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Old 31st January 2010, 14:28   #1
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Default New Job - no provident fund.

I am considering a job offer in Mumbai which would enable a good hike in my designation and a good salary hike. The company ( Software services ) is listed on BSE and is a small to mid size organization. The position i have been offered is a permanent position, However they do not have provident fund component in the salary. The HR dept tells me that they have this policy to save on tax. They also told me that i can opt for the PF but there would be a deduction of 24% from my basic payout, i.e the company would not be contributing in the fund. I checked around with some of my friends and they say that this is common practice in small companies in the IT industry. Is somthing fishy here? can some one advise?
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Old 31st January 2010, 15:51   #2
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Funny. There is something fishy here. A more relevant index is how they deduct tax on the remuneration - a flat 10% TDS (in which case you are really on contract and you need to manage your own tax calculation and advance remittance), or computation of tax and remittance based on total projected income and proof of deduction claims.

No tax is saved by a company having a policy not contributing to PF, and vice versa. They are only saving the cost of administering the PF accounts - deduction from employee account + contribution from the company. The amount thus deducted are actually managed by a recognized PF agency. In companies who have a lean accounts dept., this administration is done by an external agency which prepares the rolls.

I am not sure, but I think the PF part is compulsory, by Govt. rules, for 'employees' in a company. But how they are showing 'employees' is the tricky part, since neither you get to see how they are explaining this to the Govt., nor is the Govt. able to figure out your contract to prove it otherwise.

The 'permanent position' is 'in good faith' at best (read "we will not throw you out as long as you are a good boy"), as the word 'permanent employee' does not appear in your contract. If the phrase 'as per Policies and Rules of the Company' appears in the contract, no one actually reads and understands the Policies and Rules in detail to decide whether it goes against their interests. I haven't seen or heard of anyone who requested the Company to expose their rule book at that stage. Such prudence gets overwhelmed by the emotion of the increase over current circumstances.

If one resigns for their own reasons, again one is not bothered about 'permanent employee', rules etc., since everyone tends to just move on and not have acrimony. It is only when one is thrown out, does one tend to look at rules to prove the company otherwise. Even then, 'might is right' is the applicable phrase than logic.

Under these circumstances, whether you should join or not is COMPLETELY up to you. You are not taking a risk really if there is no PF, or for that matter you are getting a lump-sum contract pay with TDS. The 'providence' part is totally dependent on your fiscal prudence towards what you set aside for post-retirement needs, since PF is mostly only a fraction of that requirement.

What matters is how you look at your skill and professional abilities. If you realize that growth of your income is proportional to the value or contribution to bottom line of the company due to you, as opposed to merely getting remuneration against the effort you deliver, it is the company which will value and demand permanence and not you. Remember, when times are bad for the company, the first ones to be let go are the ones who are too costly for the value they deliver to the company.

Last edited by DerAlte : 31st January 2010 at 16:07.
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Old 31st January 2010, 16:45   #3
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Quote:
Originally Posted by DerAlte View Post
Funny. There is something fishy here. A more relevant index is how they deduct tax on the remuneration - a flat 10% TDS (in which case you are really on contract and you need to manage your own tax calculation and advance remittance), or computation of tax and remittance based on total projected income and proof of deduction claims.
Thank you for your feedback. The offer letter also has the below wordings, i.e
" Personal Tax Declaration: You are required to submit a tax declaration document along with Form 16 from your previous employer if any, at the time of joining. Your tax deductions for the year will be computed based on your declaration of investments. All reimbursements that are unclaimed at the end of the year ( before March 31st ) will not be carried forward and will be further grossed up and calculated as taxable income."

Does this indicate that this is not a contract position?
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Old 31st January 2010, 17:52   #4
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Originally Posted by heavy_foot View Post
Thank you for your feedback. The offer letter also has the below wordings, i.e
" Personal Tax Declaration: You are required to submit a tax declaration document along with Form 16 from your previous employer if any, at the time of joining. Your tax deductions for the year will be computed based on your declaration of investments. All reimbursements that are unclaimed at the end of the year ( before March 31st ) will not be carried forward and will be further grossed up and calculated as taxable income."

Does this indicate that this is not a contract position?
It's only to deal with the investment/ tax related information of your previous employer so that when you you file your IT returns for this year, Your previous Sal + The current sal in the new company both are accounted for while deducting/calculating tax.

This has got nothing do with a contract position I am sure and similar clauses exist for all other offer letters of other companies.

Last edited by muni : 31st January 2010 at 18:01.
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Old 31st January 2010, 18:27   #5
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I dont think there is anything fishy with this. The previous company i was working with had no component for PF. The current company i work with has a component for PF. They take 24% from the total salary and show as employee's and employer's component.

I think it is a common practise in IT industry.
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Old 31st January 2010, 18:28   #6
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@heavy_foot, the section you have quoted does not clarify if the offered position is a contract position or not. That statement only states how tax deduction is calculated, and is a standard statement that will be found in any company's offer letter.

Sirji has analyzed the situation very well. Pls re-read that - it really puts things in perspective.
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Old 31st January 2010, 18:53   #7
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@heavy_foot. is the ofter from company that is listed on BSE or some subsidary of the company?
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Old 31st January 2010, 18:58   #8
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Quote:
Originally Posted by condor View Post
@heavy_foot, the section you have quoted does not clarify if the offered position is a contract position or not. That statement only states how tax deduction is calculated, and is a standard statement that will be found in any company's offer letter.

Sirji has analyzed the situation very well. Pls re-read that - it really puts things in perspective.
I know that it does not "specify" that the offered position is a contract position or not. I quoted that in reply to DerAlte's statement about the relevance of the index of how tax is deducted on the remuneration. I am not sure if that is indicates if the position is permanent or contractual.

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Originally Posted by NetfreakBombay View Post
@heavy_foot. is the ofter from company that is listed on BSE or some subsidary of the company?
The company itself is listed on BSE.

Last edited by heavy_foot : 31st January 2010 at 19:00.
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Old 31st January 2010, 19:19   #9
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It is quite legal for the company not to have an EPF scheme in place, there are various provisions in the EPF act which allow this. In any case the total annual contribution to the EPF scheme is limited to Rs.78000/- which for the IT industry employees may not be a decision maker or breaker. The company is simply putting the entire amount in your hands as also the decision to have a PF account or not.

In case you are keen on PF you can convert your existing EPF account to a PPF account and simply deposit the amount every financial year. You could do it in one go as a lumpsum or in installments per your convenience.

Last edited by khoj : 31st January 2010 at 19:21.
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Old 31st January 2010, 19:54   #10
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AFAIK, employees whose basic<6500/- must opt for EPF..it is legally binding. Above that, it is voluntary on part of employee/employer to opt for EPF-no legal binding in this case.

What about ESI? This is compulsory I think for any salary grade.
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Old 31st January 2010, 20:35   #11
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If the employer has an EPF scheme in place then what you are saying is correct. Further, once the employer has an EPF scheme then the ESI kicks in automatically provided the company has more than 20 employees on its rolls.

However the EPF act has provisions that allow certain sectors to be exempt from having a compulsory EPF scheme and even companies in those sectors that are not exempt can opt out by fulfilling certain criteria.

Last edited by khoj : 31st January 2010 at 20:36.
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Old 31st January 2010, 22:47   #12
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Quote:
Originally Posted by khoj View Post
total annual contribution to the EPF scheme is limited to Rs.78000/-
I don't this this restriction applies. Usual PF deduction (annual) is much higher from what I see. This is based on payslips as well as EPFO statement that you get every financial year.
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Old 1st February 2010, 00:00   #13
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Originally Posted by muni View Post
It's only to deal with the investment/ tax related information of your previous employer so that when you you file your IT returns for this year, Your previous Sal + The current sal in the new company both are accounted for while deducting/calculating tax.

This has got nothing do with a contract position I am sure and similar clauses exist for all other offer letters of other companies.
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Originally Posted by condor View Post
@heavy_foot, the section you have quoted does not clarify if the offered position is a contract position or not. That statement only states how tax deduction is calculated, and is a standard statement that will be found in any company's offer letter.

Sirji has analyzed the situation very well. Pls re-read that - it really puts things in perspective.
If the position is a contract position then the company should not have sought previous employeer income details. This is because all it has to do is deduct TDS at 10%. The calculation of actual income tax (after deductions etc.) is left to the professional.
So most probably this is not a contract position. I say most probably because there is still a chance that these lines might be part of a standard format used by the company irrespective of nature of engagement.
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Old 1st February 2010, 02:01   #14
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Quote:
Originally Posted by NetfreakBombay View Post
I don't this this restriction applies. Usual PF deduction (annual) is much higher from what I see. This is based on payslips as well as EPFO statement that you get every financial year.
Check this out

EPFO
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Old 1st February 2010, 12:41   #15
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Only a company with less than 20 employees can opt out of PF. And no company can opt out of TDS. The 24% of basic is normal, because they are referring to your CTC.

CTC = Your salary + company contribution to your PF = Total Cost To Company.
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