any travel concession (LTA, LTC etc.),
(v) Any sum paid to the employed person to defray special expenses entitled on him by the nature of his employment,
(vi) House Rent Allowance,
(vii) Remuneration payable any award or settlement between the parties or an order of a court or tribunal,
(viii) Overtime,
(ix) Commission Payable to the employee
3. If the payment made by the employer to the employee as per exclusion list exceeds 50% of the all remuneration (CTC) calculated under this clause, the amount which exceeds 50% shall be deemed as remuneration & shall be accordingly added in wages.
As the exclusion list is exhaustive & if any employer is interested to pay to any other pocket other than exclusion list (e.g. CCA, any kind of Incentive, Leave Encashment, Insurance etc. as a part of CTC) may or may not be considered as a part of the wages.( Not properly explained under wage code )
To determine the wage structure for any employee let us consider the following examples :
Option - 1
Monthly CTC : 20000/-
Basic : 10000/-,
Employer PF : 1200/-,
Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).
Therefore, the other allowances will be (10000-1200-833) = Rs. 7967/- (Appx. 40% of 20000/-).
Hence, the Monthly Gross salary will be (10000+7967) = 17967/-
Therefore, as it appears that basic is becoming 60% appx. & other allowances are 40% at the monthly gross level
This % will again be changed ( more Basic % ) due effect of OT, LTA, Higher % of Bonus etc..
Option – 2:
Monthly CTC : 41667/-
Basic : 20833/-,
Employer PF : 2500/-,(Paid 12% of entire Basic)
Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).
Therefore, the other allowances will be (20833-2500-833) = Rs. 17500/- (Appx. 42% of 41667/-).
Hence, the Monthly Gross salary will be (20833+17500) = 38333/-
The equation will again be changed if there is LTA or other payments.
Option - 3
Monthly CTC : 41667/-
Basic : 20833/-,
Employer PF : 1800/- (PF Basic restricted to 15000/-),
Bonus : 833/- (Considering Minimum Wages is 10000/- @ 8.33% level).
Therefore, the other allowances will be (20833-1800-833) = Rs. 18200/- (Appx. 43% of 41667/-).
Hence, the Monthly Gross salary will be (20833+18200) = 39033/-
In all the cases, if we consider higher percentage of bonus & overtime, it will be safe side to make Basic 65% to 70% of the monthly gross salary & 35% to 30% is the other allowances within the exhaustive list of exclusion ( HRA, Conv. etc.)
S K Bandyopadhyay ( Howrah,WB)
From India, New Delhi
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Dear All Many Thanks for your suggestions Regards Mahesh K Prasad
From India, Mumbai
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From India, Mumbai
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Hello, we are giving monthly remuneration as below to one of our employees:
Basis: $14,000
HRA: $7,000
Conveyance: $1,600
Special allowance: $14,400
Total: $37,000 per month
Employer PF: $1,800 monthly
We also have annual payments as below:
Annual allowance LTA/Medical: $20,000
Bonus: $12,600
Performance payment: Varies but is about $40,000
Leave encashment: Varies but is about $30,000
We also put money in the Gratuity account every year as per calculations based on increased basic.
In this case, how do we have to restructure the wages as per the new codes, keeping the same annual CTC?
From India, Aurangabad
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Basis: $14,000
HRA: $7,000
Conveyance: $1,600
Special allowance: $14,400
Total: $37,000 per month
Employer PF: $1,800 monthly
We also have annual payments as below:
Annual allowance LTA/Medical: $20,000
Bonus: $12,600
Performance payment: Varies but is about $40,000
Leave encashment: Varies but is about $30,000
We also put money in the Gratuity account every year as per calculations based on increased basic.
In this case, how do we have to restructure the wages as per the new codes, keeping the same annual CTC?
From India, Aurangabad
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Hi HBJ,
The wages calculation is from line 2 to 5, and gross wages are mentioned in line 6 as 37000/-. Now the employer has to merge the special allowance (Line 5) to basic and HRA to the extent that BASIC (Line 2) should not be lower than 18500/- (50% of 37000) in any case. If the employer is maintaining a cap of 15000 EPF (it appears from the calculation) that would not be affected.
The balance after Line 6 is annual payouts and does not get classified under wages. CTC and monthly wages are two different terms, and the new code is applicable to wages. CTC is the employer's terminology.
Please let me know if you need further clarification.
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The wages calculation is from line 2 to 5, and gross wages are mentioned in line 6 as 37000/-. Now the employer has to merge the special allowance (Line 5) to basic and HRA to the extent that BASIC (Line 2) should not be lower than 18500/- (50% of 37000) in any case. If the employer is maintaining a cap of 15000 EPF (it appears from the calculation) that would not be affected.
The balance after Line 6 is annual payouts and does not get classified under wages. CTC and monthly wages are two different terms, and the new code is applicable to wages. CTC is the employer's terminology.
Please let me know if you need further clarification.
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Thank you. How about Gratuity? The increase in basic will mean a lot more contribution to Gratuity for the years of service. Can that be a part of CTC?
From India, Aurangabad
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From India, Aurangabad
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Bifurcation of gross monthly wages shall be in the ratio of 50:50 in respect of the sum of basic pay plus dearness allowance vis-a-vis the sum of all other monthly allowances as per the definition of the term 'Wages' u/s 2(y) of the Code on Wages, 2019 which will come into force w.e.f 01-04-2021. It applies to all employees without any distinction of their cadre. If the ratio is disturbed on account of reasons like the application of CTC concept to the salary structure resulting in the reduction of the ratio of the basic component, there would be automatic restoration of the statutory ratio for the statutory computation of contribution towards EPF, ESi, Gratuity, Bonus, Retrenchment Compensation, etc.
Better restructure your CTC accordingly without violating the minimum wages, if any in force.
From India, Salem
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Better restructure your CTC accordingly without violating the minimum wages, if any in force.
From India, Salem
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Jugglery of numbers cannot hide the facts, viz at 14400/- basic, the employer pays 1800/- EPF (Line no 7). As per your post... and to reach this amount, the basic must be 15000/-. It is unfortunate in India that lower and middle-grade pay scale employees suffer the most, while the upper class enjoys lavish perks.
At lower levels, we should ask the employer to have a lenient view to make compliance above the ceiling, especially where the gross wages are below 15k. And yes, the Gratuity part would cost a little bit more, but the employer may opt for installments.
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At lower levels, we should ask the employer to have a lenient view to make compliance above the ceiling, especially where the gross wages are below 15k. And yes, the Gratuity part would cost a little bit more, but the employer may opt for installments.
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Dear Mr. Umakanthan and @Glidor,
Thank you for the replies. We are paying more than the minimum wages to everyone and also abiding by all the rules laid down. We also give an increase every year. However, sudden changes in rules, such as these, increase the cost without sometimes realizing it. For example, the employee with a basic salary of 14,400 may have received an increase of 1,200 or so in basic salary normally, but if we have to increase the basic by Rs. 4,000 per month, the amount of gratuity compensation increases tremendously for someone with 20 years of service. The gratuity for 20 years with, let's say, a 15,600 salary would be around 1,80,000, and for 18,500, it would be 2,13,500. So, the increase in gratuity contribution itself would be more than the regular annual increment. Are my calculations correct, or am I making a mistake? Is there any ceiling on the basic salary while calculating gratuity, like there is a ceiling of 15,000 for PF calculation?
From India, Aurangabad
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Thank you for the replies. We are paying more than the minimum wages to everyone and also abiding by all the rules laid down. We also give an increase every year. However, sudden changes in rules, such as these, increase the cost without sometimes realizing it. For example, the employee with a basic salary of 14,400 may have received an increase of 1,200 or so in basic salary normally, but if we have to increase the basic by Rs. 4,000 per month, the amount of gratuity compensation increases tremendously for someone with 20 years of service. The gratuity for 20 years with, let's say, a 15,600 salary would be around 1,80,000, and for 18,500, it would be 2,13,500. So, the increase in gratuity contribution itself would be more than the regular annual increment. Are my calculations correct, or am I making a mistake? Is there any ceiling on the basic salary while calculating gratuity, like there is a ceiling of 15,000 for PF calculation?
From India, Aurangabad
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I have once again read the definition of wages and find that the lawmakers have scientifically and professionally drafted the definition of wages. To remove any doubt, they have focused on the payment received by the employees by way of salary, allowances, or otherwise along with an exclusion list and a 50:50 condition on all remuneration calculated under the clause. Nowhere have they mentioned the ESIC contribution as the employee is not receiving the same. Therefore, items like premium to Mediclaim Insurance, Group personal Insurance, etc., will not be considered as part of wages since the employee will not receive them.
In the exclusion list, PF contribution, LTA/LTC, Statutory Bonus, etc., have been included with a condition of a 50:50 ratio between allowances and wages (Basic & DA). Therefore, the intention of the lawmakers to decide wages based on all remuneration if received by the employee should be considered to determine wages on a 50:50 basis.
Now, the remuneration structure as mentioned by @HBJ - all the components should be considered as those received by the employee, and then divide it on the basis of 50:50 to arrive at the wages value (Basic and DA). After arriving at the wages value, the monthly gross wages will be after deducting PF, Bonus, and other annualized items from the allowances and adding Basic with net allowances figure.
Obviously, the Basic will increase, monthly gross may change, CTC (on the basis of the components received by the employee) will be the same if the PF contribution is restricted up to ₹15,000 basic, but Gratuity will increase.
There is no ceiling for gratuity calculation.
S K Bandyopadhyay (Howrah, WB)
www.usdhrs.in
From India, New Delhi
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In the exclusion list, PF contribution, LTA/LTC, Statutory Bonus, etc., have been included with a condition of a 50:50 ratio between allowances and wages (Basic & DA). Therefore, the intention of the lawmakers to decide wages based on all remuneration if received by the employee should be considered to determine wages on a 50:50 basis.
Now, the remuneration structure as mentioned by @HBJ - all the components should be considered as those received by the employee, and then divide it on the basis of 50:50 to arrive at the wages value (Basic and DA). After arriving at the wages value, the monthly gross wages will be after deducting PF, Bonus, and other annualized items from the allowances and adding Basic with net allowances figure.
Obviously, the Basic will increase, monthly gross may change, CTC (on the basis of the components received by the employee) will be the same if the PF contribution is restricted up to ₹15,000 basic, but Gratuity will increase.
There is no ceiling for gratuity calculation.
S K Bandyopadhyay (Howrah, WB)
www.usdhrs.in
From India, New Delhi
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Special allowance posted by you is more than 100% of the basic. Have you noticed it? Apart from it, there are performance incentives as well.
Secondly, by arriving at the basics of bonus calculation: 14000 x 12 months x 8.33% (minimum bonus) comes to one month's salary, i.e., 14000/-. But it is posted below the basic.
Thirdly, the leave encashment formula is not matching any limit. Leave encashment means the EL encashment, and it is half a month's salary plus/minus 2 days.
To save the contribution of the gratuity fund, splits are not a wise idea, especially for an employee who has been in service for 20+ years.
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Secondly, by arriving at the basics of bonus calculation: 14000 x 12 months x 8.33% (minimum bonus) comes to one month's salary, i.e., 14000/-. But it is posted below the basic.
Thirdly, the leave encashment formula is not matching any limit. Leave encashment means the EL encashment, and it is half a month's salary plus/minus 2 days.
To save the contribution of the gratuity fund, splits are not a wise idea, especially for an employee who has been in service for 20+ years.
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Mr. Bandyopadhyay, @Glidor, thank you for the replies. The discussion is very useful for my understanding as well.
@Glidor, I was under the understanding that bonus calculation is based on a maximum of Rs. 7,000 and not according to the higher basic salary. Therefore, a bonus of Rs. 12,600 would be 15% of Rs. 7,000.
Our employees do not take many leaves, so we provide encashment for earned leave (EL) and casual leave (CL). However, I would like to know if Leave Encashment should be calculated based on basic + DA or the full salary. Additionally, is the maximum leave encashment limit 15 days as per the law?
I am considering the increase in Gratuity calculation because if we need to ensure basic + DA amount to be 50% of the monthly salary, the gratuity contribution increases significantly.
I am also seeking clarification on the rule regarding the number of Earned Leaves (EL) in a year and whether Casual Leave (CL), Sick Leave (SL), and Paid Holidays/Paid weekly offs should be included in EL calculation for the next year. According to the Factory Act, one leave is to be given per 20 "worked days." Does this rule apply to daily wage workers only or also to technical and administrative staff?
Thank you once again to everyone for your valuable comments.
From India, Aurangabad
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@Glidor, I was under the understanding that bonus calculation is based on a maximum of Rs. 7,000 and not according to the higher basic salary. Therefore, a bonus of Rs. 12,600 would be 15% of Rs. 7,000.
Our employees do not take many leaves, so we provide encashment for earned leave (EL) and casual leave (CL). However, I would like to know if Leave Encashment should be calculated based on basic + DA or the full salary. Additionally, is the maximum leave encashment limit 15 days as per the law?
I am considering the increase in Gratuity calculation because if we need to ensure basic + DA amount to be 50% of the monthly salary, the gratuity contribution increases significantly.
I am also seeking clarification on the rule regarding the number of Earned Leaves (EL) in a year and whether Casual Leave (CL), Sick Leave (SL), and Paid Holidays/Paid weekly offs should be included in EL calculation for the next year. According to the Factory Act, one leave is to be given per 20 "worked days." Does this rule apply to daily wage workers only or also to technical and administrative staff?
Thank you once again to everyone for your valuable comments.
From India, Aurangabad
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Certainly! Here is the revised version of the user input with corrected spelling, grammar, and proper paragraph formatting:
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1 day EL is earned for every 20 days of attendance (attendance, and it is not paid days). So, in a year with a total of 365 days, the calculation is as follows:
365 - {(52 weekly offs + 3 national holidays + 10 to 12 CL + festive holidays) totaling a minimum of 65} = 280. This means the maximum earned leave, i.e., EL, would be 14 (280/20=14).
Regarding bonus calculation, please note that the limit is now 21000/- and not 7000/-. For more information, please refer to the following link: [Government Hikes Wage Ceiling for Bonus to Rs 21000 Per Month](https://economictimes.indiatimes.com/wealth/personal-finance-news/govt-hikes-wage-ceiling-for-bonus-to-rs-21000-per-month-from-rs-10000/articleshow/50284285.cms?from=mdr).
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I hope this helps! Let me know if you need any further assistance.
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1 day EL is earned for every 20 days of attendance (attendance, and it is not paid days). So, in a year with a total of 365 days, the calculation is as follows:
365 - {(52 weekly offs + 3 national holidays + 10 to 12 CL + festive holidays) totaling a minimum of 65} = 280. This means the maximum earned leave, i.e., EL, would be 14 (280/20=14).
Regarding bonus calculation, please note that the limit is now 21000/- and not 7000/-. For more information, please refer to the following link: [Government Hikes Wage Ceiling for Bonus to Rs 21000 Per Month](https://economictimes.indiatimes.com/wealth/personal-finance-news/govt-hikes-wage-ceiling-for-bonus-to-rs-21000-per-month-from-rs-10000/articleshow/50284285.cms?from=mdr).
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I hope this helps! Let me know if you need any further assistance.
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@HBJ Weekly+ National + Festive leaves are officially closure for workmen, and the employees working on those days are paid in overtime basis, Hope now the doubts would get cleared,
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@Glidor, as per the article cited by you and my understanding, 21,000 is for eligibility, and 7,000 is for calculation. "The Lok Sabha has approved amendments to the Payment of Bonus Act that seek to make more workers eligible for a bonus by raising the monthly pay eligibility limit of employees to Rs 21,000 from Rs 10,000. The bill, tabled in the house earlier this month, also seeks to enhance the monthly bonus calculation ceiling to Rs 7,000 per month from Rs 3,500, thus significantly increasing the bonus amount."
Thanks for EL calculation. Is this applicable to all employees or only daily wage workers?
From India, Aurangabad
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Thanks for EL calculation. Is this applicable to all employees or only daily wage workers?
From India, Aurangabad
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@HBJ EL does not make any difference between daily or monthly workers, but it get accumulated on every 20 days attendance only,
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Payment of bonus is 8.33% or ₹7000, whichever is higher. Above 8.33%, it can be up to 20% with ex gratia. ₹7000 is the minimum bonus ceiling limit, applicable to employees earning below ₹7000 monthly wages.
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Hello All,
According to the new labor code, it states that basic+DA and other allowances should be in a 50:50 ratio. Some have commented that "these allowances" mean components that are computed and are part of the GROSS, while others have said that any payment received by the employee should be considered. This would include LTA, yearly performance bonus, leave encashment, overtime allowance, and Employer's PF.
So, if the CTC is 450,000 then:
BASIC - 24,000
HRA - 12,000
MPP - 4,000
GROSS - 40,000
Employer's PF - 2,800
Gratuity - 1,154
Total Remuneration - 44,034
LTA - 5,000 (paid annually)
Performance bonus - 38,000 (paid annually)
1. Does the above example meet all the rules of the new labor code?
2. Can I consider this 50:50 ratio with monthly gross, or should annual components also be considered during computation?
3. Overtime allowance is not fixed; it depends on the requirement, so how can it be considered at the time of CTC computation? It also varies every month. So, in the months an employee receives this OT allowance, the 50:50 percentage will be impacted.
I would be highly obliged if you could answer my above questions.
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According to the new labor code, it states that basic+DA and other allowances should be in a 50:50 ratio. Some have commented that "these allowances" mean components that are computed and are part of the GROSS, while others have said that any payment received by the employee should be considered. This would include LTA, yearly performance bonus, leave encashment, overtime allowance, and Employer's PF.
So, if the CTC is 450,000 then:
BASIC - 24,000
HRA - 12,000
MPP - 4,000
GROSS - 40,000
Employer's PF - 2,800
Gratuity - 1,154
Total Remuneration - 44,034
LTA - 5,000 (paid annually)
Performance bonus - 38,000 (paid annually)
1. Does the above example meet all the rules of the new labor code?
2. Can I consider this 50:50 ratio with monthly gross, or should annual components also be considered during computation?
3. Overtime allowance is not fixed; it depends on the requirement, so how can it be considered at the time of CTC computation? It also varies every month. So, in the months an employee receives this OT allowance, the 50:50 percentage will be impacted.
I would be highly obliged if you could answer my above questions.
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Hello All,
Kindly ignore my last post and consider this one.
According to the new labor code, it states that basic+DA and other allowances should be in a 50:50 ratio. Some have commented that "these allowances" mean components which consist and are part of the GROSS, while others have said that any payment received by the employee should include LTA, yearly performance bonus, leave encashment, overtime allowance, and Employer's PF.
So, if CTC is 450,000 then:
- BASIC: 18,750
- HRA: 9,375
- MPP: 5,000
- GROSS: 33,125
- Employer's PF: 2,250
- Gratuity: 901
- Total Remuneration: 36,276
- LTA: 5,000 (paid annually)
- Performance bonus: 10,000 (paid annually)
1. Does the above example meet all the rules of the new labor code?
2. Can I consider this 50:50 ratio with monthly gross, or should the annual component also be considered in the computation?
3. Overtime allowance is not fixed; it depends on the requirement. How can it be considered during CTC computation? It varies every month, so when an employee receives this OT allowance, the 50:50 percentage will be impacted.
I would be highly obliged if you could answer my above questions.
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Kindly ignore my last post and consider this one.
According to the new labor code, it states that basic+DA and other allowances should be in a 50:50 ratio. Some have commented that "these allowances" mean components which consist and are part of the GROSS, while others have said that any payment received by the employee should include LTA, yearly performance bonus, leave encashment, overtime allowance, and Employer's PF.
So, if CTC is 450,000 then:
- BASIC: 18,750
- HRA: 9,375
- MPP: 5,000
- GROSS: 33,125
- Employer's PF: 2,250
- Gratuity: 901
- Total Remuneration: 36,276
- LTA: 5,000 (paid annually)
- Performance bonus: 10,000 (paid annually)
1. Does the above example meet all the rules of the new labor code?
2. Can I consider this 50:50 ratio with monthly gross, or should the annual component also be considered in the computation?
3. Overtime allowance is not fixed; it depends on the requirement. How can it be considered during CTC computation? It varies every month, so when an employee receives this OT allowance, the 50:50 percentage will be impacted.
I would be highly obliged if you could answer my above questions.
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Answers to your queries are as follows:
1. Yes.
2. Annual cash components. In this case, excluding Gratuity (as it is totally exempted in the wage definition).
3. Overtime (OT) is really difficult to calculate. It will vary every month and needs to be added to the wage. The objective of the lawmakers is to minimize OT through optimal manpower planning.
S K Bandyopadhyay (Howrah, WB)
Email: skb@usdhrs.in
From India, New Delhi
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1. Yes.
2. Annual cash components. In this case, excluding Gratuity (as it is totally exempted in the wage definition).
3. Overtime (OT) is really difficult to calculate. It will vary every month and needs to be added to the wage. The objective of the lawmakers is to minimize OT through optimal manpower planning.
S K Bandyopadhyay (Howrah, WB)
Email: skb@usdhrs.in
From India, New Delhi
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Thank you, Mr. Bandyopadhyay.
1. Every month, we have a shift allowance for a few employees, and it varies. Do we have to consider it under "wages" for PF?
2. Should yearly components, such as one-time payments, leave encashment, LTA, performance bonus, and long-term service bonus, also be considered under wages?
3. We have been paying PF contributions based on the actual basic pay of the employee. Can we now consider paying based on the PF wage ceiling of 15,000/-, or is this not permissible?
Thank you in advance.
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1. Every month, we have a shift allowance for a few employees, and it varies. Do we have to consider it under "wages" for PF?
2. Should yearly components, such as one-time payments, leave encashment, LTA, performance bonus, and long-term service bonus, also be considered under wages?
3. We have been paying PF contributions based on the actual basic pay of the employee. Can we now consider paying based on the PF wage ceiling of 15,000/-, or is this not permissible?
Thank you in advance.
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Answer to your questions 1, 2 & 3 are all "YES." This is really a challenge for HR professionals on how to reschedule the remuneration structure in the new regime. This will vary from organization to organization.
S K Bandyopadhyay (Howrah, WB)
From India, New Delhi
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S K Bandyopadhyay (Howrah, WB)
From India, New Delhi
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Can anyone assist me on the new wage code CTC part? Our company only includes HRA in the CTC structure and conveyance for only the sales team.
In this scenario, can anyone suggest the best CTC structure which includes PF, ESIC, PT?
From India
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In this scenario, can anyone suggest the best CTC structure which includes PF, ESIC, PT?
From India
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Dear Sam,
Your CTC structure may include Basic, HRA, Employer's portion of PF & ESIC, Statutory Bonus, and for the Sales team, Conveyance will also be added.
In your existing structure, add all components except ESIC for each employee. 50% of that should be allocated to Basic, and the remaining 50% should be divided among the others (HRA, Employer's portion of PF, Statutory Bonus, Conveyance - as applicable).
Thanks & Regards,
S K Bandyopadhyay (Howrah, WB)
www.usdhrs.in
From India, New Delhi
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Your CTC structure may include Basic, HRA, Employer's portion of PF & ESIC, Statutory Bonus, and for the Sales team, Conveyance will also be added.
In your existing structure, add all components except ESIC for each employee. 50% of that should be allocated to Basic, and the remaining 50% should be divided among the others (HRA, Employer's portion of PF, Statutory Bonus, Conveyance - as applicable).
Thanks & Regards,
S K Bandyopadhyay (Howrah, WB)
www.usdhrs.in
From India, New Delhi
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In my opinion, the salary should encompass all allowances that an employee receives while on duty or on leave, regardless of any ratio like 50:50. It should only exclude payments that the employer is obligated to make, such as PF, ESI, Bonus, and Gratuity. Allowing only 50 percent excess of other components (excluding basic wages) to be added to basic wages would enable employers to maintain a low basic salary and high allowances, resulting in a lower qualifying salary for PF, Bonus, or gratuity.
I believe that segmenting the salary itself is a flawed practice when considering the total salary (basic plus all allowances) for leave without pay deductions. Simply put, during unpaid leave, the gross salary is subject to deduction, not just the basic pay.
In certain PSUs like banks, officers receive rent allowance based on their grades and city, known as HRA. This allowance does not form part of the salary. If an officer takes leave without pay, the full HRA is paid, with deductions only from other salary components. Conversely, in many private establishments, HRA is included in the salary, leading to a proportional reduction in the gross salary during leave without pay, as is the case with other allowances.
The definition of wages in the new labour code may be subject to varying interpretations by different authorities and courts over time. I find the intentions of the lawmakers to be unfair to employees. For an employee, their salary is the total amount offered for their service. They are not concerned about the components but expect retirement benefits based on the salary they receive. Unfortunately, they may receive minimal retirement benefits because the employer considered only a small component as wages. It is unfair to consider the gross salary for deductions during non-working periods and the basic salary plus 50% excess of other allowances for statutory benefits, including gratuity, as per the new code. This approach may face challenges similar to those encountered by PF qualifying salary.
Please visit the link [Madhu T K: Payment of Gratuity and Gratuity Qualifying Salary](http://madhu-t-k.blogspot.com/2019/10/payment-of-gratuity-and-gratuity.html)
From India, Kannur
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I believe that segmenting the salary itself is a flawed practice when considering the total salary (basic plus all allowances) for leave without pay deductions. Simply put, during unpaid leave, the gross salary is subject to deduction, not just the basic pay.
In certain PSUs like banks, officers receive rent allowance based on their grades and city, known as HRA. This allowance does not form part of the salary. If an officer takes leave without pay, the full HRA is paid, with deductions only from other salary components. Conversely, in many private establishments, HRA is included in the salary, leading to a proportional reduction in the gross salary during leave without pay, as is the case with other allowances.
The definition of wages in the new labour code may be subject to varying interpretations by different authorities and courts over time. I find the intentions of the lawmakers to be unfair to employees. For an employee, their salary is the total amount offered for their service. They are not concerned about the components but expect retirement benefits based on the salary they receive. Unfortunately, they may receive minimal retirement benefits because the employer considered only a small component as wages. It is unfair to consider the gross salary for deductions during non-working periods and the basic salary plus 50% excess of other allowances for statutory benefits, including gratuity, as per the new code. This approach may face challenges similar to those encountered by PF qualifying salary.
Please visit the link [Madhu T K: Payment of Gratuity and Gratuity Qualifying Salary](http://madhu-t-k.blogspot.com/2019/10/payment-of-gratuity-and-gratuity.html)
From India, Kannur
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Code on Social Security 2020.pdf