Labour Matters
V. Balaji
Ir & Hr
Hr &administration
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Hi Friends,
I have joined as HR in an organization ( A start up) and there is no salary break up...being an HR i have to introduce the salary break HRA,DA,basic,PF,ESI bit confused as to what has to percentage of the everyone say different percentages of these components.
Please help me in bifurcating the salary because as per that we have to calculate the Tax and other variable.Like suppose if an employee is withdrawing 25 K..what should be its basic,HRA,DA,PF,ESI and other components if any.Currently there are 17 employees working including house keepers and peons and driver..but the no. of employees is likely to increase in short span of time...
Please guide me on this.
Thanks & Regards,
Charu Chandna

Dear Charu
Congrts.... for your joining in HR Department of an Organisation. Charu you said, there is no salary break up and being an HR you want to introduce the salary breac up.
For example you are drawing Rs. 25,000/- per month as salary and you want the breakup of it, the break up for is as under:-
Basic Rs. 15,000.00
House Rent Allowance Rs. 5,000.00
Conveyance Allowance Rs. 3,000.00
Other Allowance Rs. 2,000.00
Total; Rs. 25,000.00
If you want any other clarification, you are most welcome to seek any clarification in this regard.

Dear CHaru
The salary bifercation may be in this way
1. Basic - 35 % (Max)
2. COnveyance - 800 (Max)
3. DA - can e fixed or variable ( if fixed you can fix the remaining amount) (this carry PF deductin and employer contribution)
4. SPecial allowance remaining part (this does not include for PF contribution)
5. HRA can be 50 % to 100 % of Basic or actual House rent paid
ESI to be deducted as per the act (pl refer or get it from the ESI Office when you register your organisation) if the employee gets salary < 15000/- month
PF contribution - 12 % from Basic + DA and Employer contribution 12 % ( of which 8.33 directly to pf and 3.67 % to Pension)
hope you understand

While making bifurcation of the salary, it should be ensured that the employees get maximum benefit as for as exemptions are allowed under the Income Tax Act. The method adopted should be in reversed order i.e. allowances exempt from I T Act should be calculated first say Medical Rs.1250/- (maximum exemption Rs.15000/- in a year); Conveyance allowance; Leave Travel Allowance; etc. subject to maximum permissible under the IT Act. After allocating these allowance the balance of salary should be divided in three parts Basic, DA and HRA. HRA can be calculated as around 50% or 40% of the basic (depending upon the location i.e. Metro/Other places). DA can be fixed as a variable. It should also be ensured that the Basic salary should be the maximum component of salary as PF is deducted and contributed by the company on Basic salary.
TR Chhabria

Thanks Friends for guiding me and helping me :)
But wanted to confirm is it necessary to deduct PF and ESI...because since its a private organization, one of the known said that if we keep everyone on contract then we need not have to deduct PF and ESI(bcz employer generally think that its a wastage of time and money)...but as far as I know PF and ESI are essential components and is right of employee...
Please guide me on this again...
Thanks in anticipation !!!

Dear Charu,

The salary bifercation can be

1. Basic - 50 to 60% (Gross)

2. HRA - 50 % of Basic or Variable

2. Conveyance - 10 % of Basic (Max)

3. DA - can e fixed or variable but it is advisable to have this factor because..While doing Minimum Wages updatation time to time as per the Govt.Notification , Wages should Basic + DA and for calculating Bonus, PF etc. If the Basic is kept high this will have more financial effect to the comany because for calculating Gratuity& Leave Encashment only Basic Salary is considered.

4. Special allowance is a variable part, can be used to fill the gap.

For PF. You need to apply for a Company PF Account in the priscribed format.

The Calculations are as below:-

PF is applicable for all employees whose, Basic+DA together is Rs.6500 or below.

Employee Contribution & Employer Contribution is 12% of Basic+ DA

of which 8.33 directly to pf and 3.67 % to Pension

ESI to be deducted as per the act (pl refer or get it from the ESI Office when you register your organisation) if the employee gets salary < 15000/- month.

Here Salary means Gross Salary including all componets of take home.

Here Employer Contribution is 4.75% of Salary.

Employee Contribution is 1.75% of Salary.

Leave Encashment, if have this system is Basic/30*No.of Days Encashable( After Comletion of One Year, or when a person is leaving the Organisation without avaling his due Earned Leaves.

As per Delhi Shop and Estabilshment Act,1954 All Organisation should give 15 days Earned Leave for 12 months continous employment.

and 12 days Sick leave or Casual leave in a year.

I hope you got your answer.



Manager HR


Dear CHaru
even if they are direct employee or contact
PF adn ESI is a must component as for as factory, Establishment and minimum wages acts
even you employ them through contract, the contract labor act 2008 is applicable for your organisation were you ahve to give form 1 for no of employee in your organisation in direct core process and Form V for support activities ( Facility management services)
there is no such wastage or time, if you r willing to run an organisation with employees it is mandatory and applicable to any industry

There is no hard and fast rule that the salary must have such and such components and in such and such proportions. It is you (the management) to decide.
But, while designing salary structure, you need to take the Income Tax liability into account. for example, if you say that you are going to pay conveyance of Rs.1500/- p.m., you can do so, but as per IT Act, more than Rs.800/- p.m., it is added in the taxable amount. So also, the medical benefit extended beyond Rs.15,000 p.a. is taxable under I.T. Act.
Similarly, there are various other components too. It is better, you sit with your taxation manager / Accounts Manager to design the structure instead of going by some vague figures and proportions.
You said there are 17 employees currently; I do not think it will take more than 3-4 days for you to design such a structure, so that you can replicate it as and when people join you in future.

Dear Charu ,

The Salary can be bifurgated as under :

Basic : 35 - 40 % of the Gross.
HRA : 40 % of basic at Non Metro and 50 % of Basic at Metro cities.
Conveyance : 800 per month for normal candidate & 1600 per month for Handicapped candidate are exempted from I tax Rules.

The rest of the salary can be put under Variable Pay.

Further there are few Responsibilities of the Employer , to deduct the EPF and ESI of the Employees .

The Ceiling Limit of ESI is Rs 15000/- (Basic +DA+HRA+Conveyance ) . Above 15000 /- it is not compulsory to deduct the ESI.

The share of Employee is 1.75 % of (basic+DA+HRA+Conveyance) and 4.75 % is the Contribution by the Employer. It must be noted that to register an Employee on His / Her 1st day is Compulsory as per ESI Rules and act , Whether he/She is on Pay Roll , Daily wages , under Contract or even Working under Sub Contractor. The ESI code will be used of the Employer or Company.

Further the Ceiling Limit of EPF is 6500/- as per EPF Regulations . If the Employee is on Payroll for the first time and receives Basic + Da more then 6500 , he is exempted from the deduction of EPF , if he is willingful so.

But if any Employee who was already assigned a EPF number and was receiving below 6500/ per month and now joins a different Employer at a salary more than 6500/- per month , he will not be exempted from such rules.

The share of EPF deduction from Employees salary is 12 % of basic + DA
EPS Contribution 8.33 % by Employer will be max of 541 or whichever is less.
EPF Contribution will be = 12% Share of Employee-EPS by Employer

Further EDLI and Administration charges of 1.61 % have to be beared by the Employer . So a total of 12+12+1.61=25.61 % have to be deposited for every member . For easy understanding there is an eample as under :

Basic+Da 6000 6500 7500 10000
Employees 12% 720 780 900 1200
EPS 8.33% 500 541 541 541
EPF 3.67 % 220 239 359 659
Admin+EDLI 1.61% 97 105 121 161

TOTAL 1537 1665 1921 2561

All the Pay heads can easily be configured on Tally ERP latest Version Series A , Release 3.0 .

The Incometax can also be computed with the help of Tally Payroll Manager .

If any more details pls fell free to Contact

Kailash Dadhich
GM Accounts
Auto Centre

Dear Mr.Kailash,
Can you guide me for calculating Bonus. My Accounts head says Salary means (for calculating Bonus ) Basic+ DA, But the Bonus Act says diffrently...and I understand it as Gross Salary ( Basic+DA+HRA+Conveyance) which is right as per your openion?
Manager HR

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