Madhu.T.K
Industrial Relations And Labour Laws
Korgaonkar K A
Ba,llb,mpm,dir&pm,dll&lw,d.cyber
Abdul Quadir Awate
Hr & Admin Head
+6 Others

Thread Started by #vikashr82

If a person is offered CTC-350000/p.a,i.e. 29167/month.How to Know Gross salary then as Gross will always be less than CTC. Gross components-HRA,Conveyance,Medical,Education,Special Allowance.But with these components what will be the maximum percentage or to say where to stop saying that this is gross amount.And is basic percentage of gross or CTC?
Kindly throw some light on it
Regards
Vikas
19th August 2015 From India, Calcutta
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.
19th August 2015 From India, Chennai
Dear Suresh Kumar ji,
Can you please suffice your statement with the help of any provision of Law? In which Law it is stated?
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19th August 2015 From India, Mumbai
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 subsidised 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 querry on how to calculate gross salary from CTC, the pay slip/ appointment letter will have the details of all cash payments. If any payments are paid through voucher (for example conveyance.) these must be added. Total these amounts to know the gross salary.

Cheers,
Ganesh
20th August 2015 From India, Bangalore
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
20th August 2015 From India, Calcutta
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
20th August 2015 From India, Kannur
Dear Madhu. T.K Sir,
Greetings........
Sir i have a question regarding pension calculation. Details are mention below :-
Person Name - XYZ
D.O.B. - 03/08/1968
Date of Joining current estt(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 upto 15/11/1995 - 4 Yr 2 months 15 days
Actual service - 18 Y 01 Mon 16 days
Eligible service - 22 Y 4 Month 01 days
Total pensionable service - 18 Y 01 Mon 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 we will calculate pension for this and how much pension would be ????
Kindly guide.........
Thanks & Regards,
Ashutosh Jain
21st August 2015 From United States,
The most important two things are being ignored here are - the effect of Basic Pay and Other Acts, such as House Rent Act, which stipulates min percentile. PF and other benefits are calculated on the basis of Basic Pay. Wise HRmen wud always keep the BP to minimum. If even any increment is to be give, add that amount (or some of it to Allowances) and not to BP, so that employer's liability will also be limited to that extent. - Abdul Quadir.
21st August 2015 From India, Pune
For calculation of PF pension you may refer the threads on this by Abbas P S, ITI. There is a pension calculation excel sheet created by him. Please refer it.

Regarding the main issue under discussion, ie, basic salary, I would like to say that keeping the basic pay to the minimum would benefit the company, I agree, but HR is not an agency to let the company make profits by reducing the statutory contributions but 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 from the attitude of some employers like G4 Security who kept the basic pay to the lowest slab so as to reduce their PF contributions. Similar issue was raised in the verdict on Bonus in which the Delhi High Court had to decide that bonus should be paid on gross wages and not simply basic wages. There are other instances also wherein what amount of salary is agreed upon should be taken as statutory salary for all purposes irrespective of bifurcations which are done for the convenience of the employer.

I still say that it is the system followed by the Personnel Department which is worth and not the new HR's policy of otherwise deterring the rights of employees, even when saying the HR is something which is close to employees and which creates harmony!!

Madhu.T.K
22nd August 2015 From India, Kannur
Dear Madhuji,

I am totally aware about HR required to be employee friendly. This is OK when the Company is not financially bleeding.

When I joined my present Organization, the Company had 50% more staff, PF was paid on the "total" salary, operations were run only through Bank OD at 15% interest, were having multiple offices with multiple Departments. In such a situation, when the Company was not even aware - whether the PF is paid on gross salary or Basic, I could not be a mere spectator. It is also our first and fundamental duty to make the Company aware of the various Laws and Acts applicable. As you know, merely registering under Shops & Establishment Act attracts a number of other Acts and various documents to be maintained, which indirectly escalate the operating cost.

I had, therefore to, if the Company was to survive, come with a number of Cost Control policies, including boldly suggesting greater reduction in the home-take salaries and perks of my own MD and other Executive Directors, which they realized as inevitable and agreed to.

With the measures adopted, my Company, within one year, came out of the blue and we again, wherever possible, implemented employee friendly.

I don't think anywhere here I acted as an Agent of the Company. My suggestion in the last posting was only to make HR people aware to implement the policies commensurate with the financial strength of the Company.

Regards,
- Abdul Quadir
22nd August 2015 From India, Pune
It is not necessary that basic should be in certain percentage of gross CTC. Basic varies from city to city. As per the compliance for Mumbai, basic should be atleast Rs. 10,000. If it doesn't have Rs. 10,000/ as basic then company comes under bonus act.
22nd August 2015 From India, Mumbai
Dear Ruchi, Is there any notification regarding fixing 10000 as basic by labour department or you talking of similar industry standards???
23rd August 2015 From India, Calcutta
No, I don't think that there is any legal requirement of fixing the basic wage at Rs 10000 if the establishment is in Bombay. Certainly, if the minimum wages notification calls for a basic wage of Rs 10000, that will be maintainable.

Coming to Abdul's apprehension of role of HR in cost reduction, I would appreciate that HR has to participate in such cost reduction programs of the company. I have seem even Unions dropping their demand for wage hike or bonus when they realise that the company's financial condition is in a bad shape. But that does not mean that you can fix the wage lower than minimum wages or with a very low basic wage so that you can reduce employer's contributions towards statutory funds or bonus. If you had earlier given PF on gross wages and now want to reduce it to basic wage, you can do that, but subject to one condition that that basic wages or PF qualifying wages (Contributing wages) should not be less than Rs 15000. Section 12 of the PF Act provides that in PF qualifying wages should not be reduced so as to reduce the employer's liability. But the same will not be applicable when it is reduced from a much higher amount to the PF ceiling wages. This was decided in Maratwada Gramin Banks case wherein the Supreme Court has ruled that employer can reduce the PF wages and the PF Organisation has no right to demand contribution on an amount over Rs 6500 (at the time the ruling came, the wage ceiling was Rs 6500, but now it has become Rs 15000)

Madhu.T.K
24th August 2015 From India, Kannur
Can some one help with below:
What would be the break down of payslip for 320,000. What would be the basic pay for 320000? The attachment has the total earnings and deductions. What would be the figures for 320000?
Or can mail me to 09fenno@gmail
ASAP!!!
Thank you!
22nd October 2016 From India, Hyderabad

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