Salary Breakdown: How Do You Prepare a New Joiner's Pay Package?

Understanding Standard Salary Structure

Please help me understand the standard salary structure or components of a salary and how to prepare the salary of a new joiner if given.

Regards

Various companies have different kinds of salary breakup structures. However, here are the components for your reference:

Basic Salary

- Basic = 40% - 50% of Gross

House Rent Allowance (HRA)

- HRA = 40% of basic for Non-Metro and 50% of basic for Metro cities

Conveyance Allowance

- Max. up to Rs. 800 per mensem and Rs. 9600 per annum

Medical Reimbursements

- Max. Rs. 1250 per mensem and Rs. 15000 per annum

Special Allowance

- The balance of the Gross is calculated as the special allowance

Apart from the above, you need to look for statutory contributions:

1. ESI (Employees' State Insurance)

- Applicable for employees whose gross salary is less than or equal to Rs. 15000 per mensem:
- Employee Contribution: 1.75% on gross
- Employer Contribution: 4.75% on gross

2. Provident Fund (PF)

- Employee Contribution: 12% of basic
- Employer Contribution: 13.61% on basic

Professional tax varies from state to state. For a new joiner, you can always prepare a salary by:

- Net salary = Gross minus PF (Employee Contribution) minus ESI (Employee Contribution) minus Professional Tax
- CTC = Gross + PF (Employer Contribution) + ESI (Employer Contribution)

If the salary of the employee joining you is highly paid, then you may also use the special allowance that is to be paid through petrol allowance, food coupons, LTA, etc.

Regards

I agree with Sharmila. She has mentioned the best breakup options for a fresher's salary.

There are also some online tools available to get the salary breakups. You can search for them on Google or use a take-home salary calculator for India.

The calculator works in the reverse way, i.e., you have to enter the basic, HRA, and other values, and it will show you the CTC and take-home values. You can use it for your purpose of creating the CTC letter as well.

Sharmila Das has explained nicely. I am just attaching a sheet which contains a breakdown of the salary, and you can calculate TDS as well.

Regards,

Why is the Conveyance Rs. 800/- Per Month and Medical Rs. 1250/- Per Month?

These amounts are exempted from income tax. Both of these amounts may be fixed at a higher rate. There is no hard and fast rule to fix these two amounts.

That was informative, but what if the salary is given in CTC? Then how can we make the breakup? Please suggest.

Regards

Understanding ESIC Calculation

ESIC is calculated based on the Gross Salary. It includes Basic + D.A. + Allowances (all Allowances except washing Allowances).

Please let me know if you need any further assistance or clarification.

Dear Mr. Greek John,

For the CTC, it needs to be Gross salary, i.e., (Basic + HRA + Conveyance + Medical Reimbursement + Special Allowance) + PF (Employer's Contribution) + ESI (Employer's Contribution).

Dear Seniors, I am good with salary components. I need someone to help with salary fixation. How do we fix the salary for an employee, i.e., a salesperson?

The question about why the medical allowance is fixed at a low rate has not been answered. Can anyone please explain that?

Understanding CTC and Salary Components

CTC stands for Cost to Company salary. So, while calculating the salary, you should also consider the cost of leave, bonus, mobile facility, insurance, etc.

Regards,
Govind Desai