New HR Manager at an Automobile Company: How Do I Navigate Salary Breakup and Labor Laws?

Hi, I recently joined an automobile company as an HR manager. Please forward me the details regarding salary breakup and what will be the minimum basic salary according to labor law.

In response to your post, no law states that the basic wage should be the minimum in wages. Understanding Basic Wage Components

BASIC + DA is defined as a better wage, and it is recommended to follow a 50% safety margin on both ends. This completely depends on company policies.

Thanks,
Naresh

In my concern, we are following the below structure which almost satisfies our labor law compliances (Minimum Wages) as well as PF enforcement:

- Basic: 60%
- HRA: 20%
- Other Allowances: 20%
- Gross: 100%

Regards,
Madhan

Supreme Court Ruling on Minimum Wages

In-term relief given by the Supreme Court states that the splitting of minimum wages is permissible. There is no need to pay EPF on the minimum wage. However, for daily workers, no splitting is allowed; we have to pay based on day wages as per the Minimum Wage Act.

Thanks,
Naresh

Thanks for the reply. However, if an employee's salary is 6500 and according to your breakup, the basic will be 3900, which is less than the minimum basic salary of 4563, what will be their salary breakup?

Regards,
Annu Verma

Salary Breakup or CTC Structure for a Worker

What is the salary breakup or CTC structure for a worker? This question is asked in an interview. Please reply soon.

Regards

In our company, we have a salary structure, i.e., 3000-300x5-4500-EB-450x5-6750-EB-675x5-10125. Here, 3000 is the basic amount which meets the minimum wages of the state of Orissa for unskilled workers. The salary breakdown is calculated as follows:

- Basic: 3000
- HRA: 600 (20% on basic)
- Conv.: 300 (10% on basic)
- Misc. Allowance: 1100

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Gross Salary: 5000/-

This calculation was used in my previous company. However, in my current company, we follow the minimum wages based on the grade of the worker, whether they fall under Unskilled, Semi-Skilled, Skilled, or Highly Skilled categories. Accordingly, the basic salary is determined, and the rest of the salary is allocated as allowances to ensure compliance with all statutory requirements. The specific structure may vary from company to company.

Regards,
Mahendra Biswal
HR Manager
[Email Removed For Privacy Reasons]

Salary Breakup Components

The below-mentioned things will be included in a salary breakup:

- **Basic**: 40% of gross
- **HRA**: 50% of basic
- **Special Allowance**
- **Conveyance**: $800 (fixed amount)

Gross Salary Calculation

Gross = Total of the above 4 components (Basic + HRA + Special Allowance + Conveyance)

Employer Contributions

- **ESI (Employer)**: 4.75% of gross
- **EPF (Employer)**: 13.6% of basic
- **Medical**: Depends upon the company
- **Insurance**

CTC = Total of the above (Gross + Employer contribution)

Employee Shares/Deductions

- **Employee PF**: 12% on Basic
- **Employee ESI**: 1.75% on Gross
- **Professional Tax (TN)**

Total Deductions

Take-home = CTC - Gross

Thank you very much. ESIC and the amount were not included in CTC. According to the current minimum wage, how do we frame it in a proper CTC structure that includes the exact amount/figure?

Please view the attached file.

An Example of Salary Distribution in CTC

In CTC, salary distribution can be:

- (A) Basic Salary + HRA + DA
- (B) Conveyance + Medical + Other/Special Allowance if any
- (C) Employer's Contribution for PF (12% of Basic)
Employer's Contribution for ESIC (4.75% of Gross)
- (D) Employee's Contribution for PF (12% of Basic)
Employee's Contribution for ESIC (1.75% of Gross)

Gross Salary = (A) + (B)
CTC = (A) + (B) + (C)
Net in Hand = (A) + (B) - (D)

Salary Breakup Example

- Basic - 30%
- HRA - 30%
- Conveyance - 25%
- Medical - 10%
- Other - 5%

You can change the elements and values according to your company policies.

Regards

Many companies have the Scale of Pay system, for example, (3000-300x5-4500-EB-450x5-6750-EB-675x5-10125). This scale of pay is designed for a 15-year duration of an employee's service. Here, we consider 3000/- as basic and calculate HRA at 20% of the basic salary, while the conveyance is calculated at 10% of the basic. The remaining portion may be allocated to other allowances. The Salary Breakup is calculated based on a Gross Salary of Rs. 5000/- per month for an unskilled employee.

Salary Breakdown Example

Basic - 3000/-
HRA - 600/- (20% of basic)
Conveyance - 300/- (10% of basic)
Allowances - 1100
Gross Salary - 5000/-

This calculation ensures that the basic salary meets the criteria of the minimum wages act applicable to Odisha for an unskilled worker. The basic salary is adjusted to comply with the minimum wages act, and the remaining amount is allocated to allowances to achieve the gross salary.

Salary = Basic + DA + HRA + Conv. + Allowances (It varies from company to company). Based on this calculation, each company determines the allowances to be provided to its employees.

Regards,
Mahendra Biswal
[Email Removed For Privacy Reasons]

Minimum Wages in Delhi

Minimum wages in Delhi w.e.f. 1 October 2011.

Category | Minimum Wages Per Day (In Rs) | Per Month (In Rs)
--- | --- | ---
Unskilled | 256 | 6656
Semi Skilled | 283 | 7358
Skilled | 312 | 8112
Non Matric | 283 | 7358
Matric | 312 | 8112
Graduate | 339 | 8814

Regards

We are also facing a similar situation for certain employees. In that scenario, we maintain minimum wages as the basic salary.

Regards,
Madhan