Salary Breakdown Confusion: Can You Help Me Understand ESI, PF, and Other Components?

Dear All,

I need your help in calculating the salary of an individual, i.e., ESI, PF, and all. What all components are included in salary? What is the difference between the two?

Looking forward to hearing from you.

Thanks,
Supriya

Dear Supriya,

Salary consists of two parts: 1) Payments and 2) Deductions.

Payment refers to the part for which the Company pays cash as per the commitment, commonly known as Gross Pay. It may be consolidated or divided into components under which a Company makes payment. In the latter case, Basic is usually the compulsory component while the rest depends on the Company. HRA is another common component.

For example, some companies may provide DA, while others may not.

In addition to the above, Loans and Advances, Awards, Settlements, and Compensations are also present if applicable.

The next section is Deductions:

Under this category, all statutory deductions, Recovery of Loans and Advances, Taxes, Awards, and Settlements are present if applicable.

The statutory deductions include Provident Fund (PF) and the Employee State Insurance Act; Taxes usually include Income Tax and Professional Taxes.

Net Pay = Gross Pay - Total Deductions

For details on PF and ESI, please refer to the relevant acts or search this site for further information.

Regards,

SC

Dear SC,

Thanks for your help, but there is a specific procedure that is followed for calculating ESI and PF. What is the basic difference between them and how do we calculate them?

Regards,
Supriya

PF & ESI - both are statutory deductions.

PF: To be deducted from all - 12% of Basic salary + DA (if being paid) and VDA (if being paid). The employer too needs to contribute an equivalent amount.

ESI: To be deducted at the rate of 1.75% from employees drawing a salary up to Rs. 7500/- gross per month, all allowances computed together. You need to ensure whether your organization's location is exempted from ESI Deduction.

Regards, Venkat

Dear Supriya,

Please send me the salary structure of your company as an attachment. I will make the necessary changes and revert back.

Regards,
SC

Dear Supriya,

We don't have any specific salary structure, no breakdown is available. I just wanted to gain insight into the payroll for my knowledge. That's the thing.

Thanks,
Supriya

Dear Supriya,

Are you paid a consolidated salary?

For Consolidated Salary:
If your company is registered under ESI and PF, the deductions will be as follows:
- If the salary is Rs. 7500 or less: 1.75% of the salary for ESI.
- If the salary is more than Rs. 7500, there will be no deduction under ESI.
- 12% of the salary (since there is no separate Basic).
- Professional tax and Income Tax if applicable.

Regards,
SC

Actually, a good post for discussion.

General salary components include:

1) BASIC

2) HRA (House Rent Allowance)

3) HMA (Home Maintenance Allowance)

4) CCA (if the job is in the city) (City Compensatory Allowance)

5) Medical (This component is an allowance for lower scales and reimbursement for higher scales)

6) LTA (This component is an allowance for lower scales and reimbursement for higher scales)

7) Professional Development Allowance (Only to be paid for higher scales)

8) ENT (only to be paid for higher scales)

These are the general components of GROSS SALARY.

Now, the other components of CTC:

9) PF (Employer's contribution, 12% of BASIC)

10) BONUS (if any)

11) ESI (If Applicable)

12) Conveyance (Depends on company policy)

13) Meal (Again depends on company policy)

Now, 1-8 (GROSS SALARY) + 9-13 (Benefits) = Cost To Company (CTC).

From the gross salary, your contribution PF and your contribution ESI are deducted, and LTA, Medical are deducted depending on your company policy or paid as an allowance.

ESI deductions are:

4.75% of Gross Salary = Employer contribution

1.75% of Gross Salary = Employee Contribution

This amount should be deposited to ESIC twice in a year.

- OCT - MAR contributions by the end of May 15

- APR - SEP contributions by the end of Nov 15.

I hope this clarifies the confusion about salary and stuff.

The point to be noted is... the above description is just the basics of salary, and there is a lot more to it.

For any queries, feel free to ask, I will try my best to answer the queries.

Regards,

Kiran.

Well, sir, the information you gave provides a bird's eye view of the act and its rates. It would be better if anybody could provide some more useful information, such as:

1. The exempted allowances (if any).
2. Some special allowances exempt from ESI purview for a special kind of business. For example, uniform allowance, uniform washing allowance, and hair-cutting allowance are certain kinds of allowances exempt from ESI purview for a business dealing in security services.

I would like to learn more about the above. Thank you.

Dear Kiran,

The information you provided on all the components in the salary was a very good explanation. I have one query that is haunting me... I want to know, out of the CTC, how much percentage of the whole amount comes in hand. I know it varies for different companies, but approximately, I want to know what percentage comes in hand.

Thank you,
Vikram

Hi Vikram,

Simply speaking, the deductions depend purely on your CTC. Your in-hand amount would be 80-85% of your CTC.

Hope this will answer your query.

Regards,
Kiran.

Hi Venkat,

After October 1, 2006, a Government notification has been issued stating that the ESI coverage has been increased to Rs. 10,000/- from Rs. 7,500/-. Therefore, employees whose gross salary is up to Rs. 10,000/- are required to pay ESIC contribution at a rate of 1.75%.

Regards,
Kaushik Mondal

To get a fair idea about the components, please visit http://incometaxindia.gov.in/general/computation.asp.

Regards,
Sathiyamoorthy Iyer

Hi,

Everything is okay, except for one point, i.e., ESIC deposit is not on a six-monthly basis but rather on a month-to-month basis. It is only the return that is done twice a year.

Thanks

Mr. Gopal and Samba are quite true.

Then, we have to consider one change in ESIC laws: when calculating 1.75% and 4.75%, the round off will be to the next rupee.

Regards, Prashant Patil