how to design a salary structure for a employee? what are the components to be considered will they differ from company to other?
From India, Mumbai
7From India, Mumbai
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Dear Franidhar,
When designing a salary structure, you first need to conduct a salary survey. Based on the questions provided to you, you can manage your data. However, this is not a short process; it requires a long and meticulous approach.
Please let me know if I can assist you.
Thank you.
From Singapore, Singapore
When designing a salary structure, you first need to conduct a salary survey. Based on the questions provided to you, you can manage your data. However, this is not a short process; it requires a long and meticulous approach.
Please let me know if I can assist you.
Thank you.
From Singapore, Singapore
Hello Franidhar I am enclosing one format of Salary structure, and you can calculate TDS also from the format.
From India, Pune
From India, Pune
Hi Franidhar,
The design of the salary structure is entirely up to the company; there are no laws or rules laid down. Most companies base their structure so that the employee benefits with respect to income tax. Thus, you must know the income tax rules and exemptions before you start defining the salary structure.
The starting point is the CTC (cost to company).
Basic is calculated based on a percentage of the CTC. If the company has a contributory Provident fund, then it must be kept in mind that the company has to contribute the same amount of PF as the employee.
The best way is to try out a few combinations to protect both the company and the employee.
Basic can be between 25 to 30 percent of CTC. HRA is normally between 15 to 25 percent of basic. Medical should not be more than 15,000 per year.
Travel/conveyance allowance exempt by IT is 9,600 per year, so stay within this limit.
PF contribution is between 8.33 to 10 percent of basic. If you plan to include DA (dearness allowance) in the salary, then it should be around 20 percent of basic. This DA is added to basic when calculating the PF contribution.
You can then add a component of one month's basic as leave travel allowance. Add about one to two months' basic as a bonus. The balance of CTC can then be shown as other allowances.
I hope this helps.
Regards,
Ronald
From India, Hyderabad
The design of the salary structure is entirely up to the company; there are no laws or rules laid down. Most companies base their structure so that the employee benefits with respect to income tax. Thus, you must know the income tax rules and exemptions before you start defining the salary structure.
The starting point is the CTC (cost to company).
Basic is calculated based on a percentage of the CTC. If the company has a contributory Provident fund, then it must be kept in mind that the company has to contribute the same amount of PF as the employee.
The best way is to try out a few combinations to protect both the company and the employee.
Basic can be between 25 to 30 percent of CTC. HRA is normally between 15 to 25 percent of basic. Medical should not be more than 15,000 per year.
Travel/conveyance allowance exempt by IT is 9,600 per year, so stay within this limit.
PF contribution is between 8.33 to 10 percent of basic. If you plan to include DA (dearness allowance) in the salary, then it should be around 20 percent of basic. This DA is added to basic when calculating the PF contribution.
You can then add a component of one month's basic as leave travel allowance. Add about one to two months' basic as a bonus. The balance of CTC can then be shown as other allowances.
I hope this helps.
Regards,
Ronald
From India, Hyderabad
Dear Ronald,
Generally, the basic is set at 40-50% of CTC, and HRA at 50% for metro cities and 40% for other cities. Medical allowance is set at 1250 per month, PF at 25.61% (EE/ER share), and conveyance at 800 per month. The remaining amount can be split into other components such as SA, LTA, and Bonus.
I hope this information is correct.
Regards,
Sanjeev Chauhan
Sr. Executive - Labour Compliance
From India, New Delhi
Generally, the basic is set at 40-50% of CTC, and HRA at 50% for metro cities and 40% for other cities. Medical allowance is set at 1250 per month, PF at 25.61% (EE/ER share), and conveyance at 800 per month. The remaining amount can be split into other components such as SA, LTA, and Bonus.
I hope this information is correct.
Regards,
Sanjeev Chauhan
Sr. Executive - Labour Compliance
From India, New Delhi
Dear Sanjeev,
There is no right or wrong percentage for basic, etc. It all depends on the organization. As I have said, a lot of other benefits are derived from basic; as such, many companies keep this low by raising other components. Gratuity is also computed on basic; therefore, a higher basic would mean a higher gratuity payout. I was not aware that PF contribution is as high as 25.61%. As per the rules, both the employee and employer will contribute 12% of basic. DA is normally paid in government or public sector companies.
Regards,
Ronald
From India, Hyderabad
There is no right or wrong percentage for basic, etc. It all depends on the organization. As I have said, a lot of other benefits are derived from basic; as such, many companies keep this low by raising other components. Gratuity is also computed on basic; therefore, a higher basic would mean a higher gratuity payout. I was not aware that PF contribution is as high as 25.61%. As per the rules, both the employee and employer will contribute 12% of basic. DA is normally paid in government or public sector companies.
Regards,
Ronald
From India, Hyderabad
Dear,
Below is one salary structure you may consider:
A: CTC = XYZ
B: Basic = 30% of CTC
C: HRA = 40% of Basic (non-metros) & 50% of Basic (metros)
D: Conveyance = 800 PM
E: Medical = 1250 PM
F: Others = A - B - C - D - E - G
G: Company Contribution PF = 12% of Basic
Bonus and Gratuity are optional to show in CTC. If included in CTC, they may be reduced from the Others component.
H: Gross = B + C + D + E + F
I: Net = H - Statutory Deductions - TDS (As applicable)
You will receive many from the group. Choose the appropriate one for your company to follow and consider.
All the best.
Regards,
From India, Hyderabad
Below is one salary structure you may consider:
A: CTC = XYZ
B: Basic = 30% of CTC
C: HRA = 40% of Basic (non-metros) & 50% of Basic (metros)
D: Conveyance = 800 PM
E: Medical = 1250 PM
F: Others = A - B - C - D - E - G
G: Company Contribution PF = 12% of Basic
Bonus and Gratuity are optional to show in CTC. If included in CTC, they may be reduced from the Others component.
H: Gross = B + C + D + E + F
I: Net = H - Statutory Deductions - TDS (As applicable)
You will receive many from the group. Choose the appropriate one for your company to follow and consider.
All the best.
Regards,
From India, Hyderabad
Thank you, Mr. Ronald, for this informative reply. I am grateful for your help.
As you have said, Basic can be 25 - 30% of CTC. So, if my CTC is around 2,50,000 for an employee, does it mean that 2,50,000 * 25% gives a value of 62,500 as basic?
Why should medical not be more than 15,000 per year?
Can you share with me any combinations as you have mentioned?
Regards,
Pavan
From India, Mumbai
As you have said, Basic can be 25 - 30% of CTC. So, if my CTC is around 2,50,000 for an employee, does it mean that 2,50,000 * 25% gives a value of 62,500 as basic?
Why should medical not be more than 15,000 per year?
Can you share with me any combinations as you have mentioned?
Regards,
Pavan
From India, Mumbai
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