Govt plans higher basic pay to raise social security contributions: Report

The government’s intention is to put a stop to employers keeping their employees’ basic income low to reduce their contributions to social security schemes like provident fund and gratuity.
If basic income is increased, it will result in a reduction in employees’ take-home salary, because contributions to provident fund, gratuity and insurance will increase, and so will their tax payable.
The Centre’s proposal is for salary structures to be revised in a way that caps allowances for house rent, leave, travel and overtime, among others, at 50 percent of basic pay, the newspaper reported.
Most employers pay 12 percent of an employee’s basic income as its contribution to their provident fund, and cut 12 percent of the employee’s salary as their own contribution.
Although a few trade unions have favoured the move, the industry is opposed to it, because it might increase its wage bill.
The Labour and Employment Ministry has proposed two sets of definitions for wages to bring about uniformity in the interpretation of wages among employers, employees, courts and insurers.
One definition of wages will apply to laws with financial implications and relate to provident fund, gratuity and insurance. The second definition will apply to labour laws in the proposed Code on Wages Bill, 2017.
“Cases have been noticed where employers show basic pay plus dearness allowance as very low, say 10 to 30 percent, and the remaining is shown as various allowances for performance, entertainment, and conveyance,” the ministry said in a note viewed by the financial daily.
Source: Money Control