Navigating Compensation and Benefits in India: Can You Simplify Contracts and Payroll?

Hello to all,

I have a few technical questions regarding compensation and benefits in India:

- In the contracts, do you need to detail the CTC, i.e., basic salary, HRA, medical reimbursement... or can you just put one line of payment for everything?
- From a payroll perspective, I guess you then need to detail in order to pay the PF, gratuity, and so on?
- For the allowance part, what about if you just want to give a lump sum payment with no detailed breakdown of allowances and of course no opportunity to tax optimize for the employees; is this legal?

Thank you in advance to anyone who might have the answers to these questions.

Jean

Jean,

It is possible to structure the pay the way you like. Please remember that the statutory deductions and employer contributions like PF, Gratuity depend on the basic salary. The higher the basic, the higher these "retiral" benefits.

The benefit of splitting the salary into various components is to give the employee tax benefits, for example, House Rent Allowance, Medical Reimbursement, and Transportation (up to Rs. 800 only though).

Hello Rsankara,

Thank you very much for your quick response. That was very helpful to clarify this "technical" aspect! I will manage to reach my objective of reducing administrative work for our Engineering centre in Bangalore. :D

Thanks again.

Best regards,
Jean

Hi Jean,

Are you talking about compensation and benefits for Indian employees or for expatriates? Are the appointments contractual or permanent? How many employees/expatriates are involved? Your compensation and benefits packages can only then be structured. Being too hasty is going to lead to a lot of difficulties.

If you wish, contact me at jeroochandiok@gmail.com, and I will be able to advise you in more detail.

Jeroo

Hi Jean,

Welcome to Citehr :)

"Hello to all,

I have a few technical questions regarding compensation and benefits in India:

- In the contracts, do you need to detail the CTC, i.e., basic salary, HRA, medical reimbursement... or can you just put one line of payment for everything?

Yes, it is advisable to give the detailed breakdown detailing the monthly and annual payouts. It is pertinent to avoid confusing issues and leave the door open for future negotiations.

- From a payroll perspective, I guess you then need to detail in order to pay the PF, gratuity and so on?

Yes, Gratuity shouldn't be a part of the payroll - as it is statutorily payable to the employee if he/she completes 5 years of continuous service with the company.

- For the allowance part, what about if you just want to give a lump sum payment with no detailed breakdown of allowances and of course no opportunity to tax optimize for the employees; is this legal?

Jean, since we are not sure about the nature and type of allowances you have in mind - therefore, it is advisable to give the breakup for two reasons:

Some of the allowances have Income Tax implications like LTA, and other allowances are exempted from IT - Medical allowance/reimbursement is exempted from Tax up to Rs 15,000 p.a., Conveyance allowance up to Rs 800 per month, Child education allowance up to Rs 100 per month per child up to two children, etc.

If you are providing other allowances like Professional Development allowance, Clothing allowance, etc., these would have Fringe Benefit Tax implications that are payable by the company.

As Jeero rightly mentioned - "Being too hasty is going to lead to a lot of difficulties."

Hope this has answered some of your concerns.

Have a great day.

Regards,

Rajat Joshi

Hi,

I have a wee bit different questions but related to compensations and benefits. What is the number of days considered for the calculation of salary - 26/30 or 31? Can the basic change monthly? What are fringe and infringe benefits, and which of these is taxable? I have to appear in an interview.

Regards

Split the CTC into Base Pay & Choice Pay. Leave the Choice pay component fixing to the employees so that they can structure it to their advantage of tax saving.