Hi Community,
So as per new wage code, 50% of salary should be basic and the rest is allowances. If We have a variable pay component based on company performance. How will it be looked into?
Please advise
Most organisations follow the concept of CTC (cost to company), which has become almost customary in terms of practice and implementation. The CTC is typically split into (i) fixed or guaranteed components of salary (like basic salary, dearness allowance, HRA, etc.), (ii) variable or conditional components (such as performance-linked incentives, commissions, etc.), and (iii) other costs such as the employer’s cost of contribution towards social benefits like the provident fund (PF), employee’s state insurance (ESI), etc.
No doubt, there could be certain entitlements outside the above-mentioned construct of CTC - such as statutory bonus, overtime, etc., which may or may not be treated as ‘wages’ based on the circumstances. A simpler approach would have simply been to define wages as including all fixed elements of pay and excluding variable or conditional components, with limited exceptional rules for items like overtime and other statutory entitlements.
There are few aspects even under new definition of wages (e.g. valuation of remuneration in kind, timing of inclusion of variable pay, manner of computation etc.) which warrant clarification from the government.