Understanding Salary Breakdowns: Is a Monthly Bonus Mandatory and How to Set Basic Pay?

I am working with a newly opened Pvt Ltd company with less than 20 employees, and I am facing some problems in understanding certain salary break-ups. I would appreciate it if you could help me in getting a better understanding.

Monthly Bonus as Part of Variable Salary

Please tell me, is it compulsory for any company to provide a monthly bonus to the employees as a part of the variable salary?

Criteria for Deciding Basic Salary

Another thing that confuses me is the criteria for deciding the basic salary of any employee. For example, if an employee is getting 17,000 in hand, how should I decide his basic salary? Are there any statutory guidelines on deciding the basic salary?

Please suggest and help.

Thanks in advance.

First of all, you have to refer to the Minimum Wages notification. According to that, you need to determine the Basic and DA components, and then divide the remaining amount. This is because PF is deducted based on the Minimum wages amount. Therefore, you must prepare the bifurcation in accordance with your state's Minimum Wages notification.

Thanks a lot for your help. I have gone through the minimum wage act for my state. One more thing I want to ask is whether the monthly bonus is also a mandate?

Bonus Payment Regulations

It is compulsory to pay a bonus within 8 months from the end of the financial year if it is not a new establishment. In the case of a new establishment, the payment of a bonus is exempted for up to 5 years.

Regards,
Vijay Mishra
Officer HR & Admin

Understanding Salary Components

Up to Rs. 6,500, the salary is entirely basic. When the salary exceeds Rs. 6,500, it must be divided into other components. The basic component can range from 30% to 50% of the gross salary.

Regards

Clarification on Mediclaim Contribution

Please clarify one more doubt: does the mediclaim contribution have to be made by both the employer and employee?

Regards

Please follow the Minimum Wages Act of your place to determine the basic amount you will offer your employees. Generally, the Dearness Allowance (DA) and House Rent Allowance (HRA) vary in different companies. Nowadays, DA is not seen in many company compensations, provided they have much more lucrative alternatives to compensate for the absence of Dearness Allowance. Regarding the percentage of HRA, it is normally 40-50%, higher in urban areas and lower in rural regions.

Regards.

HRA Calculation Based on Location

HRA will depend on whether the location is a Metro or Non-Metro area. For Metro areas, it is 50% of the Basic salary, and for Non-Metro areas, it's 40% of the Basic salary.

For HR, it's 50% for metro cities and 40% for non-metro cities on basic salary.

Regards,
Satyajeet Padhee

Understanding Salary Break-ups and Statutory Requirements

First, you need to refer to the Minimum Wages Act of the respective state.

Bonus Calculation

For bonus calculation, you can refer to the Payment of Bonus Act, 1965. It is applicable across India. Please refer to the attachment below.

House Rent Allowance (HRA)

For HRA, it is 50% of Basic + DA in the case of Bombay, Delhi, Calcutta, and Madras, and 40% of Basic + DA in cities other than metropolitan cities.

Medical and Insurance Policies

If the employee's salary is more than Rs 15,000, the employer provides a medi-claim policy. If it is less than Rs 15,000, the employee is covered under the ESI Act.

Firstly, you need to establish HR policies for your company. Please let me know if you need any further information.

Regards,
V.V.N. Suresh