Understanding Salary Breakdown: Is Basic Pay Really 50% of Your Gross Salary?

Is there any provision that the basic/basic+DA should be 50% of the gross salary? What should be the percentage of basic in a gross salary and in which act is it mentioned? Kindly clarify.

Regards,
Parag

Hello Prag, the basic percentage is 40 to 60% of the CTC or gross salary.

Breakdown of Salary Components

Basic - 60%
HRA - 30%
CONV - 10%
Gross Salary - 100%

It's enough for your query.
Regards

Thank you for your reply. Do you have any circular from the government or something similar? I mean, is what you stated being followed by you or your company mentioned in any statute? I wanted to know where it is referenced in the statute.

Regards,
Parag

There is no rule or clause in any Act that the basic must be 50% or 60% of the gross salary. This demand has recently been made by PF authorities, and there is also a circular issued by PF authorities to their officers, which is being circulated to various companies as well.

I happened to attend a workshop convened by EFSI where one of the speakers was the PF commissioner himself. When one of the participants raised the same question, he clearly stated that THERE IS NO SUCH RULE.

It is simply because if the basic component in the salary breakdown is higher, the employee would receive more benefits in terms of pension, PF contribution (by the employer), etc. After all, at the time of retirement, the employee needs money to support his family, isn't it? Without this rationale, there is no rule written anywhere in the Act, and that is the message the PF commissioner conveyed during the workshop.

Now, many organizations are under pressure from PF authorities (via the internal circular they have issued) that the Basic (and DA) should not be less than the minimum wages prescribed by the government. This is a matter that needs further discussion.

Balaji

Dear Parag,

It will help you:

(1) Basic: 35-40% of gross salary
HRA - 40% of Basic
Transport Allowance: Rs. 800 (Fixed) - tax limits
Medical: Rs. 1250 (Fixed) - tax limits - (yearly 15000/-)
Adhoc allowance - Balancing amount
Total of (1) constitutes - Gross Fixed

(2) Gross benefits like - PF - 12% of Basic & DA
Gratuity: 4.83% of basic & DA
ESIC - 4.75% of GPA - (Less than 15000/- GPM)
Food Coupon
Mediclaim Insurance/Life
LTA
Bonus
Total of (2) constitutes - Gross Benefits

Sum total of (1) & (2) constitutes CTC.

Regards,
Sanjeev Patil

The Income Tax Act contains provisions regarding HRA. Please consult a Chartered Accountant for more information. In metropolitan cities, it is typically 50% of the basic salary, while in non-metropolitan cities, it is usually 40% of the basic salary.

Regards

Before fixing the basics, just find the minimum salary for that post as per the labor office government notification. As per government rules, for each work, there is a minimum basic salary. We have to keep that basic and with that basic, calculate the HRA and other allowances. It will be good if we keep 60% as the basic.

Regards,

Ajesh B.
HR Admin Executive in an MNC

According to the Minimum Wages Act, the Basic should be 35 to 50% of the Gross salary. The range depends on the C&B policies of the companies. Some companies believe in variable components, while others believe in providing a good basic within the aforementioned range. This not only ensures good post-retirement benefits but also represents a fixed liability of the company.

Shneha D Thakur

Hi there,

Recently, the Karnataka High Court issued a judgment regarding the splitting of minimum wages for the purpose of PF contribution. The Honorable Court held that splitting of minimum wages cannot be done, and PF contribution should be paid for the entire amount, i.e., for the total wage.

I don't think there is any hard and fast rule followed to fix the basic wages. It all depends on management.

Basic Pay is the fixed monthly salary component received by employees. It can be a fixed percentage of CTC based on employee grades like:

Grade 1: 15-25% of Fixed Pay
Grade 2: 20-30% of Fixed Pay
Grade 3: 25-35% of Fixed Pay
Grade 4: 30-40% of Fixed Pay, etc.

However, there is no hard and fast rule for it. It depends on the company to company and their salary structure.

PayrollSolutions
Software & IT Solutions Company

Hi all,

I think minimum wages refer to gross payment because the term "wage" refers to basic + DA. It never mentions allowances. I am not sure, but there should be a provision for a minimum PF contribution. If you refer to the amount of contribution, we can easily figure out what the minimum percentage of basic would be.

Vishwanath

Dear Mr. Parag,

First of all, thanks for Balaji. I agree with their comments. You can say salary bifurcation depends on the area where you are situated, like a metro or an A-class city, wherever... Simply put, the minimum basic should be the minimum wage, and after that, 35% to 100% plus nothing or plus benefits; it depends on your company.

For further clarification, feel free to contact me at tanwarb.nv@gmail.com or 9982814048.

Thanks,
Balram Tanwar

Basic salary would be between 40% to 60% of gross salary, but many companies decide this based on the employee's monthly or yearly gross liability.

Thanks & Regards,

Satyendra Mishra
[Phone Number Removed For Privacy Reasons]

Dear Balaji/Dhingra, Thank you for providing the information regarding the salary breakup. If you have a copy of that circular, kindly share it with us so that we can have clarity on the matter.

With regards,
Sameer K Ghosh

Mr. Sameer, Please see the circular (issued by PF authorities) and also the judgment issued by the Hon'ble Punjab and Haryana High Court. This is what the confusion is all about.

Regards, Balaji

If you want to create a salary structure, please consult with your senior management and Accounts (regarding Income Tax provisions) as there is no specific direction in any act for a percentage of basic salary.

Regards

Dear Balaji, Thanks, but in the circular, it does not define the percentage of salary breakup for a higher salary package. It is also unclear regarding the components. Kindly share your valuable experience.

With regards,
Sameer K Ghosh

Hi all,

I am accepting V. Balaji's word. In my view, if the basic salary is below 60%, there exists a question of DA, and DA will vary according to the Consumer Price Index (CPI). Every six months, the government will revise this CPI, so the salary would be adjusted accordingly.

To minimize the risk of DA, most companies will decide the basic as 60% or above.

Thank you to all.

Dear All,

I am just entering my office after attending a workshop convened by Employers' Federation of Southern India (EFSI) which concluded an hour back.

There were a lot of deliberations on splitting of wages into different components. Three PF commissioners (Royapettah, Ambattur, and Tambaram jurisdictions) were present, and they UNANIMOUSLY SAID THAT THERE IS NO RULE THAT 60% OF WAGES MUST BE CONSIDERED FOR PF CONTRIBUTION. Therefore, my dear friends, do not have a different opinion on this subject.

However, there was one point that might bother you. Wherever you pay your employees a wage of Rs. 5000/- p.m. (where the minimum wage is Rs. 4000/-) and you follow this assumed wage pattern,

Basic - Rs. 1500

HRA - Rs. 1000

Convey - Rs. 500

Special Allowance - Rs. 1000

Washing Allowance - Rs. 1000

then, excluding the HRA, you must contribute PF for Rs. 4000/-. That is what one of the commissioners of PF said, and they will view the salary structure like that. They also added that this will be followed for the employees who get wages less than their prescribed limit of Rs. 6500/-. Those who get their basic wages more than Rs. 6500/- are not particular about it.

To add fuel to the fire, there is a judgment pronounced by Madhya Pradesh High Court in the case of Surya Roshini Ltd Vs. Employers' Provident Fund and Another (LLR 568 - June 2011 issue), wherein it was held that allowances viz. Transport Allowance, Attendance incentive, Washing allowance, and special allowance paid to employees have to be included in Basic salary and arrive at PF contribution. This will certainly go against the employer.

In the meanwhile, Labour Law Reporter (Mr. H.L. Kumar, Advocate at the Supreme Court) wrote a letter to PF commissioner at New Delhi questioning the Sanctity of the circular issued by PF authorities and insisting them to withdraw the circular. Let's wait and see what their reaction is to this letter.

Hope all these points will give you additional ideas on this.

Balaji

Yes, I agree with all the comments on the basics, and it is left to the discretion of the employer to fix it based on the grades and the CTC they set for the position, from which these can be back-calculated. The key question that still concerns me is that the PF officials are insisting that the basic on which PF is deducted at 12% should be 60% of the CTC paid to an employee. Is this true or false? What happens when a company pays PF to its employees on a basic that is less than 60% of the Gross Salary or CTC? I am keen on some views on this, please.

Thanks,
Stephen

If you want to comply with the Minimum Wages Act, you can follow the guidelines provided. In accordance with this act, a fixed amount of basic pay and dearness allowance (DA) needs to be determined, while other components of the salary can be calculated based on your company's policies and regulations. It is important to ensure that all salary components are in line with the Minimum Wages Act to avoid any legal issues.

PF Office and Basic Salary Requirement

Nowadays, the PF office seems to be insisting that the basic salary should be mandatory at 50% of the CTC if the basic amount is ₹15,000 or less. My questions are:

1. Is this a general rule and implemented consistently?
2. This seems to happen only when there is scrutiny.

Last but not least, are there formal notifications from the Labor Ministry? To me, this pressure from the PF office looks like a local and personal push from the local PF commissioner and overenthusiastic officers. Can someone provide an opinion backed by documents from the Labor Ministry?

Regards, Santosh

I want the best salary structure for a monthly salary of Rs. 75,000 with low tax.

Can anybody help me prepare a salary structure for a monthly salary of Rs. 75,000/- with minimum tax?

Dear All,

In West Bengal, as per the minimum wages notification, the minimum wage amount should be maintained in the basic and DA columns.

Hi,

My question is, is it mandatory to maintain basic wages equal to minimum wages? For example, if an employee is receiving 9000 p.m in Uttar Pradesh, what should be the basic wages for him?

Can anyone please tell me if there is any fixed percentage range for the Basic Salary Component in the overall salary? Is there any minimum and maximum percentage of basic salary as per law?