Understanding Salary Breakdown: How Do You Calculate Basic Salary and Its Components?

Hi everyone,

I want to know how we calculate the basic salary. Is there any unique formula to calculate the basic salary and other components of salary details like HRA, PF, Bonus, Gratuity, and ESIC/Medical?

Hi,

Various organizations allocate certain percentages for calculating this. This percentage is of the total annual CTC, for example, 25% of an annual CTC of 500,000/-

Hi,

Certain companies follow specific rules. For example, if the salary is Rs. 10,000 per month, some calculate the basic as 10,000 * 60%, some as 10,000 * 40%, and some as 10,000 * 20%, depending on the company.

CTC is a broad term that includes everything an employee receives from the employer. It varies from company to company. For instance, some companies may include the mobile bill in the CTC.

So, it depends on the company's policies and practices.

Hi Shilpa,
Here is the basic formula to calculate Salary Components of CTC
Basic – 40 to 60% of the CTC
HRA – 25 to 40% of Basic
PF – 12% of Basic as per the provident fund act both employer & employee
Bonus – 8.33% of Basic – Max 20% under the payment of Bonus Act,1965
Gratuity - (Basic +D.A) * 15 days / 26 days X 6 years (90 days) - Annually
ESIC - Employers contributes 4.75% & employee - 1.75%
Medical – Rs. 1250/- Tax Exempt - Bills to be submitted
Conveyance – Rs. 800/- Tax Exempt
I hope this will solve your query.
Best Regards,
Tina

Hi Shilpa,

Salary structure also depends on the Zonal Area. For instance, under the Shop Act, there are three Zones:

Zone I
Zone II
Zone III

In Zone I, it falls under the Corporation Area. Zone II comprises the PCMC Area and the outskirts of the City area. Zone III covers the Village Area.

Each Zone consists of three classes of employees:

1. Skilled
2. Semi-Skilled
3. Unskilled

Following is the calculation of PF - ESIC -

Provident Fund Calculation = Employee with Employer Contribution:
- Employee Contribution - 12%
- Employer Contribution - 13.61%

Description of Employer Contribution:
- PF Account - 3.67%
- Pension Fund - 8.33% (previously known as Family Pension)
- Administrative Charges - 1.10%
- EDLI - 0.50%
- Administrative Charges on EDLI Calculation - 0.01%

ESIC Calculation = Employee with Employer Contribution:
- Employee Contribution - 1.75%
- Employer Contribution - 4.75%

Basic salary is basic salary, nothing else. But if you want salary for the PF calculation, salary means the sum of three items: basic salary, DA under agreement, and commission on sale (fixed).

For ESI calculation, all components are considered except for travel allowances or similar items. The employer contribution is 4.75%, and the employee contribution is 1.75%. Additionally, if a person's salary is more than 10k per month, they are not covered under ESI.

Hi all,

I would like to share a PowerPoint presentation on the salary increment system. Please find attached (PFA).

Thank you.

Hi,

In the present scenario, to keep the liability of the company low and increase the take-home salary of executives, the basic pay is kept at 30 to 35% of the Cost to Company (CTC). Other allowances can be categorized as Flexiallowance, which includes HRA, medical, and conveyance, among others. Employees may be given the option to divide the flexiallowance as per their convenience to ensure they receive the maximum benefit. Statutory liabilities such as PF and ESI should also be taken into consideration:
- PF: 24% of basic (both employer and employee share)
- ESI: 6.5% (both employer and employee share, if applicable)

To optimize tax savings for highly compensated executives, a superannuation scheme with LIC can be implemented. Additionally, employees are provided with LTA. The overarching goal of these strategies is to provide employees with the maximum financial benefit.

Regards,
Subrato

Mr. Kandhare,

I had a confusion regarding the employer's contribution for PF. To my knowledge, it is 12% of basic, i.e., same as the employee's. Has it changed recently? Please reply to [Login to view].

Regards,
Swati.

Dear Swati,

Employee contribution is 12.5%, and Employer contribution is 13.61%.

Regards,
Shilpa Shinde

Hi everyone,

I want to know what the earnings and deductions are for software employees. Please send me the salary structure for software employees. Is there any unique formula to calculate the basic and other components of salary details like HRA, PF, Bonus, ESIC/medical, and TDS?

Thank you.