Understanding Basic Salary Percentage in Gross Pay and Calculating Attrition Rates: Need Your Insights

Hi all,

Can anyone tell me what would be the percentage of basic in the gross salary (if there is no DA present)? Moreover, I've been trying out a formula to calculate the attrition rate. Please help.

Regards,
Aparna

Dear Aprans,

Basic pay is approximately 43% of gross pay, although there is no fixed rule governing this percentage.

Cheers!
Monika

Dear Aparna,

If you calculate retention in your organization, you can straightaway subtract it from 100 to get the attrition rate.

Hi Aparna,

Let me share how we calculate attrition here: the number of employees leaving in the month divided by the total number of employees on board that month *100.

Hope that helps you in some way.

Cheers,
Pooja

Hi Aparna,

There is no fixed percentage, though most companies keep it between 35-40%.

You also need to keep in mind that other calculations (PF contribution, leave encashment, payment of gratuity, etc.) are all calculated from the basic salary, so if it is too high, the outflow for the company will increase.

Regards, Atul

Dear Aparna,

There is no percentile relation as such between gross salary and basic salary. Rather, the other components of salary have a percentage relation with basic salary.

The formula for the Attrition rate is:
(Number of employees on the muster roll who left in a particular period / Number of employees on the muster roll in that period) * 100

Hope the answer satiates your quench.

Ekta

Hi Atul,

I have joined an organization 3 months back and am the only HR person here. All the activities related to salary, etc., are taken care of by the Accounts department. I am basically making formats for Travel, Leave, etc., and implementing them, as well as taking care of Administration. However, I want to have some knowledge of how the salary structure is made and what the breakdowns are.

I would be grateful if you could also guide me on what else I can do in my company, as my boss wants me to implement a few new things.

Hope you'll guide me in this area.

Thanks and regards,
Garima

Hi Aparna,

There is no fixed percentage to base upon gross. But, you need to consider the following factors to establish that you have settled on the right percentage:

1. Your basic wages (in the absence of DA) should be more than the minimum wages payable to the employee as per the Minimum Wages Act. (This is laid out by the respective state government and is industry-specific).

2. Whatever allowances that you give other than the basic should serve a purpose (e.g., HRA for house rent allowance, conveyance for commuting, medical for health, etc.).

3. Please remember that you cannot have an exorbitant amount as "special allowance" because you will be questioned by the Provident Fund Commissioner that you are trying to evade PF contributions.

If you adhere to the above norms, your basic salary should be somewhere in the range of 40% of gross, which can be managed.

Note that no one will question you if 100% of gross is basic, but if it is less than 35%, you will definitely be questioned by labor boards.

Hope this is sufficient.

Thanks,

Hema

Dear All,

Upon reviewing all the views expressed, it is recommended that the basic salary should be below 50%, with the majority recommending below 40%.

There is a logic behind the government paying House Rent Allowance (HRA) at 30% of the basic salary to government employees. According to income tax laws, HRA is exempt from tax up to 50% of the basic salary or the rent paid, whichever is less.

If we decide on a basic salary of 40% of the gross salary, the HRA will be a maximum of 50% of the basic salary, which is 20% of the gross salary. The remaining 40% will be allocated to conveyance and other heads.

POINT ONE

If my understanding is correct, I would like to know under which head the remaining 40% will be categorized (whether new heads will be created on the salary sheet or if it will be paid as perks). Please provide detailed information.

POINT TWO

In the case of workmen engaged on minimum wages, the government divides it into basic and Dearness Allowance (DA). However, as per the Minimum Wages Act, it includes House Rent Allowance.

For example, if the basic is 1000 and DA is 800, making the total minimum wages 1800, can it be structured as (basic+DA) = 1355 and HRA = 445 (30% of the basic salary as paid by the government in metro cities)? The PF department accepts this structure, as per PF law, the contribution will be based on the basic salary rather than the minimum wages.

On the other hand, all other benefits are also calculated based on the basic salary, leading to employees receiving lesser amounts for gratuity, leave encashment, retrenchment, etc. (There is even uncertainty regarding whether leave encashment should be based on the gross salary or the basic salary).

Regards,

Dabas

Hi Aparna,

Am sure this discussion board has clarified your doubt on % of Base salary to Gross salary.Should you have any doubts..pls revert..

Hi Garima,

Suggest that you ask the Accounts department to share the data on salary structure of employees as it should be the domain of HR as the process owner of Salary data.

Regarding salary breaks & structure ..just refer the discussions under CTC..you would get loads of info..

Sure we would help you out..what exactly new things you have in mind?..

Hi Hrmj

I don't retention is calculated just like attrition rate..rather it is the reverse of attrition rate..( for instance if Attrition rate is say 10% ..then retention rate is 90%..frankly this metric is not relevant ..)

Hi Dabas,

40% heads would go into the following –

Conveyance

LTA

Medical reimbursement

Meal Vouchers

Special allowance

CEA

Yes, PF would be payable on Basic if the gross exceeds min wages..as per the state acts..gratuity & leave encashment would be on basic & DA..

Cheers,

Rajat

Hi,

Most of the company divides the gross salary as follows:
- Basic: 45%
- DA: 20%
- HRA: 20%
- CCA: 15%

If anything else, feel free to ask me.

Cheers,
Sangita

Hi Aparna,

Generally, any company will calculate the Gross Salary in the following manner:

Basic: 60% of Gross
H.R.A.: 40% of Gross

Apart from the above, you can specify your company allowances like Education, Medical, Special Allowance, Conveyance Allowance, etc. This is the easiest way for you to implement. For any clarification, email me.

Regards,
Y. Venumadhava Reddy

Basic pay accounting for 1/3 of the total annual cash (excluding bonus/variable pay) is ideal. This helps to actually balance the salary vis-a-vis the annual total cash and retirals.

Further to the point on basic pay, I would like to emphasize that deciding how the basic salary will be increased upon ensuing increments is equally important when you are following the cost to company (CTC) methodology. It is clear that while you have established what percentage of the CTC will be basic pay, it becomes equally important to have an element of control over its growth with subsequent increases in CTC. One model that can be suggested is that the increase in basic pay should not be more than 50% of the total increment - subject to the overall % ceiling of the ratio. In case, because of historical reasons, if any employee's basic is out of tune with the generally decided ratio norm, a maximum of 5% to 10% of the increment amount should go into the basic salary. Combinations using this method can be used according to the company's pay philosophy/policy.

Regards,

mxsingh

Aparna,

Basic is usually 40 percent of gross salary.

Attrition = Total number of resignations in a month * 100 / (total number of employees at the beginning of the month + total number of new joinees - total number of resignations).

Regards.

Hi Aparna,

Generally, organizations keep this component in the range of 30% to 40% of the total emoluments depending on the company policies. In any case, this 30% to 40% of the gross should not be less than the minimum wage rates. It should not exceed or go towards the higher end because Provident Fund (P.F.), Gratuity, Leave encashment, Notice pay deduction, etc., are calculated by keeping the "Basic Salary" as a base.

Thanks,
Manju.

Rajat/Sangitha/ Suresh,
In our organisation we have designed the salary structure as given below.
Please suggest if this is not up to the mark as you are promoting 40% and above.
Because as far as we know, we are not sidelining any legal requirement. Please Correct me if I am wrong.
ONE of the reasons to have low Basic pay is to give maximum benefits to employees in hand as they are not very much willing to go for such contributions.
This does not mean we wont correct ourselves if we are wrong and hence I am seeking your help for the same.
Yearly & Monthly Break Up of Gross Salary

            Basic                            30%
            HRA                             20%
            City Compensatory All.   30%
            Conveyance                   Rs.800 per month
            Special Allowance          Balance
Awaiting reply from everybody.
Regards,
Shreepad

Hi Aparna,

Basic salary is typically 60% of the gross salary. However, it purely depends on the percentage that the management decides. Some companies follow a policy of setting basic salary at 40% of the gross salary. It is important to note that the basic salary should not be less than Rs. 2700/-

Regards,
Joylyn

Hi Pooja,

That is the formula for employee retention. The calculation of gratuity is:

Gratuity = (Monthly Salary x 15 days) / 26 x No. of yrs. of service

Regards,
Subha

Attrition

If at the start of the month, you had x employees, and at the end of the month, y employees, and within the month z left the company, then the attrition rate for that month is:

{(z) divided by (y)} multiplied by 100.

Similarly, you can find the yearly attrition.

Attrition is always negative; turnover can be positive and negative.

Basic Salary

Basic salary is approximately 35-40% of CTC. The ratio is lower as the CTC increases because companies aim to reduce PF contribution.

The basic should not be less than as prescribed under the Minimum Wages Act. Basic percentages vary from organization to organization, as it depends on the number of components in the salary.

Neeraj

I want to know whether any act states about this percentage of 35 to 40% or any judgment provided for the minimum basic in cases when the gross salary of an employee is very high as compared to the minimum wages, but the basic is low as provided in the minimum wages. For example:
Employee 1: Basic Rs. 2425 + D.A. 304 Total 2729
Employee 2: Basic 1800 + Other Allowance 70% i.e. 1260 Total 3260
Employee 3: Basic 2200 + HRA 60% + Conveyance 40% + other Reimbursement

My question is that in both cases of employees 2 and 3, the gross salary is more than the minimum wages, but the basic is not as per the minimum wages. In the cases of employees 2 and 3, D.A. is not mentioned separately. Please let me know what litigation we have in the cases of employees 2 and 3 as per different labor laws.

Rakesh Dubey
Email: dubeyhr27@rediffmail.com

Hi,

Based on the company strategies, the percentage of Basic pay in the gross differs. According to the standards, basic pay will be 60% of the gross, whereas all other components will depend on the Basic pay.

Regards,
Kiran

Dear All,

I am working with a Japanese MNC, and I am the only HR person here. Although I am aware of the standard components of salary (Basic, HRA, Medi, Convy, Spl Allw in view of tax) and their percentages, my management has asked a question: why are we (in India) following only the above standard? They want some published text on it. Please help. From where can I get it, and how can I show it to them?

Thank you.

Dear Aparna,

The formula for attrition rate is mentioned below. As far as the basic is concerned, it depends on company policies. Most companies keep the basic percentage between 40 to 65%.

Attrition rate: There is no standard formula to calculate the attrition rate of a company. This is due to certain factors such as:
- The employee base changes each month. If a company has 1,000 employees in April 2004 and 2,000 in March 2005, they may consider their base as 2,000 or as 1,500 (average for the year). Depending on the base taken, if the number of employees who left is 300, the attrition figure could be 15 percent or 20 percent.
- Many firms may not include the attrition of freshers who leave due to higher studies or within three months of joining.
- In some cases, attrition of poor performers may also not be treated as attrition.

Calculating the attrition rate:
Attrition rates can be calculated using a simple formula:

Attrition = (No. of employees who left in the year / average employees in the year) x 100

If the company had 1,000 employees in April 2004, 2,000 in March 2005, and 300 quit in the year, then the average employee strength is 1,500 and the attrition is 20 percent. Besides this, various other types of attrition should be taken into account.

Thank you,
Pranav Patel

Can anybody help me? I wish to know what should be the percentage of DA compared to basic salary. For example, if I have put the total basic + DA = 40% of gross, I wish to include DA as well. What should be the DA % compared to basic?

Regards,
Deepak Uniyal

Most of the companies divide the gross salary as follows:

Basic: 45%
DA: 15%
HRA: 20%
CCA: 15%
Medical: 5%

Hi Aprana,

As per the rule, basic pay + DA equals minimum wages. If you are paying more than the minimum wage, then you can include other components such as conveyance allowance, washing allowance, conveyance reimbursement, mobile reimbursement, etc.