Dear Cite HR family,
I hope you have a great weekend.
I want to know what salary components are mandatory to include in the CTC structure.
My company is registered under the "Shop and Establishment" under the Telangana government.
What is the percentage that would be fine for basic, HRA, and any other components?
If you have any CTC structure as per the Shop and Establishment Act, Telangana government, please share it with me at: kpn.rathod87@gmail.com.
Thank you in advance.
From India, Pune
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I hope you have a great weekend.
I want to know what salary components are mandatory to include in the CTC structure.
My company is registered under the "Shop and Establishment" under the Telangana government.
What is the percentage that would be fine for basic, HRA, and any other components?
If you have any CTC structure as per the Shop and Establishment Act, Telangana government, please share it with me at: kpn.rathod87@gmail.com.
Thank you in advance.
From India, Pune
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It is always fine if you fix the basic and VDA as per the minimum wages notification and then bifurcate the amounts paid in addition to the statutory pay into components that you like such as HRA, Conveyance, and other allowances. This will be a safe way of salary fixation from a legal point of view.
From India, Kannur
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4483From India, Kannur
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There is no Act in India that has explained the CTC structure of any employee or organization as a whole. It is absolutely the organization's prerogative, keeping in mind compliance with Minimum wages, PF, ESIC, etc. Only in the new wage codes has it been mentioned that Basic or Basic & DA should be 50% of all payable amounts, as guided in the definition of Wages in all 4 codes.
Therefore, based on your organization's remuneration policy, structure the CTC considering all spendings for the employee as closely as possible.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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Therefore, based on your organization's remuneration policy, structure the CTC considering all spendings for the employee as closely as possible.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
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The definition of wages under the new Labour Codes (proposed) is very funny. When the earlier Acts have defined the wages as total emoluments (though there are different interpretations by learned HR professionals in this regard so as to make it just the basic salary that they decide), the revised codes have defined wages to include 50% of allowances which exceeds basic and Dearness allowances also. This 50% invariably includes statutory bonus, value of house accommodation and amenities provided, house rent allowance, contribution to PF (with interest?), conveyance or travelling allowance including LTA, special allowance payable to a particular employee considering the skills to be put in for performing the work, amount payable as per a settlement or award (!!), overtime allowance (!) and commission.
If a worker does overtime and thereby earns overtime wages, or a sales executive gets commission, that will be counted as allowances, and if the sum of that allowance exceeds 50% of the total remuneration (again total remuneration), then the amount which exceeds that 50% will become basic wages. Interestingly, the contributions payable to PF are also an allowance under the labour Code.
The earlier Acts have made it very clear that the wages mean the amount as per agreements. Now the one in the Codes is confusing and meaningless. This is my opinion, and I had similar posts and discussions about the definition of wages in other forums also, but the advocates of new labour codes, including one of the Officers of the Central Labour Department with a very commanding rank, has not given a proper answer to it.
From India, Kannur
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If a worker does overtime and thereby earns overtime wages, or a sales executive gets commission, that will be counted as allowances, and if the sum of that allowance exceeds 50% of the total remuneration (again total remuneration), then the amount which exceeds that 50% will become basic wages. Interestingly, the contributions payable to PF are also an allowance under the labour Code.
The earlier Acts have made it very clear that the wages mean the amount as per agreements. Now the one in the Codes is confusing and meaningless. This is my opinion, and I had similar posts and discussions about the definition of wages in other forums also, but the advocates of new labour codes, including one of the Officers of the Central Labour Department with a very commanding rank, has not given a proper answer to it.
From India, Kannur
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After independence, this is the first time under all labor codes that the definition of "Wages" is uniformly and scientifically defined.
In the first part of the definition, it is mentioned that Wages will consist of all items payable, including Basic, DA, and RA.
In the second part, there is a substantial exclusion list (a) to (k), mostly payable, except for the value of house accommodation, electricity, water supply, etc.
In the first proviso, it is clearly mentioned that if the total exclusion under clauses (a) to (i) is more than 50% of the total remuneration calculated under the definition of Wages, the extra amount above 50% will be added back to Basic & DA.
Therefore, as per the new wage code, it is essential to judiciously determine the payable amount to any employee, including exceptions, and 50% of the same will be Basic & DA.
Lawmakers are not fools, and they have very intelligently defined wages. One has to understand it with the right spirit.
I have explained this several times in my earlier posts.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531 USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
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In the first part of the definition, it is mentioned that Wages will consist of all items payable, including Basic, DA, and RA.
In the second part, there is a substantial exclusion list (a) to (k), mostly payable, except for the value of house accommodation, electricity, water supply, etc.
In the first proviso, it is clearly mentioned that if the total exclusion under clauses (a) to (i) is more than 50% of the total remuneration calculated under the definition of Wages, the extra amount above 50% will be added back to Basic & DA.
Therefore, as per the new wage code, it is essential to judiciously determine the payable amount to any employee, including exceptions, and 50% of the same will be Basic & DA.
Lawmakers are not fools, and they have very intelligently defined wages. One has to understand it with the right spirit.
I have explained this several times in my earlier posts.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
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Dear Sir,
Can you please explain wages with examples, like when the employee gets overtime wages, when the employer contributes to PF, etc.? The lawmakers are not fools; I know, but they are FUNNY indeed to combine all these Acts into four codes. Not even a single word of many Acts is deleted or replaced, but they have redefined wages, for sure. However, the same is very confusing. The Employees Compensation Act has a schedule of compensation. The same was introduced a century back. Only the ceiling of wages has changed, but nothing has changed in the factor relating to age. What is the value addition to it?
Under the present laws, wages mean the total amount/emolument/as per the contract of employment. It excludes certain allowances like HRA. But when HRA is paid to all employees, without considering the residential status of the employees, it will become part of wages. There are court interpretations in this direction. When we make an amendment to any Act, it should be the interpretations of the Courts that should reflect on it. Right from the Roofs and Bridges case, there are directions to treat allowances as part of wages. It should have been considered when we redefine the wages in any new law. That has not happened, but the same has been made more confusing. Why should there be 50% (or such other percentage as the Central Govt will fix)? Make it clear that whatever is agreed is the wages.
We all engage workers like carpenters, plumbers, or persons to do cleaning the premises to work in our house. They will demand, say, Rs 700 or Rs 1000 is my wages per day. The working time is 8 hours. If he is asked to work for another couple of hours to complete the work, he may ask for two hours extra, and that will be based on Rs 700 or Rs 1000, as the case may be. If we say that out of Rs 700, your basic salary is only Rs 100, and you will get overtime pay based on that Rs 100 only, will he agree? He will say that his wages are Rs 700/1000, and he should get an hourly rate based on that. That is true also. Our system is wrong, I would say.
Under the new code, if you have more overtime wages, your basic pay will increase. When the calculations of ESI, EPF, Bonus have separate ceiling of Rs 21000, Rs 15000, and Rs 7000, or minimum wages whichever is higher respectively, why should we take this much strain to calculate wages? For deciding gratuity alone? If an employee who has done a lot of overtime in the last month will be eligible to get more gratuity because overtime wages will count to increase the basic wages as per the New code if I am not wrong. Similarly, part of the statutory bonus will also form part of it.
I have done a calculation of wages under the New Codes with figures put against each. All these differ when PF, Bonus, and Overtime wages change. We should first stop the system of private establishments splitting the total wages offered into small components. In order to do that, there should be one concept, that is, total salary as a unit concept. That is not served.
Dear Nanu Sir, please enlighten me with your views and how does it benefit the employees and the employers.
From India, Kannur
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Can you please explain wages with examples, like when the employee gets overtime wages, when the employer contributes to PF, etc.? The lawmakers are not fools; I know, but they are FUNNY indeed to combine all these Acts into four codes. Not even a single word of many Acts is deleted or replaced, but they have redefined wages, for sure. However, the same is very confusing. The Employees Compensation Act has a schedule of compensation. The same was introduced a century back. Only the ceiling of wages has changed, but nothing has changed in the factor relating to age. What is the value addition to it?
Under the present laws, wages mean the total amount/emolument/as per the contract of employment. It excludes certain allowances like HRA. But when HRA is paid to all employees, without considering the residential status of the employees, it will become part of wages. There are court interpretations in this direction. When we make an amendment to any Act, it should be the interpretations of the Courts that should reflect on it. Right from the Roofs and Bridges case, there are directions to treat allowances as part of wages. It should have been considered when we redefine the wages in any new law. That has not happened, but the same has been made more confusing. Why should there be 50% (or such other percentage as the Central Govt will fix)? Make it clear that whatever is agreed is the wages.
We all engage workers like carpenters, plumbers, or persons to do cleaning the premises to work in our house. They will demand, say, Rs 700 or Rs 1000 is my wages per day. The working time is 8 hours. If he is asked to work for another couple of hours to complete the work, he may ask for two hours extra, and that will be based on Rs 700 or Rs 1000, as the case may be. If we say that out of Rs 700, your basic salary is only Rs 100, and you will get overtime pay based on that Rs 100 only, will he agree? He will say that his wages are Rs 700/1000, and he should get an hourly rate based on that. That is true also. Our system is wrong, I would say.
Under the new code, if you have more overtime wages, your basic pay will increase. When the calculations of ESI, EPF, Bonus have separate ceiling of Rs 21000, Rs 15000, and Rs 7000, or minimum wages whichever is higher respectively, why should we take this much strain to calculate wages? For deciding gratuity alone? If an employee who has done a lot of overtime in the last month will be eligible to get more gratuity because overtime wages will count to increase the basic wages as per the New code if I am not wrong. Similarly, part of the statutory bonus will also form part of it.
I have done a calculation of wages under the New Codes with figures put against each. All these differ when PF, Bonus, and Overtime wages change. We should first stop the system of private establishments splitting the total wages offered into small components. In order to do that, there should be one concept, that is, total salary as a unit concept. That is not served.
Dear Nanu Sir, please enlighten me with your views and how does it benefit the employees and the employers.
From India, Kannur
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Dear Mr. Madhu Sir,
I have explained the matter in my several earlier posts with examples. However, for your ready reference, I am once again representing the same.
For example: one employee is earning 8000/- as Basic, 2000/- as HRA, and 10000/- as other Allowances. Total monthly gross is 20,000/-. PF contribution is 1800/- per month, Yearly Bonus is 12,000/-, i.e., per month 1000/-, LTA per annum is 12,000/-, i.e., 1000/- per month, GPA & Group LIC Insurance premium per year is 3500/-. ESIC is 650/- PER MONTH.
The total payable amount per month is 20,000/- + 1800/- + 1000/- = 22,800/-. Insurance premium and ESIC are not payable amounts and are not enjoyed by the employee regularly but rather utilized as and when required. It may be required throughout the year or may not be at any time throughout the year.
The basic salary of the employee will be 11,400/- and other items will be 11,400/- per month. The said employee has engaged in OT in the said month and earned 2000/- extra earnings for the month. 55% of 2000 will add back to Basic and 45% will add back to the Other side. 12% PF of 55% will be 6.7%. Therefore, basic will be 55% and others will be 45 + 6.7 = 51.7%. There is no deviation in the 50:50 condition.
There are organizations where, due to the VDA formula monthly, quarterly, semi-annually, or yearly, as per the scheme, VDA is changed, and accordingly, PF contribution changes. This is not a new concept. The % bifurcation of OT and restructuring of the existing remuneration structure is the job of HR Professionals.
If we analyze the definition of wages as of the date, there are a lot of varieties - BONUS AND GRATUITY ACT - Basic & DA. Post the apex court's verdict, it is on all allowances paid on a regular basis except HRA, OT, (as per the definition of Basic wages, which has not been amended to date), Productivity-related incentives, etc. Under the Factories Act, it is the ordinary rate of wages, i.e., monthly gross, etc.
Susanta Kumar Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity.
From India, New Delhi
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I have explained the matter in my several earlier posts with examples. However, for your ready reference, I am once again representing the same.
For example: one employee is earning 8000/- as Basic, 2000/- as HRA, and 10000/- as other Allowances. Total monthly gross is 20,000/-. PF contribution is 1800/- per month, Yearly Bonus is 12,000/-, i.e., per month 1000/-, LTA per annum is 12,000/-, i.e., 1000/- per month, GPA & Group LIC Insurance premium per year is 3500/-. ESIC is 650/- PER MONTH.
The total payable amount per month is 20,000/- + 1800/- + 1000/- = 22,800/-. Insurance premium and ESIC are not payable amounts and are not enjoyed by the employee regularly but rather utilized as and when required. It may be required throughout the year or may not be at any time throughout the year.
The basic salary of the employee will be 11,400/- and other items will be 11,400/- per month. The said employee has engaged in OT in the said month and earned 2000/- extra earnings for the month. 55% of 2000 will add back to Basic and 45% will add back to the Other side. 12% PF of 55% will be 6.7%. Therefore, basic will be 55% and others will be 45 + 6.7 = 51.7%. There is no deviation in the 50:50 condition.
There are organizations where, due to the VDA formula monthly, quarterly, semi-annually, or yearly, as per the scheme, VDA is changed, and accordingly, PF contribution changes. This is not a new concept. The % bifurcation of OT and restructuring of the existing remuneration structure is the job of HR Professionals.
If we analyze the definition of wages as of the date, there are a lot of varieties - BONUS AND GRATUITY ACT - Basic & DA. Post the apex court's verdict, it is on all allowances paid on a regular basis except HRA, OT, (as per the definition of Basic wages, which has not been amended to date), Productivity-related incentives, etc. Under the Factories Act, it is the ordinary rate of wages, i.e., monthly gross, etc.
Susanta Kumar Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions +91 98310 81531 skb@usdhrs.in USD HR Solutions – To strive towards excellence with effort and integrity.
From India, New Delhi
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My simple question is WHY THIS CONFUSION? Till the exclusion part of the definition of wages, it is clear. The confusion comes when the proviso about 50% comes. If the intention is to simplify the law and simplify the words and concepts used in the earlier Acts, they should have defined wages in simple words, that it is the total amount that an employee gets as part of the contract of employment. In the exclusion, of course, there can be PF contribution, ESI contributions, overtime wages, statutory bonus, and gratuity.
I can't understand why there are calculations to decide wages? It should be one and the same, i.e., the total gross salary and nothing else.
Since the earlier Acts have excluded HRA from wages, the new code also excluded it. But instead of blindly excluding it, what was required was to define HRA separately. HRA is an allowance given only to those employees who are required to stay in a rented residential building for business purposes. Then the employers will not pay it universally to all employees. Now the tendency is that since HRA is in the exclusion part, pay a very huge amount as HRA keeping a very small amount as basic pay. The only thing is that when there is any need for calculating basic pay (that happens only when there is a gratuity payment because for all other payments like PF, ESI, and bonus, there are specific amounts decided as salary), a certain amount will be merged into basic pay. Why? What purpose is served?
The most interesting thing is about the inclusion of a certain percentage of overtime allowance into basic pay.
I don't agree with your comments that there are different amounts taken for different treatments. Though the wordings differ, all the Acts have similar treatment. But we, the HRs, have interpreted it differently. Nowhere is it stated in the Payment of Gratuity Act that gratuity is payable on basic pay and DA alone, but it is payable on total emoluments. It is an interpretation by people like us that gratuity is payable on basic and DA alone. For bonus, what the amended law pertaining to Bonus says is that it is payable on Rs 7000 or the minimum wages fixed, whichever is higher. Under the code, the same thing has been reproduced. When we calculate bonus following the Code, should we take the wages (basic + DA) + 50% of allowances which exceed the total for each month and then compare it with the minimum wages? Don't you think that when overtime becomes part of basic salary, it will make the calculations more and more confusing? I do think that it is totally confusing.
Even before the Apex Court verdict about allowances to be included for PF contribution, the amount payable was on total wages only because the definition of basic wages is very clear and it is nothing but the total amount and not the basic wage that the private employers fix. The court has only given clarification.
Now coming to your calculation, the wages qualifying for PF of the employee are Rs. 18000. Assuming that EPF is capped at Rs. 15000, the PF contribution is Rs. 1800. Let us take the wages as Rs. 14000 per month, with Rs. 8000 as Basic wages, Rs. 2000 as HRA, and Rs. 4000 as Other allowance. Then the PF will be contributed on Rs. 14000. But when the allowances like overtime, PF (itself), HRA, etc., are taken again to decide the basic wages, this contribution will change, right?
When we have an enactment called the Minimum Wages Act to ensure that every employee gets an assured amount as wages, the amount so notified could be made the basic wages across the industries. Whatever is paid over and above the notified minimum wages can be called 'allowances'. Regarding HRA, there should be some guidelines that it should be part of the salary if paid to persons residing in their own house as that is followed in Income Tax. In the absence of such requirements, the employers will continue to bifurcate the salary as they wish, keeping the bare minimum in basic salary and putting the maximum in "other allowances".
From India, Kannur
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I can't understand why there are calculations to decide wages? It should be one and the same, i.e., the total gross salary and nothing else.
Since the earlier Acts have excluded HRA from wages, the new code also excluded it. But instead of blindly excluding it, what was required was to define HRA separately. HRA is an allowance given only to those employees who are required to stay in a rented residential building for business purposes. Then the employers will not pay it universally to all employees. Now the tendency is that since HRA is in the exclusion part, pay a very huge amount as HRA keeping a very small amount as basic pay. The only thing is that when there is any need for calculating basic pay (that happens only when there is a gratuity payment because for all other payments like PF, ESI, and bonus, there are specific amounts decided as salary), a certain amount will be merged into basic pay. Why? What purpose is served?
The most interesting thing is about the inclusion of a certain percentage of overtime allowance into basic pay.
I don't agree with your comments that there are different amounts taken for different treatments. Though the wordings differ, all the Acts have similar treatment. But we, the HRs, have interpreted it differently. Nowhere is it stated in the Payment of Gratuity Act that gratuity is payable on basic pay and DA alone, but it is payable on total emoluments. It is an interpretation by people like us that gratuity is payable on basic and DA alone. For bonus, what the amended law pertaining to Bonus says is that it is payable on Rs 7000 or the minimum wages fixed, whichever is higher. Under the code, the same thing has been reproduced. When we calculate bonus following the Code, should we take the wages (basic + DA) + 50% of allowances which exceed the total for each month and then compare it with the minimum wages? Don't you think that when overtime becomes part of basic salary, it will make the calculations more and more confusing? I do think that it is totally confusing.
Even before the Apex Court verdict about allowances to be included for PF contribution, the amount payable was on total wages only because the definition of basic wages is very clear and it is nothing but the total amount and not the basic wage that the private employers fix. The court has only given clarification.
Now coming to your calculation, the wages qualifying for PF of the employee are Rs. 18000. Assuming that EPF is capped at Rs. 15000, the PF contribution is Rs. 1800. Let us take the wages as Rs. 14000 per month, with Rs. 8000 as Basic wages, Rs. 2000 as HRA, and Rs. 4000 as Other allowance. Then the PF will be contributed on Rs. 14000. But when the allowances like overtime, PF (itself), HRA, etc., are taken again to decide the basic wages, this contribution will change, right?
When we have an enactment called the Minimum Wages Act to ensure that every employee gets an assured amount as wages, the amount so notified could be made the basic wages across the industries. Whatever is paid over and above the notified minimum wages can be called 'allowances'. Regarding HRA, there should be some guidelines that it should be part of the salary if paid to persons residing in their own house as that is followed in Income Tax. In the absence of such requirements, the employers will continue to bifurcate the salary as they wish, keeping the bare minimum in basic salary and putting the maximum in "other allowances".
From India, Kannur
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CTC Structure-1.pdf
CTC Structure.xls