Understanding Salary Breakdown and ESI/PF Calculations: How Do You Handle Allowances?

I am working in an automobile company based in Delhi. I want to know about the breakup of salary and the calculation of ESI & PF. In the salary, we have to include allowances like washing, traveling, special HRA, and basic. Can anyone tell me how to go about these things with experience?

Kindly find the salary breakup and ESI, PF calculations. If you have any clarifications, feel free to contact me or senior persons in CiteHR.

Regards

Hi lakshika It depends on how you balance an individual's salary, but as far as basic and HRA are concerned, these will be calculated as part of CTC (company cost). This is the final salary including all allowances, perquisites, and benefits. Basic will typically be 30-40% of CTC, and HRA will be 50% of basic if the individual resides in metro cities like Delhi, Kolkata, Mumbai, and Chennai. In other cities, it will be 40% of basic. You can calculate all other allowances on your own. As for the travel allowance, it is up to 800 exempted. Beyond this, you can adjust accordingly.

Thanks,
J J
Regards

There is no specific rule for determining the percentage of Basic and other allowances, but the Karnataka High Court in the case of Airfreight Ltd. observed that salary/wages should be in the ratio of (2:1:1), meaning basic including DA will constitute 50% of the salary, HRA will be 25%, and the remaining will be allowances paid under any name.

As per the EPF Act, PF is applicable on Basic and DA at a rate of 12%. ESIC is applicable at 1.75% on the total salary, excluding washing allowance, provided the salary and wages are less than ₹15,000.

Understanding CTC Components

CTC (Cost to the Company) refers to all costs invested in employees, including PF at 12%, ESIC at 1.75%, Gratuity at 4.81%, LTA, Medical benefits (as per company policy), and the cost towards Leave (Paid Leave).

I hope this information helps you understand the issue.

Regards,
M.G. Rabbani

Hello, your question is not very informative. However, based on my experience, this is usually the structure of salary: Basic + DA (in terms of a % of basic pay, which is revised every quarter. At present, it is around 53% of the basic). HRA is also a certain % of Basic, depending upon the class of the city. In your case, it might be 25 to 30%. Traveling allowance, in some industries, is given as a fixed % of Basic, and in some, it is a fixed amount. Washing allowance also has the same treatment. By reviewing your pay structure/agreement, you can now calculate the components of your Gross Salary. As for deductions, PF is a statutory deduction at 10%. The remaining deductions vary from industry to industry and organization to organization.

Feel free to know more.

Best wishes,
Regards

Salary Breakup and ESI & PF Calculation

As per your comments:

1. Employers can provide a basic salary based on a percentage (but most companies pay on a percentage basis).
2. DA is as per applicable norms.
3. HRA: Depends on the employer, usually ranging from 25% to a maximum of 50%.
4. Other components vary from company to company (e.g., conveyance, performance bonuses, medical benefits, mobile allowance, tiffin allowance, washing allowance, LTA, etc.).
5. Additionally, there are annual components such as the Diwali bonus, Annual Performance Bonus, annual attendance bonus, etc.
6. Employer contributions include PF (12% on Basic+DA), ESI (4.75% on Gross salary < 15000, excluding annual payouts), and Gratuity (Basic*4.81%). All these are part of the CTC.
7. As Mr. M G Rabbani mentioned, ESI in CTC calculation is 4.75%, not 1.75% (1.75% represents the employee contribution).

Thank you.

There are certain items that do not form part of basic wages, and no P.F. is deductible, such as BONUS, LEAVE ENCASHMENT, INAM, AD-HOC ALLOWANCE, OVERTIME ALLOWANCE, PAYMENT MADE IN LIEU OF NOTICE, etc., as has been decided by various courts from time to time. The concept of Basic Wages can be viewed in the case of "BRIDGE & ROOF Co." as decided by the Honorable Supreme Court.

With Regards,
CHANDOK - ex RPFC
[Phone Number Removed For Privacy Reasons]

Dear Lakshika Nagpal, while there is no specific Act to determine the basic pay, certainly the Fixed DA (FDA) and Variable DA (VDA) are linked to the wholesale/consumer price index, which is provided by the Labour Department of the Government of India once a quarter. This is mandatory for all industrial houses. The rest will vary from establishment to establishment.

Applicable Rates and Contributions

However, the following rates would apply:
- PF at 12% for employees and employers (if not exempted), along with DLI and EPF
- Bonus (ex-gratia in lieu of bonus - minimum at 8.33%)
- ESI (if covered) at 1.75% for employee's contribution and 4.75% for employer's contribution
- Termination and retirement gratuity at 15 days of salary for every year of qualifying service (Reference: Gratuity Act)
- Accident and death compensation as per the Workmen's Compensation Act
- Maternity benefits

These are mandatory provisions as per the law.

Regards,
Kumar

I am still confused about the ESI part. In the salary breakup, what all things are included in ESI? In my company, we break the salary down as basic, HRA, traveling allowance, special allowance, incentives, and washing allowance. Which parts of the salary should be added together in order to calculate the ESI?

PF Calculation: Basic or Basic + HRA?

Is PF calculated only on Basic + HRA or only on Basic? I know that if Basic or Basic + HRA is 6500, then PF won't be deducted.

Dear Lakshika, I'm a little more confused now. You have invited more trouble. Please see the attachment. Don't blame me.

Rgds, Kumar BG

How to Calculate ESI:

For PF: Wages mean Basic + DA + Food subsidy + leave encashment (if paid). On PF wages, the employee will subscribe 12%, and the employer will also contribute 12%. The employer's contribution is split into PF 3.67% and Pension Fund 8.33%. For the purpose of PF wages, the ceiling is Rs. 6,500 even if the salary/wages exceed Rs. 6,500.

For ESI: Salary or Wages (both are the same) mean basic + DA + allowances + overtime. However, the conveyance allowance should not be considered. The revised limit for ESI is Rs. 15,000, and once exceeded, they will not be eligible. The employee will be deducted at 1.75% of the gross salary/wage, and the employer contributes 4.75% on the employee's gross. There is no minimum limit for any minimum wages; they also attract ESI deduction.

I'm sorry, I think I didn't attach the text portion which will explain a little more about ESI. However, I sent it to your mail. If you have any more doubts, don't hesitate to ask. All the best.

Regards,
Kumar

ESI Benefit Overview

ESI is a benefit applicable to an employee whose CTC is up to 1.8 Lacs annually (15 K per month). This benefit needs to be deposited with the ESIC department.

Contribution Details

- **Employee Contribution:** 1.75% of Gross
- **Employer Contribution:** 4.75% of Gross

Dear Lakshika,

PF is calculated on Basic + DA. ESI is calculated on Basic + DA + HRA + Conveyance + Performance allowance + General allowance + bonus + fixed Traveling allowance + fixed Incentives = Gross. Note: For ESI Calculation, Washing Allowance + Hill allowance will not be taken into consideration. If you have any doubts, please let us know.

Regards

Hi Kumar, come on yaar, what's next? What is the salary?

Basic Pay and Allowances

Basic pay is the remuneration offered to an employee depending on the nature of the job, qualifications, experience, responsibilities, etc. DA (Dearness Allowance) is an allowance to meet the increase in prices of your day-to-day needs, helping you buy things that have become dearer. In the government and industrial sectors, this will vary depending on the movement of wholesale/consumer price indices, periodically announced by the government. HRA (House Rent Allowance) is meant to meet an employee's housing expenses. Normally, these allowances are expressed in terms of a percentage of basic pay, for example, DA @ 50%, HRA @ 20% on basic, etc. CCA (City Compensatory Allowance) is provided mostly by the government sector at 10 or 20% of basic pay. This is not necessarily fixed as such. An employer can fix total remuneration as a package altogether without splitting it into basic pay, DA, HRA, etc.

These terms are generally in vogue in the government sector and corporate/big companies but not as much in small firms in the private sector where they offer CTC (Cost to Company), which normally includes benefits like PF, Bonus, incentives, LTA, medical, conveyance, the equivalent of food coupons, etc. However, this is not uniform among all employers. Right?

Thanks,
Kumar

The company is new, and only four people are working. If one person's salary is $30,000 and PF is not deducted, we want to know the salary breakup. What allowances should we add?

Thank you.

Salary Breakup Details

The salary breakup would be as follows:

- Basic: 12,000 (40%)
- HRA: 6,000 (50% of basic)
- CCA: 3,600 (35% of basic)
- Conveyance: 3,000 (25% of basic)
- Medical: 1,800 (15% of basic)
- Special Allowances: 3,600

The percentages and heads for bifurcation can be adjusted as needed.

Thank you.

Regards

I am paying ₹9500 per month to my drivers and ₹5500 per month to the helper of the truck. The drivers and the helper are on contracts. The contractor is registered with ESI but not with PF. Please let me know how I can avoid PF contribution as I am willing to pay ESI. Please advise.

Provident Fund: Calculated on basic salary, which is 12% from the employee and 12% from the employer, and it is part of your CTC. There are conditions for the Provident Fund:

1) 12% of basic contributed by the employee
12% of basic contributed by the employer

2) If Basic > 6500, there is a cap of 6500
12% of basic contributed by the employee, but
12% of 6500 contributed by the employer

3) If Basic > 6500, both
12% of 6500 contributed by the employee
12% of 6500 contributed by the employer

4) If Basic < 6500, then there is a cap of 5500
12% of 5500 contributed by the employee
12% of 5500 contributed by the employer

Note: Any one condition could be followed in an organization, and an employee could contribute voluntarily, i.e., more than 12%.

ESI

The ceiling coverage in ESI is gross salary <= 15000, then eligible for ESI benefits. The contribution of ESI:
- Employee contribution is 1.75% of gross
- Employer share is 4.75% of gross

Thanks.

PF is calculated on both Basic + DA and not HRA. HRA is calculated on Basic + DA. Employees whose basic salary is less than 6500 Rs do not get the facility of PF.

Regards,
Pooja Khanna

My office deducts 10% from Basic+DA and also contributes 10% on behalf of the employees. We have 12 employees. How can we increase the contribution rate to 12%? Is it possible? Are there any rules regarding this? Please reply/help.

Hi,

Is it mandatory to show ESI deduction in the appointment/offer letter of a new joiner?

Regards,
Pramila

If an employee is not covered by ESI after an increment, will the employer's portion of ESIC be added to his CTC?