We are having a discussion about annual increments, and the plan is to increase the basic salary only if the basic salary of the concerned employee is below Rs 15,000/-. For the rest of the employees, the management is considering starting a new conveyance allowance and paying incremental salary in conveyance allowance. The question before management is: Is it necessary to give an increment in the basic salary for those whose basic is more than Rs 15,000/-, or can the company give an increment for those having a basic salary more than Rs 15,000/- by introducing a conveyance allowance?
Rajendra
From India, Mumbai
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19Rajendra
From India, Mumbai
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Increments are based on performance and cannot be divided into two parts of below Rs. 15,000/- and above Rs. 15,000/-. The increment will affect the gross salary, whether you increase in basic, all the components, or add a new component called Conveyance Allowance, depending on the management. Conveyance allowance up to Rs. 1600/- is tax-free.
From India, Ahmadabad
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From India, Ahmadabad
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As per statutory norms, it is important to maintain a minimum amount of basic salary structure, which has already been done in the above case. Thus, it is the choice of management to increase the basic or not.
Also, if you are not increasing the basic just to avoid PF contribution, then the employer is not required to make any PF contribution above Rs. 15,000/-.
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Also, if you are not increasing the basic just to avoid PF contribution, then the employer is not required to make any PF contribution above Rs. 15,000/-.
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Yes, only the other components of the CTC can be changed without making changes to the basic salary, but make sure they are within the income tax bracket. As conveyance allowance more than 1600 INR per month is taxable. You may even add a medical allowance of INR 15,000 per annum, for which bills have to be produced by the employee at the end of the financial year to make it tax-free, and the rest of the amount may be added to their special allowance component.
From India, Hyderabad
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From India, Hyderabad
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By resorting to this (not increasing Basic), employee gratuity will remain "stagnant." How do you justify a "uniform Basic" for all categories of employees? PF contribution can be restricted to Rs15,000 even for those employees whose Basic+DA+VDA is above the ceiling.
From India, New Delhi
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From India, New Delhi
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The real question over here is whether this should be done or not.
By not increasing Basic you are in a way actually denying the employee of certain perks and income tax exemptions.
How?
1. HRA exemption is strongly determined by Basic. Say you keep Basic at 15k and actual rent paid by the employee is anything which is greater than that which is quite realistic in Mumbai, for this case let's take 20k the HRA exemption will work as per below.
Actual HRA received(Assuming you have given 50% of Basic) = 7500*12 = 90,000/-
Actual rent paid less 10% of basic = (Rs. 20,000 X 12) – Rs. 18,000 = Rs. 2,22,000/-.
50% of basic salary since he lives in a metro = Rs. 90,000/-
Looking at the calculation above, would it not be fair to increase basic. Even if you decided to pay a higher HRA it would eventually come back to 50%.
2. From a PF stand point, The employer can decide to cap contribution at 15k, so it really does not affect the companies costs. This is a little unfair when looked at from an employees point of view as with higher PF contributions come better retiral. This needs to be looked at on an industry to industry basis. In industries where attrition is high like retail, media, cap it at 15%, where attrition is low like mfg, etc keep it as per actual.
3. With the out burst of the start up culture in India, recruiters have become quite cruel (Obviously, to sustain their own jobs and trying to keep costs low - I call this "Penny Wise and Pound Foolish"), with the way of structuring salaries for new joiners, so someone who joins at a low basic and is kept at that through his tenure, and when they move to a new company they fall into the same cycle i.e. assuming they don't join MNC's where structures are controlled by systems. These guys actually take so much time to get their structures right, it is not even funny. For eg. In one of the organisation i worked for a employee with 1.5 lac Gross was being paid 20k as basic. It does not even make sense sometimes.
To conclude, I would like to say, it is the most elementary job of HR to build a culture of employee satisfaction and encourage candour and things like getting the salary structure right is one of the most basic things which form part of this. It the job of the HR personnel to not only inform the management of wrong decisions but in some cases take a strong stand on implementing only what is correct.
From India, Mumbai
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By not increasing Basic you are in a way actually denying the employee of certain perks and income tax exemptions.
How?
1. HRA exemption is strongly determined by Basic. Say you keep Basic at 15k and actual rent paid by the employee is anything which is greater than that which is quite realistic in Mumbai, for this case let's take 20k the HRA exemption will work as per below.
Actual HRA received(Assuming you have given 50% of Basic) = 7500*12 = 90,000/-
Actual rent paid less 10% of basic = (Rs. 20,000 X 12) – Rs. 18,000 = Rs. 2,22,000/-.
50% of basic salary since he lives in a metro = Rs. 90,000/-
Looking at the calculation above, would it not be fair to increase basic. Even if you decided to pay a higher HRA it would eventually come back to 50%.
2. From a PF stand point, The employer can decide to cap contribution at 15k, so it really does not affect the companies costs. This is a little unfair when looked at from an employees point of view as with higher PF contributions come better retiral. This needs to be looked at on an industry to industry basis. In industries where attrition is high like retail, media, cap it at 15%, where attrition is low like mfg, etc keep it as per actual.
3. With the out burst of the start up culture in India, recruiters have become quite cruel (Obviously, to sustain their own jobs and trying to keep costs low - I call this "Penny Wise and Pound Foolish"), with the way of structuring salaries for new joiners, so someone who joins at a low basic and is kept at that through his tenure, and when they move to a new company they fall into the same cycle i.e. assuming they don't join MNC's where structures are controlled by systems. These guys actually take so much time to get their structures right, it is not even funny. For eg. In one of the organisation i worked for a employee with 1.5 lac Gross was being paid 20k as basic. It does not even make sense sometimes.
To conclude, I would like to say, it is the most elementary job of HR to build a culture of employee satisfaction and encourage candour and things like getting the salary structure right is one of the most basic things which form part of this. It the job of the HR personnel to not only inform the management of wrong decisions but in some cases take a strong stand on implementing only what is correct.
From India, Mumbai
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Dear All,
Increase in Basic and consequent increase in indirect benefits is a different issue. The basic issue is the 'Salary Structure'. When we start an industry or business, do we not plan for human resources and their compensation? How to attract and retain manpower is the topmost consideration. Playing with the basic is a mathematical exercise.
Friends, consider what employees want. You may adjust the basic, but then you take the risk of losing some employees. After all, it is the CTC, i.e., the total cost to the company. Maintain uniformity in grades and allowances. Give raises where there will be the least grievances. Compensation can be a source of dissatisfaction. It is not easy to whimsically raise salaries and allowances. A detailed study is necessary to satisfy employees while taking care of the employer.
Vibhakar Ramtirthkar
9371001906
snehvibha@yahoo.com
From India, Pune
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Increase in Basic and consequent increase in indirect benefits is a different issue. The basic issue is the 'Salary Structure'. When we start an industry or business, do we not plan for human resources and their compensation? How to attract and retain manpower is the topmost consideration. Playing with the basic is a mathematical exercise.
Friends, consider what employees want. You may adjust the basic, but then you take the risk of losing some employees. After all, it is the CTC, i.e., the total cost to the company. Maintain uniformity in grades and allowances. Give raises where there will be the least grievances. Compensation can be a source of dissatisfaction. It is not easy to whimsically raise salaries and allowances. A detailed study is necessary to satisfy employees while taking care of the employer.
Vibhakar Ramtirthkar
9371001906
snehvibha@yahoo.com
From India, Pune
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