Curious About Payroll and Salary Breakup: Can You Share Your Insights?

Dear All,

I work for a small IT Company. Though I have a general idea about the payroll process, I would like to learn in-depth about it. I believe that receiving information from experienced individuals like yourselves would be more beneficial than just reading a book. Therefore, I kindly ask for your help in providing important information about the payroll process.

Additionally, I am interested in understanding the salary breakup. When calculating the Annual CTC, how should the allocation be for Basic, HRA, Medical, Travel, LTA, etc., taking into consideration the limits of tax exemption? I am also curious about Food Allowance.

I hope to hear from you all soon.

Regards,
Sundu

Hi Sundu,

You can go into the archives of Cite HR for a reply; there have been many discussions on this topic here. Generally, it goes like this:
CTC comprises of all these components:
- Basic - 30% or 40%
- HRA - 50% of Basic
- Medical - 1250 per month / 15,000 per annum
- Transport Allowance - 9600 per annum
- PF contribution by the employer - 12% of the basic
- Special allowance - the balancing figure

Best Regards,
Anu

Hi Anu,

I want to ask the same thing Sundu asked. Please let me know how to get it.

Regards,
Sujata

Dear Sandu,

Anu is very right about the bifurcation. However, I would like to say that there are no hard and fast rules for breakups. The only essential thing is to follow the minimum wages act. Regarding the bifurcation of CTC, it depends on the amount your company offers. If it's more than 35k/month for anyone, I suggest including reimbursements as a part of the salary to provide IT benefits to employees. For example, telephone reimbursement, petrol reimbursement, driver reimbursement, car reimbursement, etc.

Regarding employers' contributions, it will be 12% of the basic as PF and 15 days of basic salary per year as Gratuity.

Regards,
Pashupati Singh

Hi, Pashupati,

Could you please let me know what the difference is between an allowance and reimbursement, and what the limit is for each?

Regards,
Sujata

Hi,

I would like to know how to deduct tax on salary. I would also like to know how to calculate net salary after PF and tax. If somebody can help me out.

Regards,
Sujata

Sujata,

Just take care that in case of reimbursement, you need to inform the employees that for taking tax exemptions, they need to submit the original vouchers for the same.

For example, for Medical reimbursement, if you have set a limit of Rs. 15,000 per annum (as per tax law, up to Rs. 15,000 is exempt from tax), an employee needs to submit original supporting documents like medical bills and doctor fee receipts to claim exemption; otherwise, it will be treated as taxable.

Best Regards,
Anu

Hi,

I am not sure, but I think an allowance is a fixed amount that will be given with the salary, and the reimbursement will be given upon the production of bills for the usage of facilities up to a limit.

Regards,
Sameer

Hi Anu,

Thank you for the update. Is Sameer correct regarding reimbursement and allowance? Additionally, I would also like to know how to calculate net salary after PF and tax. Could you please assist me with this?

Regards,
Sujata

Dear All,

Anu is very clear about this. However, just to make this simpler, "Allowance" and "reimbursement" don't have much difference as far as the salary bifurcation is concerned. Yes, the difference comes into picture while calculating the IT. If someone has received any reimbursement as part of the salary, he/she can claim it as non-taxable income by producing the bills. However, the employer should provide this facility to the employees because if the employer provides this reimbursement facility to the employees, the employer needs to pay FBT to the government in lieu of that.

Many employers still provide this facility as the FBT is far lower than the IT rates. If anyone requires any further clarification, kindly feel free to give me a call on 09810975857.

Regards,

Pashupati Singh

Hi Sundu,

The break-up for annual CTC is as follows:

Monthly Component
- Basic
- HRA (50% of basic in Delhi, Mumbai, Chennai, and Kolkata and 40% in other cities)
- City Compensatory allowance (30% of basic or any amount as desired)
- Lunch Allowance: up to Rs 1500 is tax-exempt
- Conveyance: up to Rs 800 is tax-exempt
- Special Allowance: the rest of the amount
- PF Contribution

Annual Component
- Medical Reimbursement (up to Rs 15000 is tax-exempt)
- Bonus (as declared)
- Mediclaim/Personal accident policy premium
- LTA (once in a block of two years)
- Any other allowance

You can refer to the taxation part on this link: http://www.incometaxindia.gov.in/pub...rom_salary.asp

Hi all,

The main thing to keep in mind is that tax will be calculated on Basic, HRA, and Other Allowances, while the other components like Medicals, Conveyances, Lunch Allowances (Sodexhos), etc., would be non-taxable components. Otherwise, what Anu has given at the start is a very basic structure that is normally practiced. Normally, there are quite a few slabs of salary structures according to levels, grades, etc.

Hope this helps,
Junaid

Hi Sujatha,

Reimbursement is the one that will be paid against a 'Payment Voucher' upon the production of bills like telephone bills, fuel bills, etc. Whereas, an Allowance is the one that will be paid at a fixed lump sum every month, which forms part of a certain compensation or benefit package.

Regards, Suresh

Hi all,

I read all the replies but was surprised to see that nobody talked about the "performance-linked pay." This component of salary has become very useful in organizations as it emphasizes performance.

Thank you,
Ashwini Kumar

Hello Anu,

You have helped a lot, but please tell me on what basis the company fixes its percentage of basic salary. Is it going to be 40% or 50%?

Waiting for your reply.

Neha

Here is a simple guideline.

Headhunting Process

Headhunting is all about being proactive and reaching out to the best talent in the market. By engaging with target individuals, you are able to generate interest in an opportunity, gauge a person's motivation and aspirations, and assess their suitability. Typically, you target 50-100 people from your research. You use telephone screening, bespoke questionnaires, and face-to-face interviewing to decide who should be presented on the shortlist. On average, you will deliver five qualified candidates per assignment.

Candidates are presented at the shortlist with resumes/CVs and a Candidate Profile that provides further detail about their motivation, career path, personal circumstances, and information against the key selection criteria for the position.

Steps Are

Briefing

Confidential discussions are held with key client contacts to obtain a clear understanding of the company, its objectives, the position, and the characteristics of the person sought.

Researching

Potential candidates are identified by utilizing in-house research, database information, and networking with informed individuals who can provide valuable, objective insights on people and relevant issues.

Interviewing

Qualified candidates identified during the course of the search are interviewed and evaluated against the agreed profiles (includes psychometric tests/aptitude tests/reference checks, etc.).

Facilitating and Counseling

Clients and candidates are counseled throughout the interview process; close liaison with the preferred candidate to identify, articulate, and effect a successful resolution of any issues arising during the offer process.

Ensuring Integration

Contact is maintained with both the client and candidate once the candidate has joined a client organization to help ensure the candidate's successful integration into the new company.

Regards,

Leo Lingham

Hi Sundu,

In simple terms, headhunting is a process wherein you target some competitors of your company in the market and try to recruit people from those organizations to work in your present company. The actual term for headhunting is poaching, but generally, it is not advisable to use this word. Hence, the term headhunting is commonly used. For example, in my previous company, I had a requirement for sales professionals with extensive experience in UPS sales. I obtained the list of our competitors in the market, collected their telephone numbers, and called them, stating that I needed to speak to a marketing executive to place an order for UPS for our business needs. This approach enabled me to engage with some marketing professionals and successfully place two candidates in our organization. It is not guaranteed that every headhunt will yield candidates, but it is a recruitment technique often utilized.

Additionally, when contacting a company, it is important not to converse with the intended person using the company's phone number. Instead, acquire the individual's mobile number and proceed with discussions regarding the job opening.

If you require further clarification, please do not hesitate to reach out.

Regards,

Sudha

Dear Leo and Sudha,

Thank you for the response. It's indeed informative. I work in an IT company and handle a lot of requests as well. Other than sourcing profiles from job portals, I need some innovative methods to collect quality resumes. That's why I was inquiring about headhunting and other methods. Could you please help with that?

Thank you in advance.

Regards,
Sundu

Hi,

I will give you some methods which I used to follow for the recruitment process in my previous organizations. They are job postings, headhunting, internal referral schemes, and trying to find websites from Yahoo groups or other platforms where you can post your requirements free of cost. I used to do these things in my previous organizations, and they were quite helpful. Try to build your own personal network in the city where you work, which would be very beneficial.

If you need any more help, please feel free to reach out to me.

Regards,
Sudha

Hi,

Thank you for the information. I am currently working with an IT company. Could you please provide details about the headhunting process for recruiting high-quality senior individuals for my company? Specifically, I am interested in understanding the process for hiring Software Developers and Programmers skilled in various technologies.

Vrushali
vrush20121@gmail.com

Hi,

Headhunting - If it were sports - it would be like getting Zidane to play for Mohun Bagan or Mohammedan Sporting, or any other club, where you are the manager. (Zidane has announced his retirement - that is different). Similarly, transforming an exceptional executive (read - employee) from one company to another is headhunting. I once read an interview with Mr. Pandiyarajan, CEO of MA-FOI CONSULTANTS, in which he narrated about the best headhunter of his organization. (Incidentally, it is a lady working for the company in London, if my memory serves me right). Probably, you will gain more insights if you could get in touch with Ma-foi. (By the way, I am in no way connected to Ma-foi - I am simply passing a reference to you).

Regards, RAJA CSN, ERODE.