If you want to work from home on a permanent basis, your salary structure may change in the near future. Employers may soon be able to change the salary structure of existing employees who choose to work from home on a permanent basis, according to the labour ministry.
This could result in a decrease in the HRA component of employees’ pay and an increase in reimbursement costs under the infrastructure component.
The financial daily citing a top government official mentioned that the labour ministry may issue standing orders to redefine service conditions.
According to the official, “there is a need to redefine service conditions to ensure that employee compensation is structured to account for the expenses incurred due to working from home.”
Employees must bear certain infrastructure costs, such as electricity and WiFi, in a WFH circumstance, and these costs must be involved into the compensation structure. The lower cost of living for an employee as a result of relocating to his or her hometown, in some cases to tier-2 and tier-3 cities, must be reflected in the compensation package from the employer’s perspective.
The official said, “The government is considering all options, and something concrete is likely to come soon.”
Employees who choose permanent work from home, according to Prashant Singh, head and vice president, Teamlease Compliance & Payroll Outsourcing Business, will have a change in salary status, such as in the components of HRA and professional tax.
Aside from the applicability of state labour laws in such situations, another issue that needs to be clarified is the existence of a labour welfare fund.
Work from home is still a developing concept in India, according to BC Prabhakar, chairman and advocate of BCP Associates and a labour law expert.
“Let the market determine wage structure based on labour demand and supply in the Indian market,” Prabhakar said, according to the publication. He went on to say that management and employees should be free to negotiate service conditions, as government intervention would defeat the purpose of working from home.
If a worker moves to his hometown under WFH, the most significant tax impact could be on the HRA component.
The tax rebate for HRA is currently limited to one of three options: 1) the actual HRA received from the employer, 2) 50% of basic salary + dearness allowance for those living in metro cities and 40% for those living in non-metro cities, or 3) actual rent paid minus 10% of basic salary + DA.
The employee’s tax liability may increase if the HRA component is reduced and not replaced with something for which a tax rebate is available.
“Any employee moving from a metro city to a non-metro city will have lower take-home pay if the HRA goes down,” Teamlease’s Singh explained. “A change in HRA will have a direct impact on the employee’s income tax payment.”
While reducing HRA will result in an increase in tax outgo as well as additional provident fund contributions if it is added to basic pay, adding an infrastructure component to the reimbursement portion will reduce the tax burden for employees.
