Dear,
Please note, there is no single formula to arrive at Salary Breakup and there are different formulas followed by different organizations, as per their own thinking and convenience. While deciding salary structure one has to remember following points
- Most of the statutory liabilities like PF, Gratuity, and Bonus etc. are percentages of Basic plus DA. Hence any rise in Basic or DA will increase statutory liabilities
- It is not necessary to have DA in Salary Structure. For that matter none of the items are compulsory or must.
- Income Tax treats some salary items (HRA, Conveyance) differently for the purpose of calculation of Income Tax liability. Hence organizations decide the breakup considering legal provisions to minimize tax liability.
- Some organizations keep some or all items of salary structure as percentage of Basic Pay. Whenever there is increase in Basic Pay, other items also increase automatically.
- Some organizations keep some or all items of salary structure as fixed allowances. In this case allowances remain uniform in respect of all employees. These allowances won’t change unless specific rise is given in those allowances.
- Some organizations divide entire gross salary into fix percentages to arrive at breakup of salary structure. In this case only percentages are uniform but allowances of individual will be different.
One can choose any one combination or can also have mixed combination/s.
Also search for previous posts on same subject. There is lot of material already available on citehr.
Thanks & Regards