New to HR in Electrical Industry: How Do I Create a Suitable Salary Structure for Engineers?

I am working as an HR professional in an electrical company, and I am new to this industry. I need to prepare a salary structure for an engineer whose gross salary is 25,000/-. I am confused because our consultant has provided me with a different structure. Could you please suggest a suitable salary structure?

Regards,
Anjali

Dear Anjali, Regarding the Minimum Wages Act, you are maintaining the wrong salary structure. If you need any clarifications, please contact me. If you are in Hyderabad, I will visit your office to guide you.

Regards, Lakshmi [Phone Number Removed For Privacy Reasons]

Our consultant provided me with the following structure. Is it correct? Please provide your comments.

Salary Structure

Sr. No. Description Amount
    Monthly Payment
1. Basic Wages 5800.00
2. Special Allowances 1004.40
A. Total 6804.40
3. House Rent Allowances 5% 340
4. Conveyance 1500.00
5. Travelling Allowance 7500.00
6. Other Allowances 8855.00
B. Total 25000

    Statutory Deduction
1. Provident Fund (@12%) 817
2. E S I C (@1.75%) Insurance 437
3. Labour Welfare Fund 4.00
4. Professional Tax 200.00
C. Total 1458.02

    Net Monthly Payment 23542

    Statutory Payment
1. Provident Fund (@13.61%) 926.08
2. E S I C (@4.75%) Insurance 1187.48
3. Labour Welfare Fund 6.00
D. Total 2120

    Net Annual Payment
1. Bonus 8.33% 0.00
E. Total 0.00
1. Leave Wages 0.00
    Gratuity 0.00
F. Total 0.00

    Direct Cost To Company
    Uniform, Shoes 0.00
    CTC 27119.18

Thank you.

In the beginning, you mentioned a gross salary of 25,000/-. Now, your consultant is showing 27,119.18. Please check and revert.

Correct, Dinshan. Actually, the gross salary is $25,000, and the net salary is $23,542. However, the CTC amounts to $27,119.18. It's okay. CTC means all expenses related to that employee.

Yes, you are right, the gross salary is 25,000/-. Basic and special allowances are as per the Minimum Wages Act. However, I request everyone to please suggest a salary structure as I am confused about the statutory deductions provided by our consultant.

Regards,
Anjali

Hi, for calculating CTC, the employer's contribution is required. Our consultant suggested that I include statutory payments in the salary structure.

I think your full salary structure is wrong, and I don't know how ESI comes to Rs. 25,000 in gross.

Best Regards,
Suresh.K

Yes, you are right. The ESIC ceiling is ₹15,000 gross. The above structure was provided by our consultant, so please suggest the salary structure if possible.

Regards,
Anjali

Your PF Calculation Salary (Basic wages + Special Allowance 5800 + 1004.4) is 6804.4 * 12% = 816.528.

ESI Salary Gross Salary is calculated as 25000 * 1.75% = 437.5.

Labor Welfare amount is 4.

Professional Tax is 200.

Simple Salary Structure

Please note this simple salary structure: Basic 50%, HRA 20%, Conv 20%, and Special Allowance 10%.

Best Regards,
Suresh.K

Payslip for the Month of May 2012

Employee No: Location
Name: Department
Bank Name: Designation
Bank Acc. No.: Division
PF No.: Total Days 31
ESI No.: LOP 0
PAN No.: Effective Work Days 31

Earnings and Deductions

- **Earnings (Rs.):**
- BASIC: 9000
- BASIC ARREAR: 1004
- HRA: 3600
- HRA ARREAR: 402
- TRAVELLING ALLOWANCE: 800
- VARIABLE ALLOWANCE: 2570
- VARIABLE ALLOW ARREAR: 602
- INCENTIVE: 4205
- MEDICAL REIMBURSEMENT: 1250
- BONUS: 3500
- HUL INCENTIVE: 335
- Total Earnings: 27268

- **Deductions (Rs.):**
- PROVIDENT FUND: 780
- PROF TAX: 200
- STAFF LOAN: 3190
- Total Deduction: 4170

Net Pay: Rs. 23098.20 (Rupees Twenty Three Thousand Ninety Eight And Twenty One Paise Only)

Employer's Contribution

- Employer's PF: 780
- Employer's ESI: 0
- Gross: 28048

My Question

Total Salary as per company: 28048
Deduction of PF: 1560
26488
D14-d23: 23878
Double time PF: 23098

What is the rule to deduct the PF, and how much are they deducting as per this information? How much does the company need to pay the PF to the employee, and how can we know that they are paying that amount to the PF account of the employee?

Payslip for the Month of May 2012

Employee No: Location
Name: Department
Bank Name: Designation
Bank Acc. No.: Division
PF No.: Total Days: 31
ESI No.: LOP: 0
PAN No.: Effective Work Days: 31

Earnings and Deductions

- **Earnings (Rs.):**
- BASIC: 9000
- BASIC ARREAR: 1004
- HRA: 3600
- HRA ARREAR: 402
- TRAVELLING ALLOWANCE: 800
- VARIABLE ALLOWANCE: 2570
- VARIABLE ALLOW ARREAR: 602
- INCENTIVE: 4205
- MEDICAL REIMBURSEMENT: 1250
- BONUS: 3500
- HUL INCENTIVE: 335
- **Total Earnings:** 27268

- **Deductions (Rs.):**
- PROVIDENT FUND: 780
- PROF TAX: 200
- STAFF LOAN: 3190
- **Total Deduction:** 4170

Net Pay: Rs. 23098.20 (Rupees Twenty-Three Thousand Ninety-Eight and Twenty-One Paise Only)

Employer's Contribution

- Employer's PF: 780
- Employer's ESI: 0
- Gross: 28048

My Question

Total Salary as per company: 28048
Deduction of PF: 1560
26488
D14-d23: 23878
Double time PF: 23098

What is the rule to deduct the PF, and how much are they deducting as per this information? How much does the company need to pay the PF to the employee, and how can we know that they are paying that amount to the PF account of the employee?

See the attachment and

Correct Spelling and Grammar: Identify and fix any spelling or grammatical mistakes in the text.

I think the engineer does not come under the ESI bracket. Therefore, ESI contributions should not be deducted.

Regards,
Puja

The salary breakup seems to be incorrect as the basic salary is too low, and ESI is not applicable to employees whose salary is more than ₹15,000.

Salary Structure Details

Without deductions:

- Basic Salary: 40% - 10,000
- HRA: 30% - 7,500
- Convenience: 800 (Fixed) - 800
- Special Allowances - 6,700
- Gross Salary - 25,000

With deductions:

- Basic Salary: 40% - 10,000
- HRA: 30% - 7,500
- Convenience: 800 (Fixed) - 800
- Special Allowances - 6,700
- PF - 780
- ESIC - 0
- Food Coupons - 1,000
- TDS - 0
- In hand - 23,220

Regards,
Ashok Negidi
HR-Hyderabad
M: [Phone Number Removed For Privacy Reasons].

Ashok's structure looks good. Conveyance allowance of 800 is tax-free. Anything above is taxable, so we need to stay there. Traveling allowance makes no sense unless he is not being paid traveling money for going anywhere. Higher HRA helps where he is paying rent and can get tax benefits for it. PF max limit is 780, but you can pay more if you wish. Most don't. Also, anyone joining at above 6500 and not having an existing PF account can opt out of PF. A simple structure as given by Ashok is a good idea. There is no need to make it more complex.

Dear Anjali, if the salary is more than 15,000/-, in this case, that person has already crossed the ESIC limit. Your consultant has provided you with the wrong salary structures. When preparing the salary structures, all the allowances are calculated as a percentage. For example, Basic X 20% = HRA.

Regards,
Nikhil

To set up your company's salary structure, you should first seek approval from your management regarding the ratio of Basic: Gross salary or CTC. In normal cases, it is usually 40/50/60:100.

Once you have decided on this ratio, please note that it is one of the most influential financial components in your policy. PF/Gratuity/Bonus/Leave encashment all depend on this ratio.

As a good practice to ensure fair/living wages, you can set this ratio at 50:100 to the CTC, i.e., 50% of Basic of the CTC, not Gross. For this purpose, you need to finalize your salary structure in CTC and not based on the Gross monthly salary.

Other Ratios

- HRA: It is a minimum of 5%, but as a good practice, you can divide it into three categories:
- Senior Staff: 40% of Basic Salary (as it is not taxable)
- Middle Staff: 30%
- Junior Staff/Worker: 25% of Basic salary

- Conveyance allowance may be 5%
- Education allowance: 2%

It is advised to remove the Special Allowance from the structure as it may lead to disputes in the future. You can consider it as (Basic + D.A.).

Please note that Conveyance allowance of Rs. 800/- per month is exempted and Education allowance of Rs. 200/- per month (for two children) is also exempted from Tax.

If your consultant provides you with a portion of Basic that is too low, please do not accept that.

Other Annual Earning Components

- Ex-gratia/Bonus: 8.33% of Basic or Gross
- Medical Allowance: depends on grade but should be below Rs. 15,000 per annum
- LTA: depends on grade but should be below Rs. 15,000 per annum
- PF share
- ESIC share
- PTax

This information may be useful for you.

Regards,
Mangesh Wakodkar
Aurangabad

Basic - 60% of CTC
HRA - 40% of basic
Conveyance - 800 tax exempt
Medical allowances - 1250 tax exempt, reimbursement
Other allowances - rest of CTC

Deduction part:
PF - 12% of basic from the employee's side
Mess - As per the calculation

The rest would be the net pay or take-home pay.

You are saying the gross salary is ₹25,000/-, but ESIC is applicable only if the gross salary is ₹15,000/-. Above ₹15,000/- gross salary, ESIC is not applicable.

It's not Special Allowances-1004.40; it should be Dearness Allowance-1004.40. ESIC is not required in this case because the gross salary is more than 15,000.00. Therefore, you should not deduct (1.75%) from the gross and also should not make a payment (4.75%).

Net Monthly Payment: 23,542 + ESIC (@1.75%) Insurance 437 = 23,979

CTC: 27,119.18 - 1,187.48 = 25,931.70

Everything else is correct.

Regards

Anjali, as per the act, an employee is eligible for ESI when their salary is less than ₹15,000. How come you are showing it in your salary structure? Also, the house rent allowance may seem incorrect.

Regards,
Vani

It's really confusing data provided by the consultant. You can also prepare a salary structure in the following way:

Gross Salary Structure

Gross Salary = 25,000

Basic Salary = 15,000 (60% of Gross Salary)

HRA = 7,500 (50% of Basic)

Conveyance = 2,500 (Rest Amount)

Total = 25,000 per month

Deductions

PF = 1,800 (12% of Basic)

LWF = ? (According to law)

PT = ? (If applicable in the state accordingly)

ESI = Not applicable in this case (Gross Salary is more than 15,000)

Total Deduction = 2,200 (In the above case)

Regards,
Neeraj Sharma

Rules for Determining Allowances

What are the rules determining who will receive allowances such as HRA, PF, ESI, etc.? Does it depend on basic wages or something else?

I will try my best to make it easy for you. Do not get confused.

1. Keep the basic salary above the minimum wages applicable to your locality. The balance part of the salary may be bifurcated into other allowances.
2. PF is to be deducted from the basic salary at 12% from the employee.
3. ESIC is applicable only if the gross salary is 15,000 or less.
4. LWF is applicable only to employees below the supervisory level.
5. Some companies add gratuity to the CTC. It is to be calculated on the basic at 4.8% (basic salary/26*15*number of years of service). The eligibility for gratuity is that the employee has to complete 5 years of continuous service.

For any further clarification, you may reply.

Regards