Understanding Basic Wage Calculation, Compliance, and Employee Benefits

Hi,

Can anyone help me out in calculating the basics? Is it compulsory to take 60% of the gross salary as basic? Please suggest how to calculate the basic as I am new to the organization, and the company has been established 3 months back.

Kindly suggest.

Thanks & Regards,
Padmaja

Dear Padmaja,

Basic is calculated as 40% (for non-metro) - 50% (for metro) of Monthly CTC. Hope this helps you.

Regards, Smriti

Dear Padmaja,
I strongly disagree with Smriti, but this is my opinion. Seniors should clarify this. I would like to inform you that HRA is only given as 40% of basic in non-Metros and 50% in case of Metros. When it comes to basic calculation, it must satisfy two constraints:

1. Must satisfy the minimum wages of the State. This is the primary duty. For example, the minimum wage of unskilled labor in Odisha is Rs. 150.
His emoluments are:
- Basic: 3900 (3900/26 = 150, i.e., Minimum wages are satisfied here)
- HRA: 1560
- Special allowance: 540
- Gross: 6000
Here, the basic is 65% of the gross, but this is still authorized by labor officials. Why? Because the MW act is the base for the basic. You can give basic from 30% or whatever, but please make sure you satisfy the minimum wages for the concerning state.

2. The basic must not be less than 30% of the gross.

Hope this was helpful.

Hi Padmaja,

As Yeshwanth advised, basic wages should not be lower than the minimum wages set by the state wages act. To my knowledge, there are no specific rules stating that basic wages must be 50% or 60% of the gross salary. However, there are instances where the PF department may argue that basic wages should be at least 50%. In such cases, you can argue that our basic wages are in compliance with or exceed the minimum wages act, which aligns with our organization's norms.

Regarding HRA, in metro areas, 50% is exempt from income tax, while in non-metro areas, it is 40%.

The salary breakdown is designed to help employees with taxable income reduce their tax burden. There is no specific rule dictating how the salary should be divided.

Thank you.

Dear Padmaja,

With reference to your query, the total wages will actually be separated in a 60-40 ratio. 60% must be the basic salary, and 40% will be divided into other allowances like HRA (10%), Washing Allowance (10%), LTA (10%), and others (10%).

However, you must also check the minimum wages; it must be more than the covered basic salary. This is useful for the submission of ESI contributions; otherwise, you will be responsible at the time of ESI inspection, EO inspection, or with government authorities.

As Regards,
P.K. JAGADEESAN

Dear Padmaja,

I agree with Sh. Jeevarathnam that there is no rule to fix the basic into any ratio of 50% or 60% of the gross. Employers typically fix a lower basic so that they have to contribute less PF dues payable to the employees. Sometimes, the employer contracts out a job to a vendor and convinces them to reimburse a lesser amount of PF contribution for the contract labor, while the vendor is obligated to pay the contribution as per the provisions of the PF Act. In that case, the vendor may try to limit the basic to 50% or 60% of the gross to save money. The PF department always insists on paying both the PF contributions (Employer as well as Employee) on the total salary, which should not be less than the prevailing minimum rates of wages fixed by the states.

Recently, a committee set up by the Ministry of Labour & Employment, Government of India, has submitted its report favoring the clubbing of all components except HRA, overtime, bonuses, and commissions to be considered as part of the salary. This move will result in employers contributing more to EPF accounts of the employees. (copy attached)

BS Kalsi

Member since Aug 2011

Hi,

What Yashwanthyashy said is right. As per the Minimum Wages Act, your basic could be a minimum of 30% to 60% of the basic salary. If your basic salary is low, it will affect EPF contribution, gratuity, bonus, paid leave in such places, and that must comply with the Shops and Establishments Act. Ms. Padmaja's words are applicable only for HRA, which could be 40% of the basic for non-Metropolitan areas and 50% of the basic for Metropolitan areas. For further knowledge, try to know the current CPI (Consumer Price Index); it will also help in some ways to structure your salary.

If I committed any mistakes, seniors, kindly correct me, please.

Many thanks,
Manikkavasagan R

Dear members,

Different members have their own views based on their working conditions, type of industry, and strength of manpower.

We encountered a difficult task of convincing the Enforcement Officer of the PF department during his inspection last year. The inspection has been taking place for the last 5 years. Finally, he agreed to calculate Basic & DA as 50% of gross salary, 50% of Basic+DA as House Rent Allowance, Rs. 1250/- as Medical Reimbursement, Rs. 800/- as Transportation/Conveyance allowance. The remaining amount from the gross salary is given as Management Allowance. (This approach was applied in Mumbai city).

I hope everyone will agree to this.

Regards,
Vijayan

Dear All,

For the calculation of Basic, the below points need to be considered:

1. Worker category such as Unskilled, Semiskilled, and Skilled.
2. State basic minimum wages.
3. Area of the establishment.

For example, in Maharashtra, basic wages (monthly) vary based on the zone where the establishment is located:

- Unskilled = ₹4000/- and ₹4500/-
- Semiskilled = ₹4500/- and ₹5000/-
- Skilled = ₹5000/- and ₹5500/-

Adding special allowances, we need to adjust basic wages accordingly.

Regards,
Santosh

Hi Padmaja,

As far as my view is concerned, the basic salary should be kept between 50%-60% of the gross salary. However, always remember that basic wages can't be kept less than the minimum wages defined by the state from time to time.

Thanks & Regards,

Sumit Kumar Saxena

For your information:

The Basic and VDA are compulsory parts of the salary and are attached to minimum wages fixed by the state government. The monthly salary must be equal to or greater than the minimum wages but should not fall below the fixed minimum wages. The gross salary may consist of the sum of Basic + DA + HRA + other allowances. If the gross salary exceeds the minimum wage limit, we need to consider the following percentage bifurcation:

In metropolitan cities: Basic = 50% of Gross
Non-Metropolitan areas: Basic = 40% of Gross