PF DEDUCTION ON BASIC WAGES
| Include | Does Not Include |
|---|---|
| Basic | HRA |
| Dearness Allowance | Production Incentive |
| Conveyance | OT (Over time) |
| Other Allowance | Night Shift Allowance |
| Special Allowance | Attendance Allowance |
| LTA (Leave Travel Assistance) | Washing Allowance |
| Petrol Reimbursements / Telephone Allowance (w/o bills) | Canteen/Meal Allowance (dependent on days present) |
| Retaining Allowance | Petrol Reimbursement |
| CCA (City Compensatory Allowance) | Bonus and Commission |
| Any other Allowance which an employee gets as part of his Fixed Salary | Any other allowance which is paid as variable because of varying factors like days present, performance, etc. |
BUSINESS IMPACT
It was a general practice to keep the basic component as low as possible, to reduce both employer and employee’s payout burden for PF contribution.
However, with this landmark judgement, no such arrangement will help employers keep the PF liability low. For employees too, the net take home salary will go down, causing a strain to their expenses.
BUSINESS OPPORTUNITIES
- Revisit your salary structure – here is your chance to restructure your salary components, and introduce PF as a mandatory component.
- Simplify the compensation framework – keep very few salary heads as part of the Fixed salary structure
- Create a performance culture – While across industries, the employer will face an additional PF burden, the competitive edge will get sharpened with employees performing better due to higher incentives and bonus.
- Curb Absenteeism – Attendance related allowances will stop leakages in productivity on account of absenteeism.
POINTS TO REMEMBER
- Only employees drawing salary below 15k pm, are affected by this ruling.
- Anybody drawing salary above 15k pm and paying contributions for 15K and above will not be covered by this ruling.
- Gratuity and Bonus payouts will have not relevance to this ruling
- Leave Encashment is not part of Fixed salary, and hence does not have any bearing of PF deduction.
REDUCING FINANCIAL LIABILITUES ON ACCOUNT OF PF RULING
- Create a simple fixed salary structure
- Exempt PF liability in case employees’ fixed salary is above 15 k pm, and the employee never had a PF account
- Save employers’ part of PF contribution for three years, in case of new hires, by availing the benefits under PMRPY benefits
- Maintain a 10% PF contribution in certain cases, as applicable.
CONCLUSION
The above synopsis has been prepared after a lot of study and deliberation. If you need any further help / suggestion on the above matter, you may contact us @9830392849, mail us on reach_us@mizizi.co.in.
