How Does Breaking Down Salary Structures Benefit Both Employees and Companies?

Breaking Down the Salary Structure: Process and Benefits

When considering how to break down a salary structure, it is essential to understand the reasons behind it and the steps involved in the process. Breaking up the salary structure can offer various benefits to both the organization and its employees.

By segmenting the salary into different components such as basic pay, allowances, bonuses, and incentives, companies can provide a more transparent view of how an employee's total compensation is calculated. This breakdown can also help in aligning the salary structure with the organization's goals and objectives, ensuring that the compensation strategy supports overall business success.

Additionally, breaking up the salary structure can make it easier to adjust and customize compensation packages based on individual performance, market trends, and organizational requirements. Properly managing the salary structure breakdown can lead to increased employee satisfaction, motivation, and retention, ultimately contributing to a more productive and engaged workforce.

Hi Lavanya,

Salary breakup is a very essential element in salary management. The reason behind this is that through this, individuals can understand the basic components of their monthly salary or remuneration. This is also necessary for tax determination on the salary.

Your second question pertains to the process for the same. For that, you have to specify the position you are inquiring about.

Looking forward to your reply.

Regards,

I am forwarding the salary structure format. Please find the attachment. You just need to input your CTC in the yellow column to receive your salary structure.

Thanks & Regards,
Monali

Dear Lavanya,

In order to give an answer to your query, you need to mention your company policies, as policies differ from companies to companies. To my knowledge, for fixing salary, there is no hard-and-fast rule; it is determined according to company policy.

In general practice, a company will not give any consolidated payment to its regular staff. Sometimes companies pay a consolidated pay to certain categories. For example, if they hire a person on a temporary basis or if somebody is in a probationary period until they get regularized in their service, they may offer a consolidated amount. In such cases, companies may pay in a consolidated amount.

If a company appoints a person on a consultancy basis, they will not break up his or her salary but merely pay a consolidated amount and deduct Income Tax (TDS) as per income tax norms.

Coming to your main query... To my knowledge and in general practice, to give a breakup, it all depends on company policies. The main objective is to break up the salary to fulfill statutory obligations like P.F, Gratuity, P.T, ESI, income tax, etc., simultaneously benefiting employees.

For example...

If a company wants to fix Rs. 30,000/- as a salary for a person, they will bifurcate this amount into various components such as Basic, HRA, Conveyance, Medical Allowance, Special Allowance, LTA, Children Education Allowance, etc.

This bifurcation helps in determining their P.F, ESI, P.T, and Income Tax as per statutory norms.

Further, I am giving a small example for better understanding.

If the salary is Rs. 30,000/-:

- Basic: 50% of Salary, Rs. 15,000/- (Basic is determined according to company policy and varies from company to company)
- HRA: 40% on Basic (50% in metropolitan cities)
- Conveyance: Rs. 800/- (fixed, maximum allowed as per IT norms; in case of handicapped, Rs. 1600/- P.M)
- Medical Allowance: Rs. 1250/- P.M (fixed, maximum allowed as per IT norms against submission of bills)
- Children Education Allowance: Rs. 100/- P.M for one kid (maximum two kids, maximum allowed as per IT norms)
- LTA: Provided for tax saving, can be availed two times in a block of four years against submission of original bills
- Balance amount transferred to special allowance, which is fully taxable.

When fixing Basic salary, a company has to consider all statutory obligations as most compliances are based on Basic salary like P.F, Gratuity, HRA, etc.

I hope you get some idea from the aforementioned information.

If you want more information, simply use the search button at the top left. I am sure you will find adequate information in this regard.

I wish you all the best.

Regards,
TSK

Hello,

Thank you for your informative response. I have one more question - why do we break down the salary? Why can't we provide the salary without breaking it down? Additionally, how do we calculate the basic salary in CTC? I am currently working in recruitment and am interested in transitioning into the payroll department. What specific knowledge should I acquire for this transition?

I look forward to your reply.

Regards,
Lavanya

Dear Lavanya,

I have already explained you why salary has to break up into various parts. As we all are working in professional organisations merely we can not make the payment just like lumsum amount, without any breakups. As we need to comply statutory obligations, we need to bifurcate the payment into various parts.

For determining basic salary as I said in my earlier post there is no hard and fast rule, merely fixes as per company policies. These polices varies from company to company. In general Practice Company fixes 40% to 50% as basic out of his/her total salary. As you want to move payroll department my suggestion is go through your company policies and see what are the parameters they are considering while fixing basic. They might have issued appointment letters to employees who are already working as a regular staff, refer all those appointment copies. Ask your queries to seniors about the same, I hope you will get appropriate information.

To my knowledge you need to know all statutory compliances pertains to employee's benefits and compensations as per various acts.( Like P.F, ESI , Minimum wages, Gratuity act etc.. and many more.

At last just use search button there are many similar kind of question which were raised earlier in this forum. Our seniors and experts have given their view and appropriate answers. Just do the same at your convenience time you will get bunch of information. Do read more articles about recruitment process and HR related stuff either from this cite hr site or Google, I am sure you will gain more knowledge.

I wish you all the best.

Consolidated Pay and Gratuity Applicability

This is with reference to the Consolidated Pay. I am working in an organization where the salary is paid as consolidated only, without any breakup. For example, a Professor is being paid a consolidated pay of Rs. 60,000/- per month without any breakup, and Professional Tax & IT is deducted. My doubt is whether Gratuity is applicable on such a consolidated pay, and if so, how it is calculated. Kindly mail me urgently.

Thanks with regards,

JAVEED AKBER

Hi Team,

I would like to know the salary breakup in percentages. For example, I am interested in understanding what percentage will be allocated to basics, HRA, ESI, etc.

Best Regards,
Yogita