Working From Home? Your Salary, HRA Can Be Reduced | Other Allowances Can Increase

Working From Home? Your Salary, HRA Can Be Reduced | Other Allowances Can Increase
Working From Home? Your Salary, HRA Can Be Reduced | Other Allowances Can Increase

Considering the work from home preferences, soon the labour ministry may allow employers to tweak the salary structure of existing employees who opt for work from home permanently.


How Does This Affect?

The move definitely affects the salary components as it could entail a reduction in the house rent allowance (HRA) as well as an increase in reimbursement cost under the infrastructure component.

Soon, the labour ministry may issue standing orders to redefine service conditions, according to a top government official.

Why Would This Happen?

According to the official, there is a need to redefine service conditions in order to ensure the employee compensation is structured according to the expenses incurred due to working from home.

Besides this, the employees will have to bear certain infrastructure costs including electricity and WiFi.

So, they need to be part of the new compensation structure. 

Reduction In Salary

If we consider from the employer’s perspective, this will lower the cost of living for an employee due to relocating to his or her hometown.

It needs to be reflected in the compensation package as in some instances employees relocate from tier-2 and tier-3 cities.

The official said, “The government is considering all the options and something concrete is likely to come soon,”.

Moreover, the employees opting for permanent work from home will have a change in salary stature, like in the components of HRA and professional tax, said Prashant Singh, head and vice president, Teamlease Compliance & Payroll Outsourcing Business.

Apart from this, the Labour welfare fund is another issue, besides the applicability of state labour laws in such situations that need to be clarified.

Legislation Should Be Avoided

In another view, legislation should be avoided as work from home is an evolving concept in India, according to BC Prabhakar, chairman and advocate of BCP Associates and a labour law expert.

Further adding, “Let the market determine the wage structure depending on the demand and supply of labour in the Indian market,”.

He said, that the management and the employee should be allowed to negotiate the service conditions as any intervention by the government would defeat the very purpose of working from home.

Affecting HRA Component

In case employees opt for permanent work from home and move to their home town then it could have the most significant tax impact on the HRA component.

As per the current rules, the tax rebate for HRA is the least of three: 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, and 3) actual rent paid minus 10% of basic salary + DA.

So, in this case, the HRA component is reduced and not replaced with something for which tax rebate is available, then the tax liability of the employee may raise.

The same is suggested by Singh of Teamlease saying, “Any employee moving from a metro city to a non-metro city will have reduced take-home pay if the HRA goes down,”. 

Further adding, “Change of HRA will have a direct impact on the income tax payment of the employee,”. 

Basically, the reduction in HRA will lead to an increase in the tax outgo as well as additional provident fund contributions.

Although, if the reduced HRA is added to the basic pay then it could be managed by adding an infrastructure component on the reimbursement portion, which will reduce the tax burden for employees.

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