Salary Calculation Confusion: How Do I Pay My Employee for Their First Month?

Hi all,

I have one very basic doubt as I have never calculated salaries before. Now, I have to pay salary to one of my employees working in Saudi Arabia. His salary is 58333, and he started working from 6th May 2007. So, how much will his salary be for May 2007?

Hi Imtiaz!

I can let you know what we do in our company. Suppose the person's salary is X, the number of working days is 27 for workers or 31 for management. You can choose whatever you have in your company. So you can use the formula: ((X/31)*(31-6)). We make all calculations based on this.

Regards, Swati
Email: ss_swati@rediffmail.com

Hi,

His monthly salary is 58,333, right?

First, calculate his per-day salary, which will be 58,333/31, amounting to 1,882 Rs.

Now, calculate this based on the number of days present, i.e., payable days - which will be 1,882 * 26 = 48,932. This amount will be given to him.

Hey!

For the same example: he joined on May 7th. Hence, you would need to pay him for 25 days. Calculate his salary per day: Monthly salary discussed as per the Offer letter divided by the number of days in this month will give you one day's salary. Hence, in this case, 58333/31 will give you one day's salary, which is equal to 1881.70. Now calculate for 25 days: 1881.70 * 25 = 47042.74. You have to pay him 47042 before deducting Professional Tax/TDS/Income Tax. Any questions, let me know.

Cheers, Gayathri

Dear Reena,

Every company has different salary constituents. However, I will provide an example of what a typical CTC breakdown may look like. I have an Excel sheet that will assist you in calculating your approximate take-home salary. Simply fill in the CTC, Professional Tax, and Income Tax columns.

Regards,

Ms

Hi Ms,

Could you please help me with the salary breakup of Rs. 5.50 Lakhs p.a.? This is the annual salary. There is also a performance incentive of up to Rs. 2.0 Lakh per year. Kindly suggest a salary breakup so that my tax outgo can be minimized as much as possible. I have a home loan and am servicing an EMI as well.

Thanks,
Jitendra

Hi,

You can have this kind of breakup to save tax:

CTC 5.50 L-PA

BASIC - 35% OF CTC - Fully taxable

HRA - 50% OF BASIC IF IN METRO AND 40% OF BASIC IF IN OTHER CITY (exempted up to a certain limit on submission of rent receipt for 3 different months)

CONV. ALLOW: exempted up to Rs 800/pm

SPL ALLOW: REMAINING BALANCE OF CTC - fully taxable

ANY INCENTIVE - FULLY TAXABLE

LTA - EXEMPTED TWICE IN A BLOCK OF ANY FOUR YEARS

REIMBURSEMENTS

NEWSPAPER & PERIODICALS - EXEMPTED SUBJECT TO SUBMISSION OF BILLS

MEDICAL EXPENSES: - EXEMPTED UP TO RS 15,000/SUBJECT TO SUBMISSION OF BILLS

DRIVER SALARY - EXEMPTED SUBJECT TO SUBMISSION OF BILLS

VEHICLE MAINTENANCE - EXEMPTED SUBJECT TO SUBMISSION OF BILLS

PETROL - EXEMPTED SUBJECT TO SUBMISSION OF BILLS

MEAL VOUCHERS - FULLY EXEMPTED

MEDICAL REIMBURSEMENTS - 15,000/PA - TAX EXEMPTED

BELOW IS THE SAMPLE BREAKUP OF RS 5.50 L P/A

BASIC - 192500

HRA - 96250

CON ALLOW - 800

SPL ALLOW -

REIMBURSEMENTS

NEWSPAPER - 1000

PETROL - 5000

DRIVER - 5000

VEHICLE - 6000

MEDICAL - 1250

LTA - ONE MONTH OF BASIC

MEAL VOUCHER - 2400

If you have any further queries, just let me know.

KATYANA

Hi Katyana,

Thanks for your help. Would it be possible for you to assist me with the salary breakdown? My email id is wordsmyth@rediffmail.com.

Thanks,
Jitendra

My company is new. The salary structure is to be modified. The heads in use are: Basic Salary, HRA, City Compensatory Allowance, Conveyance Allowance, Fuel & maintenance Reimbursement, Chauffeur Allowance, Car Lease / Laptop reimbursement, Other Reimbursements, Children's Education Allowance, Special Allowance, LTA, Medical Reimbursement, Bonus Pay, Performance Pay (fixed component, but payable annually), Employer's PF Contribution. Company Car plus fuel plus maintenance - (mentioned in case of certain employees). Other remarks on the salary slip are: All taxes and deductions are applicable as per Government Regulations. Benefits are applicable as per Company Policy. Work Tools - SIM Card for Mobile. Laptop.

Please advise on the following:

1. Are these heads correct?
2. What all heads form part of the Gross Monthly Salary?
3. Which heads do not form part of the Gross Monthly Salary but are included in the Annual CTC?
4. Any other observations.

Thanks!

Dear Katyan,

Thank you very much for your valuable contribution on Cite HR.

May I clarify one thing about your designed salary break-up: if we allocate a specific amount for Petrol & Driver Reimbursement, under whose name should the car be registered - the employer's or the employee's?

Please clarify.

Thanks,
Defender Kr. Sharma

Hello HR professionals,

We are a USA manufacturer, starting a manufacturing unit in Gujarat, and we are not well-versed in certain salary practices. Our MD in India has advised that when we offer a gross annual salary to our employees in an appointment letter, we should break it down into several categories (Base Salary, Housing Allowance, Car Allowance, Vacation Allowance, Book Purchase, Medical Benefits, etc.). This is done, we are told, so that the employee faces fewer tax consequences.

Our USA president (me) is originally from India, as is our USA HR Manager, Archna Dhingra. However, we are not very knowledgeable (quite ignorant, in fact) in this matter.

Can someone educate us on the following:

1. If we hire a Production Supervisor, let's say, at a salary of Rs 20,000 per month, what categories should we break this salary into?

2. Are there any guidelines on what percentage to apply to each category? (e.g., 15% for Housing, etc.)

3. Can someone direct us to websites, articles, etc., on this subject?

4. We are going to provide housing to some key managers and cars to others. How should we apply the breakdown to them?

5. If we offer medical allowance or vacation allowance, do we need to ask for proof of expenses? Does this not encourage the submission of fake bills?

Thank you very much for your willingness to share your knowledge and wisdom.

-Rahul Shukla

President/CEO

S.S. White Technologies

Piscataway, NJ, USA

Website: www.sswhite.net

Email: Rahul.Shukla@sswhite.net

Hi Devendra,

Whenever we talk about "Reimbursements," it always implies that all the reimbursements should be in the name of the employee and not in the employer's name because the employer is providing these reimbursements to help the employee save on taxes. I hope this concept is now clear to you.

KATYANA

Hi,

Could you please elaborate on the terms mentioned in the salary calculation format, such as TA, FEP, MA, etc.? Additionally, could you confirm the percentage applied for each head?

Could you provide me with the salary calculation for the following amounts:
a) $15,000
b) $18,000
c) $50,000
d) $70,000 and $75,000

This information will help employees save and reduce their tax burden. Please guide me accordingly.

Regards,

The above-mentioned Salary Calculation is ENTIRELY WRONG.

No offense.

As per the above method, let us take an example of a person whose salary has been decided as $10,000.

Further, for complete clarification, let us assume he has taken a single leave each in the months of January (31 days), April (30 days), and February (28 days).

As per "gayathri.suraparaju" suggestion:

Per Day Salary in January: $10,000 / 31 = $322.58

Per Day Salary in February: $10,000 / 28 = $357.14

Per Day Salary in April: $10,000 / 30 = $333.33

Therefore, it means your Per Day Salary varies per month!

Hence, the person's salary (after deducting only leave) will be as follows:

Salary for January: $10,000 - $322.58 = $9677.42

Salary for February: $10,000 - $357.14 = $9642.86

Salary for April: $10,000 - $333.33 = $9666.67

Even though he has taken only a single day off, there will be a huge difference in salary in particular months.

HENCE, Correct Salary Calculation should be:

Monthly Salary = $10,000

Total Days in a Year: 365

Hence, Per Day Salary = $10,000 * 12 / 365 = $328.77 (Constant Value, Non-Variable)

Therefore, the person's salary for individual months IRRESPECTIVE OF CALENDAR DAYS will vary only if the person takes a leave. NOT OTHERWISE!

I hope the salary calculation will be a lot simpler now.

Alap Desai

Hi Katyana,

Your help has been invaluable. I am grateful for your assistance in this regard. My questions are as follows:

1. I won't be having a vehicle, so the driver, petrol, and vehicle reimbursements are not applicable.
2. In the changed circumstances, can I have a higher allowance for communication, books and periodicals, or entertainment?
3. I would be grateful if you could suggest a structure with the least tax outgo.

Annual Monthly Taxable
BASIC SALARY 264,000 22,000 264,000
HOUSE RENT ALLOWANCE (HRA) 158,400 13,200 132,000
TRANSPORT ALLOWANCE 9,600 800
SPECIAL ALLOWANCE 33,000 2,750 2,750

Total (A) 465,000 38,750 398,750

COMMUNICATION REIMBURSEMENT 36,000 3,000 -
LTA 22,000 -
MEDICAL REIMBURSEMENT 15,000 1,250 -
BOOKS & PERIODICALS 12,000 1,000 -

Total (B) 85,000 7,083 -

Annual CTC (A + B) 550,000 45,833 398,750

Is the above split adequate with reference to Income Tax outgo, or can it be improved?

Thanks and regards,
Jitendra

Hi Katyana,

The above post is a bit jumbled up. I am attaching the Excel file. Kindly go through it and make any changes that you feel will enhance the take-home component.

Thanks,
Jitendra

Hi,

Can I have a standard format of a Salary Annexure with fixed and variable components?

Nayagam

Hi all,

I would be grateful if you could suggest whether the salary breakup is good. Can it be tweaked? What would be the income tax outgo?

Thanks,
JRC

Friends,

I have to develop the package structure in my company. What is the method followed for dividing the salary into various components? For example, if we fix a salary of 6 lakhs, what should be the Basic, HRA, and other allowances? Are there any legal terms we need to comply with? Also, please help me with LEAVE structures. How many CLs and PLs will be allowed, and are there any statutory laws to be followed? I am working for a US consulting company in Hyderabad.

Regards, TSRao

Hi All,

This is Abdul. Could you please help me with breaking up the salaries? Currently, I am working in an ITES company in Bangalore. I need to break down the salary of a candidate whose CTC is 3.6 lakh per annum.

Could you please assist me with this?

Regards, Abdul

Dear sir,

I want a complete solution on salary breakups. How to prepare and at what percentage should we calculate the salary? I hope you will do the needful.

Thanks,
Sunil