‘Allow employees to choose salary payment mode’

In a decision that will greatly impact take-home pay and reduce informal employment, around 500 companies have approached the Ministry of Labour for granting employee’s choice in how they are paid their salary.

The companies along with TeamLease has been actively engaging the Ministry of Labour and the Human Resource Department to do away with what it terms is a “salary confiscation regime”, by amending the existing laws and allowing employees to choose their own salary and investment options.

Options In the petition corporates are requesting that all employees be given three options in deciding how their salaries are paid. The petition suggests that the 12-per cent provident fund contribution should be made optional for all employees.

It has added that employees should be given the right to choose whether 12 per cent employer contribution should go to Employee Provident Fund (EPF) or to National Pension System (NPS). EPF is a mandatory retirement saving scheme, and NPS is a voluntary one.

The petition also suggests that employees be given the option of whether to pay their Employees’ State Insurance (ESI) contribution to the ESI corporation or purchase insurance from any Insurance Regulatory and Development Authority-regulated company.

In the run-up to the Budget, to be announced in February this year, resolving this sticky issue will help the Government in its nation-building activities, noted Rituparna Chakraborty, Convenor of the Petition and Co-Founder of TeamLease.

In a statement, she has pointed out that millions of jobs need to be created, and that most initiatives are likely to fail if India’s “salary confiscation” regime does not change.

Labour laws India’s labour laws mandate the highest salary deductions for low-wage employees in the world, said Chakraborty. In a cost-to-company basis, she added, this could mean an almost 44.31 per cent salary deduction for low-wage employees. Contrary to public objectives this is only 5.32 per cent for high-wage employees. Economic data suggest low-wage employees do not have high savings rate and mandating savings higher than real savings leads to high attrition and high informal employment, because employees cannot live on half their salary.

Currently, in a cost to-company model, informal employees can take home their entire salary, while employees in the organised sector lose nearly 50 per cent of their earnings to schemes like PF, Employees State Insurance (ESI), Professional Tax, Employees Pension Scheme, (EPS), statutory bonus and gratuity, the statement added.

Informal employement People tend to choose informal employment where gross and net salaries are the same.

The plight is amplified further by the poor value of these schemes, alleged Chakraborty, adding that ESI has India’s worst health insurance claims ratio, and EFPO is the world’s most expensive government securities mutual fund with 50 per cent of the accounts dormant because of poor service.

Abhishek Chaturvedi, Director, Kanpur Education Society, one of the petitioners said, “Giving teachers a choice of how they are paid their salary will not only increase the take-home pay, but also help in attracting more talent to the sector.”

Nearly 100 per cent of the net job creation over the last two decades has taken place in the informal sector, added Chakraborty, and the country has 90 per cent informal employment overall. Both the numbers need to change significantly if India has to become an economic powerhouse.

By recognising and offering employees the right to choose their take-home pay, the share of the formal labour force would substantially increase. Chakraborty added that the right to invest in EPS or NPS would also bring about a healthy competition between organisations.

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