If a person is offered CTC-350,000/p.a, i.e., 29,167/month. How to know the Gross salary then as Gross will always be less than CTC.
Gross components include HRA, Conveyance, Medical, Education, and Special Allowance. But with these components, what will be the maximum percentage or when to stop saying that this is the gross amount. And is the basic percentage of gross or CTC?
Kindly shed some light on it.
Regards, Vikas
From India, Calcutta
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6Gross components include HRA, Conveyance, Medical, Education, and Special Allowance. But with these components, what will be the maximum percentage or when to stop saying that this is the gross amount. And is the basic percentage of gross or CTC?
Kindly shed some light on it.
Regards, Vikas
From India, Calcutta
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HI Vikas, The basic should be fixed from the CTC as a gross +Employer PF contribution . It should be 40% of CTC. Regards, Suresh Kumar. R Sr.Executive-HR , Kanchipuram, Tamilnadu.
From India, Chennai
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From India, Chennai
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Dear Suresh Kumar ji,
Can you please support your statement with the help of any provision of law? In which law is it stated?
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From India, Mumbai
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Can you please support your statement with the help of any provision of law? In which law is it stated?
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From India, Mumbai
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Mr. Vikas,
To the best of my knowledge, there is no law that fixes a minimum percentage of basic for monthly salaried employees. You may see a very useful post by Mr. Balaji on this at this link: https://www.citehr.com/342584-percentage-basic-gross-salary-jpg-download.html
Cost to the Company (CTC) is the total of 'salary' and includes components such as employer's PF contribution, ESI, or medical insurance if any, etc. Some companies may allow some employees personal loans at subsidized interest rates (this one has Income Tax implications also). The employee will not see these components in "cash" every month but will enjoy them at a later day. Non-cash elements such as food coupons may not be perceived as 'cash' but still, the employee gets the benefit. All these payments cost the company, hence the term "CTC".
Regarding your particular query on how to calculate gross salary from CTC, the payslip/appointment letter will have the details of all cash payments. If any payments are paid through a voucher (for example, conveyance), these must be added. Total these amounts to know the gross salary.
Cheers,
Ganesh
From India, Bangalore
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To the best of my knowledge, there is no law that fixes a minimum percentage of basic for monthly salaried employees. You may see a very useful post by Mr. Balaji on this at this link: https://www.citehr.com/342584-percentage-basic-gross-salary-jpg-download.html
Cost to the Company (CTC) is the total of 'salary' and includes components such as employer's PF contribution, ESI, or medical insurance if any, etc. Some companies may allow some employees personal loans at subsidized interest rates (this one has Income Tax implications also). The employee will not see these components in "cash" every month but will enjoy them at a later day. Non-cash elements such as food coupons may not be perceived as 'cash' but still, the employee gets the benefit. All these payments cost the company, hence the term "CTC".
Regarding your particular query on how to calculate gross salary from CTC, the payslip/appointment letter will have the details of all cash payments. If any payments are paid through a voucher (for example, conveyance), these must be added. Total these amounts to know the gross salary.
Cheers,
Ganesh
From India, Bangalore
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Thanks to all for your valuable suggestions.
I am aware that basic fluctuates and no fixed formula for it
CTC includes Gross+Benefits given to employee like bonus gratuity,etc.
Net salary=Gross Salary-Deductions
To reframe my query again I want to know the relation between basic /gross/ctc in terms of finding basic.
Like is basic % of gross or CTC or any of these can be taken
Let me illustrate with an example
CTC proposed=100/month
Basic 40%=40(of ctc)
Hra 26%=26 of basic
Conveyance 8% =8
Washing Allowance -2
Medical Allowance-8
Special Allowance-2.79
Total Gross=86.79
Now as the proposed ctc includes other benefits. This makes gross amount less
But I have confusion relating to the total gross amount as to why (86.79) is only taken why not more or less.Why not any more component added to increase it or any component removed to decrease it.Is there any specific criteria as to fix gross between (80-90)…???
Secondly if a person is offered ctc but his basic is calculated on gross amount.How to calculate gross amount because if we don’t know the gross amount we won’t be able to find the basic
Last but not the least as there are certain percentages fixed for various components in the above stated example if we leave basic and hra assuming it to be fluctuating how can other components including or excluding them be fixed or fluctuated in PERCENTAGE so that the total percentage amounts to CTC proposed(If possible kindly illustrate with an example)
Regards
Vikas
From India, Calcutta
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I am aware that basic fluctuates and no fixed formula for it
CTC includes Gross+Benefits given to employee like bonus gratuity,etc.
Net salary=Gross Salary-Deductions
To reframe my query again I want to know the relation between basic /gross/ctc in terms of finding basic.
Like is basic % of gross or CTC or any of these can be taken
Let me illustrate with an example
CTC proposed=100/month
Basic 40%=40(of ctc)
Hra 26%=26 of basic
Conveyance 8% =8
Washing Allowance -2
Medical Allowance-8
Special Allowance-2.79
Total Gross=86.79
Now as the proposed ctc includes other benefits. This makes gross amount less
But I have confusion relating to the total gross amount as to why (86.79) is only taken why not more or less.Why not any more component added to increase it or any component removed to decrease it.Is there any specific criteria as to fix gross between (80-90)…???
Secondly if a person is offered ctc but his basic is calculated on gross amount.How to calculate gross amount because if we don’t know the gross amount we won’t be able to find the basic
Last but not the least as there are certain percentages fixed for various components in the above stated example if we leave basic and hra assuming it to be fluctuating how can other components including or excluding them be fixed or fluctuated in PERCENTAGE so that the total percentage amounts to CTC proposed(If possible kindly illustrate with an example)
Regards
Vikas
From India, Calcutta
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The entire process of pay fixation by the new generation HR is basically wrong. You should go and visit the Personnel Department of some old companies and see how it is structured. First of all, basic salary is not any percentage of CTC (Not in the dictionary of Personnel Management) nor Gross Salary. It is the foundation which should be laid first while pay is structured. For that there should be a pay scale for a particular grade of employees. The amount of basic salary should be decided based on the salary scales in similar industry or you can take the basic salary as per minimum wages notification. Then decide on how much should be annual increment on it. It may be some around Rs 50 or 100 depending upon the grade. Accordingly you will have to prepare an accelerated scale of pay for each grade of employees.
If you employ a fresher in unskilled category, say, grade 1, he shall be given the lowest of the basic in the respective scale of pay. On the other hand, for a person with 2 years’ experience you can give four or six increments, add these to the basic salary and fix his basic salary.
You can have a scale for semi skilled workers, say grade 2. Here also, you can take the minimum wages as per notification as the lowest level and put increments (higher than that of grade 1) and construct a pay scale for grade 2. If a semi skilled person ( say, a person from ITI may be a semi skilled person whereas a person who does not possess any basic qualification is an unskilled) joins you, you can put him in the lowest level in grade 2. If, on the other hand, the person joining has experience, depending upon the experience you can add increments and fix a basic pay for him.
In the similar way, you have to fix basic scales of pay for all categories of employees. This will enable you to fix the salary of an employee based on his qualification, experience and responsibilities that he had held in the past. Also when an existing employee is promoted, he is given a higher grade and pay.
Now, coming to other components of salary, the most important is Dearness Allowance. There can be two types of DA, Variable Dearness Allowance and Fixed Dearness Allowance. Variable Dearness Allowance is based on the consumer price index of the respective locality where the establishment functions. It is variable based on changes in the consumer price index. In some states, it is published every year considering the average of consumer price indices throughout the year, whereas in some states it is adjusted every month based on the monthly CPI. Normally VDA is given as part of salary of employees below the grade of Managers.
For Managers and higher salary employees, it can be Fixed Dearness Allowance which will be a fixed percentage of the Basic Salary. It can be 30% or 40% of the Basic Salary. The percentage may change depending upon the category of employees.
It will be the Basic Salary and the DA which will be considered as statutory salary for most of the purposes, like, calculation of Bonus, Gratuity, leave encashment and other benefits.
Now, there can be another component of salary, viz, House Rent Allowance. This can again be a percentage of Basic Salary. The percentage may change depending upon the category of employees and may be around 15% to 20% of basic salary. HRA can be a fixed amount also. The amount may also vary for different categories of employees.
There can be other components, like Conveyance allowance, telephone allowance, medical allowance, fuel allowance etc. The amount may be fixed for each category / grade of employees. For person who are subjected to income tax, it is better to make these as reimbursements so that they get the full benefit of tax exemption.
Special allowance is something which is paid to persons who perform some special tasks. This can also be an amount which is paid so as to adjust the salary demanded by the employee as against the scales on which we are operating. That means, when there is a difference in the salary fixed as per above and the salary the candidate is demanding, then we have to take this component and adjust the salary as per his demand.
The sum total of the above will be called Gross Salary. Now we take the perks, annual components like, performance linked incentives/ variable pay, bonus and the contributions that the employer will make for the employee, like ESI, EPF, and a provision for Gratuity also. This will be equal to the cost that the employer will incur by employing a person. This is called CTC or Cost To Company.
Now the practice is to decide first how much should be the cost to company and work backward and bifurcate in to small components. Years back I had posted an article in this site titled CTC Vs BTC (which is also available in the blog - link: Madhu.T.K: CTC Vs BTC) Please read that also along with this comments.
As already pointed out in the beginning it will be better to spend some time in the Personnel Department of a good organisation to get more detailed information about pay fixation.
Madhu.T.K
From India, Kannur
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If you employ a fresher in unskilled category, say, grade 1, he shall be given the lowest of the basic in the respective scale of pay. On the other hand, for a person with 2 years’ experience you can give four or six increments, add these to the basic salary and fix his basic salary.
You can have a scale for semi skilled workers, say grade 2. Here also, you can take the minimum wages as per notification as the lowest level and put increments (higher than that of grade 1) and construct a pay scale for grade 2. If a semi skilled person ( say, a person from ITI may be a semi skilled person whereas a person who does not possess any basic qualification is an unskilled) joins you, you can put him in the lowest level in grade 2. If, on the other hand, the person joining has experience, depending upon the experience you can add increments and fix a basic pay for him.
In the similar way, you have to fix basic scales of pay for all categories of employees. This will enable you to fix the salary of an employee based on his qualification, experience and responsibilities that he had held in the past. Also when an existing employee is promoted, he is given a higher grade and pay.
Now, coming to other components of salary, the most important is Dearness Allowance. There can be two types of DA, Variable Dearness Allowance and Fixed Dearness Allowance. Variable Dearness Allowance is based on the consumer price index of the respective locality where the establishment functions. It is variable based on changes in the consumer price index. In some states, it is published every year considering the average of consumer price indices throughout the year, whereas in some states it is adjusted every month based on the monthly CPI. Normally VDA is given as part of salary of employees below the grade of Managers.
For Managers and higher salary employees, it can be Fixed Dearness Allowance which will be a fixed percentage of the Basic Salary. It can be 30% or 40% of the Basic Salary. The percentage may change depending upon the category of employees.
It will be the Basic Salary and the DA which will be considered as statutory salary for most of the purposes, like, calculation of Bonus, Gratuity, leave encashment and other benefits.
Now, there can be another component of salary, viz, House Rent Allowance. This can again be a percentage of Basic Salary. The percentage may change depending upon the category of employees and may be around 15% to 20% of basic salary. HRA can be a fixed amount also. The amount may also vary for different categories of employees.
There can be other components, like Conveyance allowance, telephone allowance, medical allowance, fuel allowance etc. The amount may be fixed for each category / grade of employees. For person who are subjected to income tax, it is better to make these as reimbursements so that they get the full benefit of tax exemption.
Special allowance is something which is paid to persons who perform some special tasks. This can also be an amount which is paid so as to adjust the salary demanded by the employee as against the scales on which we are operating. That means, when there is a difference in the salary fixed as per above and the salary the candidate is demanding, then we have to take this component and adjust the salary as per his demand.
The sum total of the above will be called Gross Salary. Now we take the perks, annual components like, performance linked incentives/ variable pay, bonus and the contributions that the employer will make for the employee, like ESI, EPF, and a provision for Gratuity also. This will be equal to the cost that the employer will incur by employing a person. This is called CTC or Cost To Company.
Now the practice is to decide first how much should be the cost to company and work backward and bifurcate in to small components. Years back I had posted an article in this site titled CTC Vs BTC (which is also available in the blog - link: Madhu.T.K: CTC Vs BTC) Please read that also along with this comments.
As already pointed out in the beginning it will be better to spend some time in the Personnel Department of a good organisation to get more detailed information about pay fixation.
Madhu.T.K
From India, Kannur
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Dear Madhu T.K. Sir,
Greetings...
Sir, I have a question regarding pension calculation. Details are mentioned below:
Person Name - XYZ
D.O.B. - 03/08/1968
Date of Joining current establishment (EPS) - 16/11/1995
Date of cessation of membership - 31/12/2013
Salary as on 15/11/1995 - 2499
Pensionable salary - 6500
D.O.J. - 01/09/1991
Past service up to 15/11/1995 - 4 years, 2 months, 15 days
Actual service - 18 years, 1 month, 16 days
Eligible service - 22 years, 4 months, 1 day
Total pensionable service - 18 years, 1 month, 16 days
D.O.J. (EPS 71) - 01/09/1981
D.O.J. (EPS 95) - 16/11/1995
D.O.E. (EPS 71) - 15/11/1995
D.O.E. (EPS 95) - 31/12/2013
How do we calculate the pension for this, and how much pension would it be?
Kindly guide.
Thanks & Regards,
Ashutosh Jain
From United States,
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Greetings...
Sir, I have a question regarding pension calculation. Details are mentioned below:
Person Name - XYZ
D.O.B. - 03/08/1968
Date of Joining current establishment (EPS) - 16/11/1995
Date of cessation of membership - 31/12/2013
Salary as on 15/11/1995 - 2499
Pensionable salary - 6500
D.O.J. - 01/09/1991
Past service up to 15/11/1995 - 4 years, 2 months, 15 days
Actual service - 18 years, 1 month, 16 days
Eligible service - 22 years, 4 months, 1 day
Total pensionable service - 18 years, 1 month, 16 days
D.O.J. (EPS 71) - 01/09/1981
D.O.J. (EPS 95) - 16/11/1995
D.O.E. (EPS 71) - 15/11/1995
D.O.E. (EPS 95) - 31/12/2013
How do we calculate the pension for this, and how much pension would it be?
Kindly guide.
Thanks & Regards,
Ashutosh Jain
From United States,
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The most important two things being ignored here are the effect of Basic Pay and other acts, such as the House Rent Act, which stipulates the minimum percentile. PF and other benefits are calculated based on Basic Pay. Wise HR professionals would always keep the Basic Pay to a minimum. If any increment is to be given, add that amount (or some of it) to Allowances and not to Basic Pay. This way, the employer's liability will also be limited to that extent.
- Abdul Quadir.
From India, Pune
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- Abdul Quadir.
From India, Pune
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For calculation of PF pension, you may refer to the threads on this by Abbas P S, ITI. There is a pension calculation Excel sheet created by him. Please refer to it.
Regarding the main issue under discussion, i.e., basic salary, I would like to say that keeping the basic pay to a minimum would benefit the company. I agree, but HR is not an agency to let the company make profits by reducing the statutory contributions; it should be employee-friendly. If you see the history of PF Organisation's move to amend the meaning of PF qualifying salary, you will see that it was due to the attitude of some employers like G4 Security who kept the basic pay at the lowest slab to reduce their PF contributions. A similar issue was raised in the verdict on Bonus in which the Delhi High Court had to decide that the bonus should be paid on gross wages and not simply basic wages. There are other instances where the amount of salary agreed upon should be taken as the statutory salary for all purposes, irrespective of bifurcations done for the convenience of the employer.
I still say that it is the system followed by the Personnel Department that is valuable, not the new HR's policy of deterring the rights of employees. Even when saying that HR is something close to employees and creates harmony!
Madhu.T.K
From India, Kannur
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Regarding the main issue under discussion, i.e., basic salary, I would like to say that keeping the basic pay to a minimum would benefit the company. I agree, but HR is not an agency to let the company make profits by reducing the statutory contributions; it should be employee-friendly. If you see the history of PF Organisation's move to amend the meaning of PF qualifying salary, you will see that it was due to the attitude of some employers like G4 Security who kept the basic pay at the lowest slab to reduce their PF contributions. A similar issue was raised in the verdict on Bonus in which the Delhi High Court had to decide that the bonus should be paid on gross wages and not simply basic wages. There are other instances where the amount of salary agreed upon should be taken as the statutory salary for all purposes, irrespective of bifurcations done for the convenience of the employer.
I still say that it is the system followed by the Personnel Department that is valuable, not the new HR's policy of deterring the rights of employees. Even when saying that HR is something close to employees and creates harmony!
Madhu.T.K
From India, Kannur
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Dear Madhuji,
I am fully aware of the HR requirements to be employee-friendly. This is feasible when the company is not facing financial difficulties.
When I joined my current organization, the company had 50% more staff, PF was paid on the "total" salary, operations were solely relying on Bank OD at 15% interest, and there were multiple offices with various departments. In such a scenario, when the company was unsure whether PF should be paid on gross salary or basic, I could not just stand by and watch. It is our primary duty to educate the company about the relevant laws and acts. Registering under the Shops & Establishment Act triggers compliance with numerous other acts and necessitates the maintenance of various documents, indirectly increasing operating costs.
Therefore, if the company was to survive, I had to propose several cost control measures, including recommending significant reductions in the take-home salaries and perks of my MD and other executive directors, a suggestion they found inevitable and accepted.
With the implemented measures, my company emerged successfully within a year, and we reintroduced employee-friendly initiatives wherever possible.
I do not believe I acted as a mere agent of the company in this situation. My intention in the previous communication was solely to remind HR professionals to align policies with the company's financial capabilities.
Regards, - Abdul Quadir
From India, Pune
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I am fully aware of the HR requirements to be employee-friendly. This is feasible when the company is not facing financial difficulties.
When I joined my current organization, the company had 50% more staff, PF was paid on the "total" salary, operations were solely relying on Bank OD at 15% interest, and there were multiple offices with various departments. In such a scenario, when the company was unsure whether PF should be paid on gross salary or basic, I could not just stand by and watch. It is our primary duty to educate the company about the relevant laws and acts. Registering under the Shops & Establishment Act triggers compliance with numerous other acts and necessitates the maintenance of various documents, indirectly increasing operating costs.
Therefore, if the company was to survive, I had to propose several cost control measures, including recommending significant reductions in the take-home salaries and perks of my MD and other executive directors, a suggestion they found inevitable and accepted.
With the implemented measures, my company emerged successfully within a year, and we reintroduced employee-friendly initiatives wherever possible.
I do not believe I acted as a mere agent of the company in this situation. My intention in the previous communication was solely to remind HR professionals to align policies with the company's financial capabilities.
Regards, - Abdul Quadir
From India, Pune
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