Understanding Salary Structure: How to Standardize Components and Handle Gratuity?

Hi all, I'm working as an HR professional at an IT company. I've been tasked with reworking the salary structure so that we can follow a standard pattern for all employees.

Salary Structure Queries

I would like to know the following:

1. Different salary components.
2. If the basic salary is fixed at 30% of the total salary, how will it affect gratuity calculations?
3. Should bonuses be considered part of the salary?

Please provide your suggestions as I would like to complete this task at the earliest.

Thanks in advance.

Regards,
Hrim

Salary Structure Components

The salary structure varies from company to company based on their Compensation & Benefits policy. Some of the basic pay heads used in the salary structure are:

• Basic - 35% - 50% of Gross
• HRA - 40% of Basic for Non-metro & 50% of Basic for Metro
• Con - Max Rs. 800 per month, which is a maximum of Rs. 9600 per year
• Medical Reim - Max Rs. 1250 per month, which can be a maximum of Rs. 15000 per year
• Spl Allow - The balance of Gross will be provided as Special Allowance

Statutory Components

1) PF
• Employee Contribution - 12% on Basic
• Employer Contribution - 13.61% on Basic

2) ESI - Applicable to employees whose Gross Salary is less than or equal to Rs. 15000
• Employee Contribution - 1.75% on Gross
• Employer Contribution - 4.75% on Gross

PT - It varies from state to state and is calculated based on the Gross salary of the employee.

Net Salary = Gross - PF (Employee Cont) - ESI (Employee Cont) - PT
CTC = Gross + PF (Employer Cont) - ESI (Employer Cont)

Apart from this, Gratuity, Statutory Bonus, LTA, performance bonus, etc., are also used as part of the salary structure.

I hope this helps. Let me know if you need further clarification or assistance.

Regards

Suggested Salary Structure Based on Provident Fund Appellate Authority 2001

Keeping in mind the order of the Provident Fund Appellate Authority 2001, the suggested structure is as follows:

For example, anyone whose gross salary is ₹10,000 per month. The minimum wages in Delhi for this category are ₹7,020. The suggested salary structure is as follows:
- 80% of ₹7,020 as basic salary
- 25% of the basic salary as House Rent Allowance (HRA)
- The remaining amount can be allocated for Conveyance and Professional Allowance.

This proposed structure aims to provide a balanced approach.

Regards,
Sushil Kumar

Earnings

- Basic Salary: 50% of the gross
- HRA: 40% of the Basic
- Conv. Allowance: Rs. 800/- P.M.
- Medical Allowance: Rs. 1250/- P.M.
- Balance you can allocate to Special Allowance

Deductions

- P.F. Employees' contribution at 12% on basic
- E.S.I. Employees' Contribution at 1.75% on Gross
- P.T. depends on slab and varies from state to state.
- TDS on Salary

Net Salary Payable

Net Salary = Earnings (-) Deductions.

Gross = Basic + DA + HRA + Conveyance + Others. Net Salary = Gross - PF (Emp Cont) - ESI (Emp Cont) - PT. CTC = Gross + PF (Employer Cont) - ESI (Employer Cont). Apart from this, Medical Allowance, Gratuity, Statutory Bonus, LTA, performance bonus, etc., are also used as part of the salary structure (CTC).

Best Regards,
Vishnu V Reddy
Sr. Executive - HR

Gross = Basic + DA + HRA + Conveyance + Others.

Net Salary = Gross - PF (Employee Contribution) - ESI (Employee Contribution) - PT

CTC = Gross + PF (Employer Contribution) - ESI (Employer Contribution)

In addition to this, Medical Allowance, Gratuity, Statutory Bonus, LTA, performance bonus, etc., are also considered part of the salary structure (CTC).

Best Regards,

Vishnu V Reddy Sr. Executive-HR