Understanding Basic Salary Components: Is There a Legal Standard or Does It Vary by Company?

Inquiry About Basic Salary Component

In the salary structure, what should be the rate of the basic component? Is there any legal standard for it, or can it vary by company policy?

Thanks,

Raj

Basic Components in Salary Structure

Basic components in the salary structure vary from company to company based on their policies. The standard that I have seen in most organizations is 35% of the gross salary.

There is no standard on this. Just go by what suits you. However, companies generally maintain the basic salary as 40% to 60% of CTC. If you keep perks higher, the basic salary will be lower, and vice versa.

The only legal basis is provided in the form of minimum wages, which consists of a basic wage plus DA notified by the government. This is applicable to employees performing skilled, unskilled, or technical kinds of jobs.

Regards

Hi, it should be between 30% to 60% of the gross salary, but the decision of whether to choose 30%, 35%, or 55% is left to the company. It cannot be less than 30% or more than 60%.

If you keep the Basic higher and are contributing towards PF for the same CTC, the take-home salary will decrease as PF is applicable on the Basic + DA (if being paid). Also, Gratuity is payable on the Basic + DA, so by maintaining a high Basic, the employer's liability towards Gratuity also increases! If you do not wish to contribute towards PF, keep the Basic above Rs 6500, but it does not need to be a certain percentage of the gross/CTC!

In my company, the base pay of every employee is calculated on different percentages. Some have high basic pay and low HRA, Conveyance, and Special Allowances, whereas others have low Basic Pay and high HRA, Conveyance, and Special Allowances. PF and ESI deductions are as per law.

Question About Company Policies

My question is, do companies follow such policies where every employee has a different percentage on their respective CTCs?

My company is a branch with its head office located in Delhi. The payroll is prepared in Delhi.

Employee Rights Regarding Salary Slip

Is receiving the salary slip the right of the employee?

I kindly request a valuable response to the above.

Regards.

Salary depends purely on negotiation between the employer and the employee. It differs and is kept confidential. However, the established fact is that it cannot pay less than 30% or more than 60%. If you claim $40,000 as your basic pay and the HR is limited to pay $60,000 gross to the employee during negotiation, then they adjust by reducing other benefits so that it does not exceed the amount prescribed by the management. This way, they can retain the employee.

If you want the salary slip, then it's your right. Some companies may include it in their relieving formalities by mentioning the salary drawn and adjusting it with the banking transactions, making proof of the salary drawn important.

Understanding the Basic Salary Component

The Minimum Basic is determined under the Minimum Wages Act, 1948. You cannot offer less than this amount, as it may lead to a violation of the Act.

Above the State Declared Minimum Basic, you can provide more, which your management can decide. For example, out of 100% of the salary amount, 60% should be in basic. Out of this 60% basic, 30% should be allocated to Special Allowance. The HRA should be 5% of the Basic + Special Allowance.

The remaining 40% should be for other allowances. This structure helps the employer maintain a safer and legal position and assists employees in having a good pay structure from the perspective of Bonus, Gratuity, and PF.

Regards,

Basic pay has to be between 30% to 60% of your gross salary. As for your second question, if I, as an employer, pay you 100% basic pay (so 100% taxable), are you ready to incur all the other expenses on your own, such as transportation and all kinds of insurance coverage? I need not recognize your good work because I need not pay you incentives. If you still could not agree, join the Department of Employment, Government of India, and suggest your ideas. 

Earlier, the basic salary was at 50% for basic; now the company has reduced it to 31%. Can the basic be changed at the company's wish? I know that if the basic percentage is higher, there is a burden on cash flow for gratuity and PF. Therefore, they have reduced it to 31% to alleviate the burden.

My question is, is this legal? Some employees are already questioning why the basic is lower, but the CTC matches. Is there any act stating that it cannot be reduced? Also, are temporary employees eligible for ESI deductions as they are given stipends as consolidated salaries and expenses for marketing staff only? If they perform well, they are absorbed as permanent employees and receive all PF & ESI benefits based on their salaries.

Additionally, is there any act specifying that the basic salary should be 50% for Metro cities and 40% for non-Metro cities? What about cosmopolitan cities like Bangalore? I need clarification.

Thank you.

Regards

In the case of laborers who receive minimum wages as per state government rules, can their basic salary be altered to avoid the PF liability?

The company can change its policies at any time. The basic salary has to be between 30% to 60%; hence, a 31% fixation is supported.

Secondly, there is no legal provision that curtails the right of an employer to reduce the salary given to their employees, as long as it is in accordance with the minimum wages.

Thirdly, the process of converting temporary employees into permanent ones based on "performance" is always an important criterion. Temporary employees are not absolute employees of the company like permanent employees. When temporary employees are made permanent, it is almost like being freshly recruited, with the only significant difference being that the employer and employee know each other well.

ESI or PF cannot be claimed when a stipend is paid. Technically, it is not a salary or wage but a supportive pay to encourage students, trainees, or interns.

It is not the basic pay of 40% and 50%, but HRA (House Rent Allowances). In metros, 50% of the basic salary is paid to meet the cost of living, while in other places, it is 40%.

No employer can avoid paying the PF/ESI; it is mandatory and stands at 12% of the basic pay of the employees.