Aa_somani
Accounts & Finance
Chauhan0605@gmail.com
Admn/statutory Compliance
Santhosh Srivatsav
Hr Personnel
+2 Others

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how to design a salary structure for a employee? what are the components to be considered will they differ from company to other?
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Dear Franidhar,
For designing a salary structure you need to first of all do a salary survey and best on the above questions that has been asked for you, you can manage your data however its not a short process and its need a long process and work.
please let me know if i can help you.
Hello Franidhar I am enclosing one format of Salary structure, and you can calculate TDS also from the format.

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File Type: xls Salary Breakup alongwith TDS working and Computation A.Y. 13-14.xls (45.0 KB, 6319 views)

Hi Franidhar,

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 and protect the company as well as 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 15000 per year.

Travel/conveyance allowance exempt by IT is 9600 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) to salary then it should be around 20 percent of basic, then this DA is added to basic when calculating the PF contribution.

You can then add a component of one months basic as leave travel allowance. Then add about one to two months basic as Bonus. The balance of CTC can then be shown as other allowances.

I hope this helps.

Regards

Ronald
Dear Ronald,
generally basic is set 40-50% of ctc and HRA -50% for metro city and 40% other cities,
medical - 1250/p.m , PF- 25.61% (EE/ERn
share) and conveyance- 800/pm rest amount we can split in other components viz SA, LTA, Bonus.
hope it is correct.
regards,
sanjeev chauhan
sr. executive- labour compliance
Dear Sanjeev,
There is no right or wrong percentage for basic, etc. It all depends on the organisation. As I have said a lot of other benefits are derived from basic as such many companies keep this low by raining other components. Gratuity is also computed on basic as such a higher basic would mean higher gratuity payout.
I was not aware that PF contribution is as high as 25.61%, as per rules the employee and employer both will contribute 12% of basic, DA is normally paid in government or public sector companies.
Regards
Ronald
Dear Ronald,
In the above 25.61% PF contribution is including both employee(12%) and employer(13.61) as mentioned clearly.
Coming to basic salary, that can be defined as per your calcluation but HRA again is 50% for metro cities and 40% for non-metros.
Regards
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 = 800PM
E: Medical = 1250PM
F: Others = A-B-C-D-E-G
G: Company Contribution PF = 12% of Basic
Bonus & Gratuity is optional to show in CTC, if included in CTC may reduced from Others component
H: Gross = B+C+D+E+F
I: Net = H-Statutory Deductions-TDS(As applicable)
You will receive many from the group. Chose the appropriate for your company to follow and consider.
All the best.
Regards,
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 then if my CTC is around 2,50,000 on an employee does it mean that 2,50,000* 25% which gives a value of 62,500 as basic?
Why medical should not be more than 15000 per year?
Can you share with me any combinations as you have mentioned?
Regards,
Pavan
please clarify my doubt on this content:
Can Conveyance be crossed Rs. 800 PM or it should be shown as 800 PM only and same with medical and leave allowance can be crossed 1250 PM or it should be shown as 1250 PM only
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