Understanding Fixed Pay vs. Variable Pay: Can You Share Simple Examples?

Understanding Fixed Pay and Variable Pay

Can somebody please explain what fixed pay and variable pay are? It would be great if examples are provided.

Regards,
Kiran

Fixed pay is the salary that you receive on a monthly basis, whereas variable pay is like incentives (fixed) that will be paid to you depending on your performance or any other criteria. These incentives are usually paid out half-yearly or yearly.

Industrial DA (which is also called variable DA) is variable in accordance with the consumer price index/inflation.

Regards,
Abbas.P.S

Fixed pays are Basic, DA, HRA, Conveyance allowance, special allowance, adhoc allowance, medical reimbursement, LTA, etc. (some of these can be annual payments also).

Variable pays are DA (if linked to CPI points), incentives, OT, shift allowances, travel allowances, etc. There is no fixed rule that a particular component is a fixed pay. Generally, Basic & DA are the fixed components, and depending on the company's policy, other components get added as fixed pays.

Trust this clarifies the matter.

Regards,
K. Ramachandra Bangalore

Hi Kiran, I am Ramesh. According to my knowledge, a Fixed Salary is set by the employer at a specific amount, such as 10,000 Rs/-. You will receive only that amount.

Regarding Variable Salary, there is no limit to your earnings, which depend solely on your performance. If you deliver better performance in your field, you will receive incentives and commissions.

Example:
Fixed Salary: 10,000
Incentives: 5,000
Commission: 1,000
Total: 16,000

Hi, with your explanation and examples, I understood what fixed pay and variable pay are all about. Thank you all for the responses.

Regards,
Kiran

Hi dear, I have one doubt. Are bonuses and yearly increments considered part of fixed pay or variable pay?

Understanding Fixed Pay and Variable Pay

Fixed pay is the salary you receive, which consists of components like basic pay, House Rent Allowance (HRA), City Compensatory Allowance (CCA), Dearness Allowance (DA), etc.

Variable pay, on the other hand, is the amount given based on your performance. Performance incentives may be based on Key Result Areas (KRA) or Key Performance Indicators (KPI) and are typically provided on a monthly or quarterly basis.

Regards

Bonus and increments are neither fixed pays nor variable pays. Bonus is statutory and is payable only if your basic salary falls within Rs. 10,000. Increments do not come under fixed or variable pay as they are not paid until they are subject to assessment. They get distributed to basic and other components after payment. The question is whether it becomes variable or fixed pay only after it is paid and not before.

Regards,
K. Ramachandra
Bangalore

Hi all, the question is: What is the fixed salary? It is the Basic Salary, which is fixed for a certain period of time, maybe for 3 years or 5 years, as per the company's status. The basic salary is increased when the increment comes, but that is also for a span of time. An increment will come once a year or two, depending on the company's pay structure. House Rent Allowance (HRA) is a part of the fixed salary.

Now, the Variable Salary is the Dearness Allowance (VDA) as per the Consumer Price Index (CPI) published by the Government authority every month. Allowances will not be considered in any part of fixed or variable pay because they will not take part in your PF/gratuity calculation.

Thank you all.

Regards,
Nabolbona

One issue - Is variable pay a component beyond the CTC or is it part of the CTC? How is it termed at the time of recruitment? If fixed pay, inclusive of Basic, DA, Tpt, HRA, etc., amounts to CTC and performance-based variable pay is over and above the aforesaid CTC, or is it included in CTC?

Industry Norms in Telecom, Auto, and Manufacturing Sectors

What are the industry norms in the Telecom, Auto, and Manufacturing sectors?

Can anybody help me with the below doubt, please:

Offer Letter and Variable Pay Discrepancy

A company has sent an offer to a person with a CTC of "INR.4X," and the annexure for salary breakup shows the same sum of "INR.4X."

Here, in the salary breakup, a part of "INR.4X" is mentioned as Variable pay (say INR.X), which will be paid once a quarter, with no clause for a performance review or assessment anywhere in the offer letter or the employment contract. After the person joins, he/she is getting an email for a quarterly assessment towards this variable pay INR.X, which is part of the CTC agreed upon by the employee and employer.

Now, my question is, when the employment contract is displaying INR.4X as the CTC of the employee, how can it be reduced or increased without proper prior communication? If it is related to incentives, I can understand that. However, in this case, the variable pay is a part of the salary, and the employment contract gives the impression that it would be paid every quarter, with no mention of any changes.

Hi,

Please tell me how to calculate variable pay in order to fix CTC.

Thanks,
Richa

Is monthly variable pay mandatory?