New HR in Need of Guidance: How Do I Complete This Salary Structure?

Hello everyone, I am a fresher working as an HR in an IT company, and I have to prepare a salary structure for my company. However, I am unsure how to work on this. I have prepared a salary structure which is still incomplete. Please guide me on how I can improve it, what all can I add and remove.

Name of Employee

Employee code

Gender

Days Worked

Fixed Salary

Bonus

CTC

Per Month (Rs.)

A. Salary

Basic Salary

HRA 40% of (Basic salary + DA if terms of employment so provide + commission based on a fixed percentage of turnover)

Special Allowance

Transport Allowance

Sub Total

B. Benefits:

Provident Fund 12% of basic salary

Gratuity basic * 15/26 * years of service (after 5 years)

Sub Total

C. Flexible Benefit Plan:

1. Yearly FBP

Medical Expenses

Mediclaim Insurance

LTA

Sub Total

Total Pay package (A + B + C)

Hi Neha, see the attached breakup structure. It will help you a lot, or you can discuss it further.

Dear Harmeet,

A very good format provided.

The basic fundamentals for any salary structure should be:

- Easy to understand
- Transparent deductions
- Separation of Earnings & Benefits

For this, one should divide the salary structure accordingly into:

Group A: Gross Salary (Basic, HRA, Conveyance, Special Allowance)

For this group:

- Basic should be either as per the minimum wages or 25% of Total Guaranteed Cash to the employee.
- HRA should be 50% of the Basic amount.
- Conveyance fixed at 900 pm (as per Income Tax).
- Special/Adhoc allowance is the remaining amount of gross salary.

Group B: Tax Benefits

- Mediclaim (1250 pm fixed as per Income Tax).
- LTA (can range between 15k pa to 30k pa depending on the total salary CTC and tax-saving of employees).
- Ex Gratia (depends on the org amount fixed, standard 8.33% of basic).

Group A + B will provide the Cash Payable to the employee.

Group C: Contributions

- PF

The total of Group A + B + C provides the Annual Guaranteed Cash.

Group D - Variables

- Performance Bonus
- Incentives

Total of A + B + C + D gives The Cost to Company.

Group E - Employee Benefits

- Group Medical Scheme
- Life Security Plan
- Gratuity
- Staff discount
- Others

Total of Group A + B + C + D + E = Total Cost to Company.

Employee benefits/Fringe benefits provided by the company can be added to Group E.

Hope this explains the basic principles on Salary structuring.

Regards,

Shridhar

Thanks. The salary structure provided by you is really good. It has helped a lot. Please clarify one thing: In that structure, gratuity is fixed at 4.81%. So, I want to ask, is it fixed, or is this formula used to calculate gratuity based on basic * 15/26 * years of service (after 5 years)?

Thanx..i need to ask a few questions..in the information provided by you..you have given that mediclaim & conveyance allowance as a fixed amount..so is it fixed for everyone or does it depend on the company??

The second thing I want to ask is the amount of LTA..is there any fixed amount or can we have any amount fixed for that purpose..

Also, please let me know if gratuity is payable only after 5 years of service, as the formula states basic *15/26* years of service (after 5 years).

Thanks in advance.

Mediclaim is an income tax benefit fixed for all grades and roles at a maximum of 15,000 per month. Conveyance is also a fixed amount of 9600 per annum for employees not availing a car benefit. Gratuity is an issue for the company to decide; modern organizations fix the amount at 4.81% and keep it standard, releasing it when an employee completes 11 months. However, according to the law, the calculations are different with a qualifying period of 5 years.

Regards,
Shridhar

Thank you, Shridhar, for your wonderful support. I need some more help related to LTA. What should be the amount of LTA? Does the company fix it, or are there some laws related to it? Additionally, you mentioned that the conveyance allowance is fixed at 9600. However, in the above salary structure, it is stated as 900 per month, which equals Rs. 10,800 annually. Which amount should I consider?

Question about LTA is not simply putting an amount, but the purpose needs to be defined. It is a tax benefit, but only if it is claimed as proof.

What amount an employee is able to claim is the question that needs to be checked at different levels.

Most organizations put 10k for all senior executives to Assistant Manager in a salary band of 3 lac to 7 lac. Since the tax benefit is "2 times in a block of 4 years," the accumulated amount is not very high even if he cannot take the tax benefit.

For all higher levels, the amount can increase from 20k to 40k depending on the CTC of the person and his ability to consume or benefit from the tax savings.

The IT tax only has guidelines for claiming the LTA benefit for taxation:

- Only domestic travel is allowed.
- Only air or train travel is acceptable.
- Designated tour operators are allowed to offer packages of all-inclusive expenses on domestic circuits.

In case one wants to hire a car or vehicle, the maximum permissible limit is a 1st AC straight train charges for the travel.

It is the organization that files the IT tax for the employees; hence, it decides what is acceptable and what it will not accept as bills or proof of travel as it will be held responsible for answering the Income Tax queries.

In conveyance, please accept a correction 800 pm, which is 9600 pa.

Regards,