Labour Law – People First

Leaves and Holidays in Kerala IT Companies

Sick Leaves: Up to 12 days in a calendar. It can be less than 12 as well. Maximum 12 is defined in S&CE Act. Lapses on Dec 31 if unused.
Casual Leaves: Up to 12 days in a calendar. It can be less than 12 as well. Maximum 12 is defined in S&CE Act. Lapses on Dec 31 if unused.
Earned (Annual) Leave: 1 day per one month of service. It can be credited as 12 days when someone completes 1 year of service, and then every 30 days, 1 day should be additionally credited. You can also give 1 day/30 days from the beginning as well without having to wait for someone to complete 1 year of service. This is the only leave that is carried forward to the next calendar year. A minimum of 24 days should be allowed to be carried forward (though it can accrue, i.e. go beyond 24 within the calendar year). If someone has more than 24 days of Earned Leave balance on Dec 31, only 24 need to be carried forward to the next year. Companies can, at their discretion, increase this limit to 36, 48 or even more. At the time of exit, this leave balance should be paid to the employee in the full and final settlement (and it is tax-free up to 25 Lakhs). You can pay (per day basic pay * leave balance) for encashment. To arrive at the per day basic pay, you can divide the monthly basic pay by 26.
Holidays: 4 mandatory national holidays (Jan 26, May 1, Aug 15, and Oct 2) + 9 festival or regional holidays = 13 days. If a mandatory holiday falls on a weekend, companies usually give an additional holiday to keep the total holidays as 13 in a calendar year. Companies can decide to allow more holidays. For the 9 festival holidays, companies can provide a larger list of holidays and call them restricted holidays (thereby allowing employees to choose 9 holidays of their liking, totalling the holidays to at least 13).
Maternity Leave: 182 days of paid Leave. This is as per the MB Act.
Sterilisation Leave (for vasectomy and the like): 6 days for men, 14 days for women and it is also a paid leave.
Abortion/Miscarriage Leave: 6 weeks of paid leave.
Paternity Leave: Not mandatory. Companies usually give 1-2 weeks of paid leave.

Also published on LinkedIn and Medium.

Designing a Tax-Efficient Salary Structure in India

There’s so much fuss about the new Code on Wages implementation and how to restructure the compensation to be compliant. While the general guideline is to have at least 50% of the salary as Basic Pay, what if you do not keep it so?

Well, while it is recommended that you keep 50% of the total pay as Basic Pay, even if you do not keep it that way, it should not bother you much. In cases where Basic Pay is less than 50%, then the Basic Pay for calculation of other benefits (such as leave encashments, Gratuity, etc.) should be based on the 50% of the salary. This would mean, effectively, allowances cannot be more than 50%, technically or practically—even if you do not restructure the compensation.

However, with that preface, let’s look at some salary structures that one can probably include while making an offer to a prospective candidate (beware: if you are making changes to an existing employee’s compensation, there are things to be careful about) so that there are tax-efficient components:

*Tax-avoidance or tax-escaping is not the way; but tax-efficiency is the one.*

House Rent Allowance is IT-exempt subject to the Income Tax rules, upto 40% of the Basic Pay in non-metro cities and up to 50% of the Basic Pay (+DA) in Metro Cities. The exact amount of exemption is the minimum of the following three (though you are welcome to have an even higher amount being shown as HRA in the salary structure, it won’t have any impact on the tax exemption):

a) Actual HRA received from employer (that is shown on the payslip)
b) 40% or 50% of Basic Pay (+DA) depending on the nature of the city
c) Actual rent paid minus 10% of Basic Salary (+DA)

Leave Travel Allowance is IT-exempt subject to the Income Tax rules, and subject to production of proofs as mandated by the Income Tax department. For the exemption to be effective, the payslip should have a component “LTA”. There is no specified limit on the % of LTA, but typically companies follow 5%-8.33% of Basic Pay (+DA) as the LTA amount. List of accepted expenses as LTA proof; note that LTA exemptions are not financial-year based, but based on a block of four calendar years (current block year: 2022-25).
Books & Periodicals Reimbursements: Companies are welcome to include this as a reimbursement component of their total compensation and show it on payslips. They are welcome to provide reimbursement for the books and periodicals that are pertinent to the nature of jobs of the employees, against submission of relevant proofs. While there are no specified limits on this, companies usually tend to keep it in the range of Rs. 1000—2500 per month; senior professionals may be given a higher amount of reimbursement depending up on their role.
Telephone & Internet Reimbursements: Similar on the lines of Books & Periodicals Reimbursements
Fuel and Vehicle Maintenance Reimbursements: This is typically provided to senior leaders in companies, who may have to utilise their cars for business-related intents. Up to Rs. 2400/- per month against proper records of travels and fuel/maintenance receipts.
Professional Development Allowance: Companies can reimburse the cost of courses/training/certification/professional memberships whose expenses are met from the pocket of the employee, against sufficient proofs. Such expenses could be mandated to be directly related to their role at the organistaion and have sane guidelines for which expenses can be considered.
Annual Gift Voucher: Digital or physical gift coupons to the tune of Rs. 5000/- can be given to employees per a financial year, which is income tax-exempt. No proofs are usually required.
Food Coupons: they can be paid in the form of physical or digital coupons/card and are exempt from Income Tax (usually not paid through payroll since cash as such is not being disbursed). No proofs are usually required. Maximum limit per month: Rs. 2500/- depending on the number of days your office operates.
Children Education Allowance: Upto Rs. 100/- per month per child (for a maximum of 2 children per employee) is tax exempt under this category. This benefit can be provided for employees with children only. This does NOT limit employee’s 80C exemption of Children’s Tuition Fees.
Hostel Expenditure Allowance: Up to Rs. 300/- per month per child (for a maximum of 2 children per employee) is tax-exempt under this category.
Uniform Allowance: Applicable if there is a uniform at work.
Include employee/employer contributions such as Corporate NPS
Other means of executive compensation: Executive compensations are another realm, which may include more “benefits” than in the form of “pay components” and hence not delving into those areas now.

*Slicing the total compensation at the right measures is the key to a tax-efficient salary structure*

Word of caution: While designing the salary structure, the intent should NOT be tax avoidance or tax evasion, but utilising the existing legal provisions to form a tax-efficient structure. In the cases where it is mentioned above that proofs are required, you are still welcome to disburse that part of compensation if the employees do not have proof, but that will attract income tax.

A sample salary structure is provided below (not all of them could apply to you or to a specific employee), for illustration purposes only. Consult your legal team before you implement.

Component	Amount per month	Amount per year
Basic Pay	₹40,000	₹480,000
HRA	₹16,000	₹192,000
LTA	₹3,332	₹39,984
Internet and Telephone Reim	₹1,000	₹12,000
Books and Periodicals Reim	₹1,000	₹12,000
Fuel and Vehicle Maintenance Reim	₹2,400	₹28,800
Professional Development Reim	₹2,000	₹24,000
Food Coupons	₹2,500	₹30,000
Annual Gift Coupon	₹0	₹5,000
Children Education Allowance	₹100	₹1,200
Hostel Expenditure Allowance	₹300	₹3,600
Special Allowance	₹10,951	₹131,412

Gross Salary		₹959,996
Employer Contributions
Employer Contribution to EPF	₹4,800	₹57,600
Employer Contribution to LWF	₹20.00	₹240.00
Employer Contribution to NPS	₹4,000.00	₹48,000.00

Cost to Company (CTC)		₹1,065,836

Tax-efficient Salary Structuring: An Example

Here’s the excel sheet with the above salary structure, for download.

Disclaimer: The views in this article are provided personal and for academic purposes only. They need not reflect the views of my employer/previous employer(s).

Images sourced from: unsplash.com

This article is also published on LinkedIn and Medium.

Did your employer ever deny the Experience Certificate? Read on.

Indian labour laws are, majorly, employee-centric than employer-centric. Though this is the state of the act, most employees are not aware of their rights per various labour laws of the land. Or else, many employers purposefully do not educate their employees of the latter’s rights at the workplace.

One of the major threats many young professionals face from disgruntled employers is ‘we will not issue the experience certificate unless you do x or y‘. Not issuing an experience certificate is, unfortunately, used by many HRs and management as a tool to get something done by the employee. This something could be repayment of what the employee owes to the company, the employee not serving the notice period, etc.

Another common practice among some SMEs (I must admit that this trend is on a decline now) is to keep the originals of the employee’s certificates and mark lists with them until the term of employment/resignation. This is to make sure that the employee does not look for alternative employment whilst employed at the master organisation. Poor employee, s/he believes that the organisation has rights in their limit to do so and obeys this demand.

As it turns out (and it has always been like that), NO EMPLOYER is entitled to DENY experience certificates (service certificate in legal terms) to an employee or a former employee. If the employee demands such an experience certificate during or after the term of employment, the organisation is BOUND to issue one. To cite the labour law, 2J(3) of Kerala Shops and Commercial Establishments Act, 1961 mandates that the employer shall issue the service certificate in Form BE, within seven days from the receipt of such a request from the employee (every state has its own S&CE Act, and they will have similar provisions).

In a nutshell, employer cannot deny a service certficate (experience certficate) even if the employee is absconding or under a formal domestic enquiry for a gross misconduct. If the employer does not follow the request, the employee has the right to contact the District Labour Officer or the Labour Court thereafter for redressal.

Now, Section 5E of the aforementioned act says:

5E. Prohibition of retaining education certificate or experience certificate.—No educational certificate or experience certificate in original received from an employee shall be retained by the employer of any establishment at the time of appointment or during the course of employment.

This means, no establishment has the right to retain the originals of the experience certificate and/or educational certificates of their employees. Copies, however, can be maintained for record purposes, but originals have to be returned immediately after verification.

Ever denied justice? Talk to your HR first. If they do not fall in line, you now know what to do.

Also published at LinkedIn and medium.