Debunking Common Myths Around Compensation

Registered MSMEs create 46.6 million jobs every year, accounting for a whopping 42% of the total job market. 

These staggering stats indeed point in one direction — MSMEs play a vital role in generating employment in India. So, it’s essential for companies to fully understand the salary and compensation trends along with the existing regulations. 

However, where there is employment, there are myths. So, let’s bust them one by one.

Myth #1— Workmen Compensation Policy is Just for the Big Fish

One of the biggest misconceptions in the MSME sector is that workmen's compensation insurance is a viable option only for multinational companies and large corporations. However, you need to understand that it’s equally essential for your business.

For instance, a workman’s injury can affect your company irrespective of its size. In fact, there are several cases when small or medium enterprises are held responsible for the injury or death of an employee while they are working.

Hence, to lower the risk of legal consequences and the financial burden that comes with it, a workmen's compensation policy is recommended regardless of the number of employees in your organization.

Myth #2— Employee Compensation Policies are Expenses.

When it comes down to choosing insurance policies, it’s not about “the more expensive the better”; it’s about choosing what’s right for your company. Sure, an employee compensation policy is an expense. However, compared to the benefits it offers, it’s worth acquiring. 

Here are some of the innumerable benefits of investing in an employee compensation policy: -

• Coverage for employees’ medical expenses
• Lost wages due to permanent or temporary disablement
• Other losses, including a job-related injury or death.
• Legal costs, if any

Myth #3 — PF is Calculated on the Basic Salary

Most employers have the concept of PF all wrong! 

According to the latest ruling by the Supreme Court on PF wages in 2019, this practice is out of date. 

PF should be calculated on employees’ fixed salaries. The ruling clearly states that allowances paid to the employees need to be included as a part of the basic wages and will be subject to PF contributions apart from a few exceptions, including: -

• Variable allowance that is linked to any incentive for sale or production, resulting in greater output by an employee.
• Allowances paid across the board to every employee of the department.
• Allowances paid especially to those employees who availed the opportunity.
• HRA since it’s paid to some employees but not all by the same employer.
• Overtime allowance as it’s paid by all employers but not earned by all employees.

So no, PF is no longer calculated on the basic salary.

Myth #4 — LTA can be Claimed Every Year

You may have noticed this one more frequently than you can count — employees submit their LTA bills and claim tax benefits every year. However, this practice is unethical.

According to the Income Tax laws, employees can claim Leave & Travel Allowance (LTA) only 2X in a block of 4 calendar years. Moreover, the exemption is available on the travel cost incurred, or the LTA received by the employee, whichever is lower.

Myth #5 — CTC includes medical and transport allowance.

Several employers include medical and transport allowances in the CTC structure — are you one of them? If so, please be aware that this salary practice is redundant.

As per the Union Budget published in 2018, the medical and transport allowance was replaced by a standard deduction of INR 40,000. Earlier, these allowances used to be a part of the CTC, and the employees were allowed to claim tax benefits on the medical & transport allowance for INR 15,000 and INR 19,200, respectively.

Since this alteration, making medical and transport allowance a part of the CTC is unnecessary.

Myth #6 — Excel is the Ideal Way to Manage Payroll

For generations, companies have been managing payroll and HR processes on paper. Then, Microsoft Excel took over as it required no initial investment. However, this practice can become very expensive very quickly; here’s why: -

Excel is prone to errors!

That’s right; spreadsheets are no better than pen and paper as they require lengthy calculations and are time-consuming. The only benefit is that you don’t require a calculator to make those long and tedious calculations every month. 

Here are some disadvantages/limitations to using spreadsheets: -

• Mathematical and clerical errors are common as every value is entered manually.
• Chances of duplication or omission of entries is significantly higher.
• It becomes challenging to monitor and update the spreadsheet as it’s not agile.
• Complications can arise while adding or removing an employee from the database.
• HR has to spend excessive hours processing payroll every month as nothing is automated. This also means a waste of resources.
• Increased cost due to the “need to hire skilled professionals”.

Irrespective of these benefits, to date, more than 50% of Indian businesses still rely on paper or spreadsheet-based HR and payroll management. But why? When there’s a better, more effective and efficient way…

TeamNest — Offering a Simpler, Error-free Way to Managing Payroll

With an intuitive and interactive interface, TeamNest is an easy-to-use cloud-based platform that offers a seamless experience on every device. And not just that, this feature-packed platform can help you implement structure and policies effectively across all departments of the organization. 

Ranging from PF contributions to attendance, compliance, engagement, and even payroll processing, TeamNest is the ideal solution for all things HR.

Here’s what TeamNest is offering: -

• Real-time insights and analytics
• Easy configuration of rosters and working hours
• Biometric integration
• Up-to-date compliance on PF, ESIC, PT, and TDS
• Powerful CTC generator to help you create a salary structure.
• Covers the State Acts ranging from Profession Tax to Labor Welfare Fund

Make managing payroll and HR processes a walk-in-the-park only with TeamNext. So, what are you waiting for — a sign from the universe or perhaps the next compliance issue in your company?

Get in touch with a TeamNest expert @ +91-913-876-6322 or email @sales@teamnest.com. 

Switch to TeamNest TODAY!