Literally, " wages " is the consideration paid to a workman for the work done by him. It can be in kind or in cash or in both. But, the increasing replacement of barter system of transaction by the monetary system led to the predominant practice of payment of wages by cash. However, still the value of certain amenities provided by the employer on account of the nature of work like the value of free food is statutorily considered as wages. At the same time, certain payments under the head of "allowances" like travelling allowance, night shift allowance etc., are not statutorily considered as wages while certain others like dearness allowance, house rent allowance etc., form part of the wages. It depends upon the primary purpose to be achieved by any labor legislation applicable to the industry. Therefore, in all fairness, the employer is expected to structuralise the total wages payable to the employees into components in such a manner that it does not ends in deprivation of certain employment benefits both current and future for employment is different from engagement.
Your current structure takes out 50% of the earnings/salary/wages/ remuneration by the undefined nomenclature of "other allowances" while keeping just 30% as basic with no provision for adjustment against ever escalating cost of living that is called as dearness allowance. It will adversely affect the future benefits like gratuity, PF etc. Better, think over progressively and devise a wage structure in a reasonable manner that ensures long term employment benefits, reduction in your indirect commitments, contentment of employees as well as avoidance of unnecessary objections of statutory authorities like EPFO.
20th April 2018 From India, Salem
While Mr.Umakanthan has given a very nice explanation to your query, firstly the component of basic to be reviewed as suggested,inclusion of DA and also you being in Bengaluru need to consider the HRA component, as most companies follow differently for Metro cities in the same.
20th April 2018 From India, Hyderabad
The compensation structure should be designed in a manner which is able to attract and retain competent manpower required for the type of business.
While that is primary purpose, it should also take into account applicable wage laws such as minimum wages, payment of wages, Bonus Act, Gratuity act , what competitor is paying for similar skills and above all tax effective wage components and benefits.
While % distribution amongst various wage components vary from the organisation to organisation , it is difficult to suggest any straight-jacketed formula which will be one -fit- all .
In your structure , 30% of basic appears to on lower side which can be taken to 40% to match industry practice.
In other allowances, if you have built in LTA, education allowance , medical reimbursement and such other tax effective components, it would be great motivator.
Vinayak Nagar kar
23rd April 2018 From India, Mumbai
I would suggest a practical approach which is followed by many organizations.
i) For employees at at lower end of the spectrum (Wage below 30,000), I would suggest to keep the Basic pay @50% of Gross emoluments.
ii) For employees in higher pay brackets, the Basic can be configured at a lower rate such that the basic shall not fall below 15000. Balance of wages can be configured as per your local needs and employee tax planning requirement suiting per best of industry practices.
24th April 2018