Suppose there are four employees—A, B, C, and D—each with the following gross salaries:
Employee A: ₹15,001
Employee B: ₹16,000
Employee C: ₹17,000
Employee D: ₹30,000
Each employee’s salary structure is proposed as follows:
Basic + DA: ₹15,001 for all employees (A, B, C, D)
HRA: ₹0 for Employee A, ₹999 for Employee B, ₹1999 for Employee C, and ₹14999 for Employee D
Given that all employees are new and there are no deductions for Provident Fund (PF), and since Employee State Insurance (ESI) is calculated based on the gross salary, there are no compliance issues regarding statutory deductions.
Questions:
1. Can each employee have a different HRA amount while having the same Basic + DA of ₹15,001?
2. Is it possible for all employees to have the same Basic + DA of ₹15,001 while their gross salaries vary due to different HRA amounts?
3. Can this salary structure be applied to other new joining employees as well?
4. Are there any potential issues with this salary distribution structure?
5. Can someone explain how to prepare a salary sheet for this structure, as I’m unfamiliar with the process? Is this ok -
The salary structure includes the Actual Basic Wage (including DA), Actual HRA, Actual Gross Wages, No. of Days Worked, Wages Earned (including DA), HRA Earned, Total Earned, PF, ESI, Net Payable, and a Signature for verification.
6.Can salary calculation be shown in such a way that the gross salary is prorated based on the number of days in the month, excluding Sundays? For example, for September (30 days), the calculation would be: Gross Salary divided by 25 (30 days minus 5 Sundays) to get the per-day salary. Is this method valid and compliant?
Employee A: ₹15,001
Employee B: ₹16,000
Employee C: ₹17,000
Employee D: ₹30,000
Each employee’s salary structure is proposed as follows:
Basic + DA: ₹15,001 for all employees (A, B, C, D)
HRA: ₹0 for Employee A, ₹999 for Employee B, ₹1999 for Employee C, and ₹14999 for Employee D
Given that all employees are new and there are no deductions for Provident Fund (PF), and since Employee State Insurance (ESI) is calculated based on the gross salary, there are no compliance issues regarding statutory deductions.
Questions:
1. Can each employee have a different HRA amount while having the same Basic + DA of ₹15,001?
2. Is it possible for all employees to have the same Basic + DA of ₹15,001 while their gross salaries vary due to different HRA amounts?
3. Can this salary structure be applied to other new joining employees as well?
4. Are there any potential issues with this salary distribution structure?
5. Can someone explain how to prepare a salary sheet for this structure, as I’m unfamiliar with the process? Is this ok -
The salary structure includes the Actual Basic Wage (including DA), Actual HRA, Actual Gross Wages, No. of Days Worked, Wages Earned (including DA), HRA Earned, Total Earned, PF, ESI, Net Payable, and a Signature for verification.
6.Can salary calculation be shown in such a way that the gross salary is prorated based on the number of days in the month, excluding Sundays? For example, for September (30 days), the calculation would be: Gross Salary divided by 25 (30 days minus 5 Sundays) to get the per-day salary. Is this method valid and compliant?
Depending upon the basic salary the HRA should always be different. If you have a constant basic + DA but different HRAs for different employees, there should be some justification. It is permissible if these employees are placed in different cities. But in the same city of posting you cannot have different HRAs for different Basic salaries.
There can be scale like Rs 15001 to Rs 30000 for the same kind of work but the difference in scale should be due to difference in the skill set, say, education and previous experience. Therefore, for freshers you cannot have different scales of pay. It can be Rs 15001 for a fresher, Rs 16000 for those who have at least one year experience and so on.
So far you are satisfying the notified minimum wages fixed by the government in respect of each category of employment there is no issue with a salary structure which offers fixed basic pay and DA and an HRA.
When you fix a salary with basic pay, DA and HRA components, these are expected to be fixed for a month. It will be payable if the employee was not on leave without pay irrespective of the number of calendar days in the month. That is, the salary will be same for February, March, April etc. If there is any day of absence then salary on gross salary shall be deducted based on the calendar days in the month. Some companies take a common divisor, ie, 30 for all the months but some others take days in the calendar month. Even in respect of workers who are given overtime allowance for extra work done, there can be a system of dividing the gross salary by 26 to arrive at daily average of wages.
Depending upon the earned amount against each component of salary, you will get earned Basic, earned DA etc and finally earned salary on which the PF, ESI etc will be decided.
Not forming part of the comment (!!!)
What is the need of keeping Rs 15001 and why not Rs 15000? may be to avoid PF. Fine. But tomorrow if the EMP &MP Act is amended and it is brought to Rs 25000, then what will you do? Will you increase the salary to rs 25001?
From India, Kannur
4250There can be scale like Rs 15001 to Rs 30000 for the same kind of work but the difference in scale should be due to difference in the skill set, say, education and previous experience. Therefore, for freshers you cannot have different scales of pay. It can be Rs 15001 for a fresher, Rs 16000 for those who have at least one year experience and so on.
So far you are satisfying the notified minimum wages fixed by the government in respect of each category of employment there is no issue with a salary structure which offers fixed basic pay and DA and an HRA.
When you fix a salary with basic pay, DA and HRA components, these are expected to be fixed for a month. It will be payable if the employee was not on leave without pay irrespective of the number of calendar days in the month. That is, the salary will be same for February, March, April etc. If there is any day of absence then salary on gross salary shall be deducted based on the calendar days in the month. Some companies take a common divisor, ie, 30 for all the months but some others take days in the calendar month. Even in respect of workers who are given overtime allowance for extra work done, there can be a system of dividing the gross salary by 26 to arrive at daily average of wages.
Depending upon the earned amount against each component of salary, you will get earned Basic, earned DA etc and finally earned salary on which the PF, ESI etc will be decided.
Not forming part of the comment (!!!)
What is the need of keeping Rs 15001 and why not Rs 15000? may be to avoid PF. Fine. But tomorrow if the EMP &MP Act is amended and it is brought to Rs 25000, then what will you do? Will you increase the salary to rs 25001?
From India, Kannur
Respected Sir,
Firm is actually a welding shop. The workforce consists primarily of blue-collar workers who deny having their PF contributions deducted. The employees have strongly expressed for the company to bear the cost, rather than having any deductions from their salaries, else they wont work, hence I suggested this 15001+HRA structure. Not sure if it is right or wrong, hence asking here. Firm says if it becomes 25k, then they will stop business cuz its hard for htem to survive if costing keeps on increasing. So I don't have any answer to this.
Considering that all employees are located at a single branch, is having a uniform Basic + DA of ₹15,001, with varying HRA amounts (₹0, ₹999, ₹1999, ₹14,999) is a viable approach? Alternatively, would it be more appropriate to omit HRA altogether and categorize it as part of "Other Allowances"? If so, could you provide examples of what might be included in "Other Allowances"?
If we assume a constant 26 working days each month, how should we account for present days in February when an employee is absent for 2 days? Should we record 24 days or 22 days for that month? Furthermore, if we consistently use 26 working days per month, we end up with a total of 312 working days for the year (26 days × 12 months). However, if we account for actual working days, 2024 has 313 working days after excluding 53 Sundays. In my opinion. using the second method appears to be fairer to employees, as it provides clarity and avoids deductions for that one day. While assuming 26 working days simplifies calculations, it ultimately results in a loss of one day for the employee.
Lastly, the firm intends to prepare appointment letters that classify positions as contractual jobs rather than permanent ones, aiming to safeguard against potential liabilities if an employee causes harm to the firm. Is it appropriate for all employees to be classified as contractual? If yes, how should the appointment letters be framed? If no, what are the reasons for not classifying all employees as contractual?
Please inform if i have missed something and correct me wherever necessary. Thank You!
Firm is actually a welding shop. The workforce consists primarily of blue-collar workers who deny having their PF contributions deducted. The employees have strongly expressed for the company to bear the cost, rather than having any deductions from their salaries, else they wont work, hence I suggested this 15001+HRA structure. Not sure if it is right or wrong, hence asking here. Firm says if it becomes 25k, then they will stop business cuz its hard for htem to survive if costing keeps on increasing. So I don't have any answer to this.
Considering that all employees are located at a single branch, is having a uniform Basic + DA of ₹15,001, with varying HRA amounts (₹0, ₹999, ₹1999, ₹14,999) is a viable approach? Alternatively, would it be more appropriate to omit HRA altogether and categorize it as part of "Other Allowances"? If so, could you provide examples of what might be included in "Other Allowances"?
If we assume a constant 26 working days each month, how should we account for present days in February when an employee is absent for 2 days? Should we record 24 days or 22 days for that month? Furthermore, if we consistently use 26 working days per month, we end up with a total of 312 working days for the year (26 days × 12 months). However, if we account for actual working days, 2024 has 313 working days after excluding 53 Sundays. In my opinion. using the second method appears to be fairer to employees, as it provides clarity and avoids deductions for that one day. While assuming 26 working days simplifies calculations, it ultimately results in a loss of one day for the employee.
Lastly, the firm intends to prepare appointment letters that classify positions as contractual jobs rather than permanent ones, aiming to safeguard against potential liabilities if an employee causes harm to the firm. Is it appropriate for all employees to be classified as contractual? If yes, how should the appointment letters be framed? If no, what are the reasons for not classifying all employees as contractual?
Please inform if i have missed something and correct me wherever necessary. Thank You!
First of all let me clarify that your establishment will come under the purview of EPF & MP Act only if you employ 20 persons. If already covered, you will continue to be covered.
HRA need not be excluded altogether because this component of salary is an excluded component for PF, gratuity and many other payments like bonus and leave encashment. Though the real definition of HRA will consider only that allowance paid to compensate the cost of taking a house on lease for residential purpose, amount which is not very significant will be omitted from the scope of salary. Therefore, you should not exclude it altogether. Moreover, putting it under "other allowance" is meaningless because there is no allowance called "other allowance". There can be allowances like education allowance, city compensatory allowance, heat allowance, but there is no "other allowance".
As already pointed out, there cannot be uniform basic salary across the organisation but the basic pay which is the statutory wages should change depending upon the skill, experience, level of independency in working etc. Therefore, it is always fine if you fix the HRA as a percentage of basic wages.
There are different ways of finding out the average wages per day. It can be by using the number of calendar days, like, 28,30 or 31 or using one common divisor, ie, 26. The rules for payment of overtime wages, payment of gratuity etc provide that daily average of wages shall be calculated by dividing the monthly wages by 26. This is followed in the Minimum Wages notifications also. Therefore, the deduction for absence will be same in February, March or April.
You cannot reappoint an existing employee as a contractual employee, nor can you make him under an outsourced pay roll or an employee of a contractor. Any fresh offers can be for a fixed term of, say, one year or two years at a time. By appointing employees on FTC (fixed term contract) what is the gain that you expect? A FTC employee should also be paid all statutory dues, like PF, ESI, Bonus and if he has been employed for five years he will be entitled to get gratuity also at the time of leaving the company. Once the Code on Social Security is enforced, you should pay gratuity even if he is not employed for five years. By employing one under a fixed term contract, what you deny is his right to get a social security. He may not be able to get a loan from a bank, he may even find it difficult to get a status in the society, or may be rejected in the 'marriage market' also. Very simple, you will be forming a discontented work force whose productivity will be very low. But as per the current practice, you can offer FTC employment. However, it is not possible to offer such status to the employees already working in the organisation.
From India, Kannur
HRA need not be excluded altogether because this component of salary is an excluded component for PF, gratuity and many other payments like bonus and leave encashment. Though the real definition of HRA will consider only that allowance paid to compensate the cost of taking a house on lease for residential purpose, amount which is not very significant will be omitted from the scope of salary. Therefore, you should not exclude it altogether. Moreover, putting it under "other allowance" is meaningless because there is no allowance called "other allowance". There can be allowances like education allowance, city compensatory allowance, heat allowance, but there is no "other allowance".
As already pointed out, there cannot be uniform basic salary across the organisation but the basic pay which is the statutory wages should change depending upon the skill, experience, level of independency in working etc. Therefore, it is always fine if you fix the HRA as a percentage of basic wages.
There are different ways of finding out the average wages per day. It can be by using the number of calendar days, like, 28,30 or 31 or using one common divisor, ie, 26. The rules for payment of overtime wages, payment of gratuity etc provide that daily average of wages shall be calculated by dividing the monthly wages by 26. This is followed in the Minimum Wages notifications also. Therefore, the deduction for absence will be same in February, March or April.
You cannot reappoint an existing employee as a contractual employee, nor can you make him under an outsourced pay roll or an employee of a contractor. Any fresh offers can be for a fixed term of, say, one year or two years at a time. By appointing employees on FTC (fixed term contract) what is the gain that you expect? A FTC employee should also be paid all statutory dues, like PF, ESI, Bonus and if he has been employed for five years he will be entitled to get gratuity also at the time of leaving the company. Once the Code on Social Security is enforced, you should pay gratuity even if he is not employed for five years. By employing one under a fixed term contract, what you deny is his right to get a social security. He may not be able to get a loan from a bank, he may even find it difficult to get a status in the society, or may be rejected in the 'marriage market' also. Very simple, you will be forming a discontented work force whose productivity will be very low. But as per the current practice, you can offer FTC employment. However, it is not possible to offer such status to the employees already working in the organisation.
From India, Kannur
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