Managing Basic Salary Increase in CTC Structure: Impacts and Considerations

Hi,

In the organization where I am currently working, some very senior members (GM level) want to increase their basic salary. Currently, the basic salary constitutes 30% of the total compensation (CTC). They are aiming to raise the basic salary to either 40% or 50%. Could you please provide guidance on the potential implications for the company if the basic salary is increased and suggest ways to avoid any negative impact? I am finding it challenging to counter their argument as they believe that this increase will help them save on taxes. My boss relies on me to offer accurate advice on such matters. Can someone assist me with this promptly?

:-P

raga1628

Dear Raga,

Your company can increase the percentage of the basic pay, but please check with your account department as an increase in basic pay would actually impact other components such as PF and Gratuity, increasing the financial burden.

Swati

Thank you, Swati, for your response. In our organization, the salary structure is on a CTC basis, including both the PF. Thus, increasing the basic does not affect the CTC. Could there be more reasons why we should not increase the basic, and what are the other implications or problems that might arise in the future.

Raga:-P

Dear Raga,

As per the statutory requirement, the BP should be a minimum of 40% and a maximum of 60% of Gross Salary. It depends on the Company on what to opt. As you are saying, if the PF is included in the CTC, then there wouldn't be much burden to the Company other than bearing the Administrative Charges of the same. (PF Policy is flexible)

Other than PF, what are the other components included in the CTC? If ESI is included, then the Company contribution would be 3.75% on BP + DA. Also, discuss with your accounts department before forming any decision.

Vasanthi