New to HR: How Do I Choose the Best Salary Structure for My Company?

Dear All Seniors, I need help from you. I recently joined one of the leading engineering companies in the HR Department as an HR Officer. I am new to the HR field, and I know HR is like the sea. I don't know about salary structures, and I want to know what a salary structure is and which is the best salary structure for an organization.

Understanding Salary Structures

If possible, please also let me know why we should provide the best salary structure to employees. Please help me because I have to implement the best HR policy as soon as possible in my current organization.

Hoping for your favorable reply.

Thanks,
Disha G.
HR Officer

I think you are a bit confused about salary, etc. Anyway, I will try to answer your query.

Understanding Salary Structure

The salary structure is the policy that a company adopts to pay its employees, encompassing aspects such as the basic salary, allowances, variable pay, etc. All these components together constitute a salary structure.

Benefits of Offering the Best Salary Structure

Regarding your question on why we should offer the best salary structure, the best salary structure serves as a motivation to attract the best talent in the market.

I hope this information is helpful to you.

Regards,
Rajeev Dixit

Before I try to give you some answers, please answer the following questions. What is your background: qualifications, experience, etc.? How large is your organization and what is your role? Do you have any bosses? Is your organization in one location or dispersed? Have you searched the web to find out general information about the topic? If not, why not?

By searching the web, I found this link http://kenexa.com/Portals/0/Download...Structures.pdf

Regards

You are absolutely correct about HR being as vast as the sea. I hope I can help you with the salary structure.

Understanding Salary Structure

The salary breakup is structured to compute different aspects. It's similar to creating a monthly budget for your household, just like how a company budgets for you.

- Basic = Day-to-day household budgeting
- HRA = House rent, house maintenance
- DA = Food expenses, other miscellaneous expenses
- Travel allowance = Petrol, bus costs
- PF, Gratuity = Savings, etc.

This is my unconventional way of explaining salary breakups. In short, the salary structure is the breakdown of the different components provided by a company to an employee in the form of salary. A well-structured salary is essential to attract talent.

I hope this clarifies things for you. If you need further explanation, please don't hesitate to ask.

Thanks,

Ro

Together we can and we will make a difference.

The salary structure includes Basic, Dearness Allowance, House Rent Allowance, Conveyance, Medical, Special Allowance, Children Education Allowance, Uniform Allowance, City Compensatory Allowance, etc. One can choose all or some of them to draft the salary structure.

Points to Consider While Drafting a Salary Structure

- Basic or Basic + Dearness Allowance: Must not be less than minimum wages.
- House Rent Allowance: 50% for Metro Cities and 40% for Non-Metro Cities.
- Conveyance: Rs. 800/- per month (Tax-Free).
- Medical: Rs. 1250/- per month (Tax-Free).
- Children Education Allowance: Rs. 200/- per child up to 2 kids.
- Uniform Allowance: Must be genuine, say Rs. 2000 to Rs. 3000/-.
- Special Allowance and City Compensatory Allowance: Balancing figures of salary.

Provident Fund (PF) and Employee State Insurance (ESI)

- PF: 12% of Basic + DA from the employee and 12% + 1.61% from the employer's side.
- ESI: 1.75% of Gross from the employee if the salary is up to Rs. 15,000/- and 4.75% from the employer's side.

Hope this will help you out.

Regards,
Chill HR

Welcome to the world of HR, and all the best for your future endeavors. First, let us know about your company's total manpower and the statutory compliance that is applicable. If statutory compliance is applicable, then who was responsible for those tasks before you? I am asking about the above matter because the salary structure is the heart of the overall payroll system and statutory compliance.

Learn About Salary Structure

Before creating the salary structure for individuals, learn from reference websites and senior friends about various salary parameters. You need to know the various components (Basic, HRA, DA, special allowance, education allowance, deductions: PF, ESIC, PT, and others if applicable) and their limits for tax exemption. If you are still unable to define the salary structure for individuals, contact the nearest consultancy firm and senior members/friends. This is very important because it affects various types of statutory deductions and taxes.

For more information, please find the attachment. You can edit it as per your company policies.

PREVENTION IS BETTER THAN CURE

Regards

Thank you, Dixit Sir. I understand your answer, and it should be helpful to me. Thanks again.

Our Company Structure

Our company structure is as follows:
Given Basic + Conveyance = Gross
Take Home = Gross - PF - P.T.

Can I change my salary structure to align it with industry standards? If I wish to change the entire salary structure, what steps should I take? Do I need approval from the organization? If approval is granted, are there any legal formalities I need to adhere to? If so, please advise on the necessary legal processes.

Hi Disha, I think you might be a bit confused about salaries, etc. Nevertheless, I will try to address your query.

Understanding Salary Structure

A salary structure is the policy that a company implements to remunerate its employees, covering aspects such as the basic pay, allowances, and variable pay. All these factors combined form the salary structure.

Benefits of an Optimal Salary Structure

Regarding your question on why we should provide the best salary structure, having an optimal salary structure serves as a motivation to attract top talent in the market.

I hope this information is helpful to you.

Regards,
Rajeev Dixit

Thank you for your reply. Please find below the answers to your questions.

1. I have completed my graduation in Commerce and have only one year of experience in HR and Administration, not in pure HR.

2. There are a total of 150 employees working in our organization, and I am an HR Officer (you can say HR Head). I report to one boss who is the owner of the organization (M.D.). We have two manufacturing units, with one located only 5 kilometers away from our main company.

3. I have researched many websites and found some useful information. However, I am confused about the salary structure. I am not very strong in the legal aspects, and in my current organization, I am responsible for all legal activities. This presents a significant challenge for me.

I hope the information provided above will help in giving you a proper answer.

Regards,
Disha G.

Thank you very much for your query. Please read carefully.

Salary Structure Components

While preparing the salary structure, there are certain components that are mandatory to be included as part of the salary or wages. The Minimum Wages are being paid in accordance with the appropriate government regulations. Certain components create liabilities after the separation of the employee following a specific work period.

Considerations for the Income Tax Act

It is important to consider the Income Tax Act when preparing the salary structure, as there are certain components that are excluded. The allocation of Bonus, Gratuity, and leave encashment depends on the salary head. There is no fixed percentage mentioned in the salary structure or in the Minimum Wages Act. Please refer to the relevant government regulations for appropriate wages and also consider the Income Tax Act.

Thank you.

Salary Structure Assistance Needed

This is Hema. I am new to the HR field, currently working as an HR professional in the hospital sector. I need to prepare a salary structure, but I am a bit confused about how to proceed. The structure I have prepared is as follows:

- Basic = 50% of gross
- HRA = 30% of gross
- Conveyance = 800
- Special allowance = gross - basic - HRA - conveyance
- PF = 12% of basic (13.61% for the employer)
- ESI = 1.75% of gross (4.75% for the employer)

I am uncertain if this structure is correct or if I need to make any changes to avoid legal issues. I lack knowledge about bonus, gratuity, and VDA. How should I include these in the pay structure and at what percentage?

Regarding overtime (OT), I calculate it as (gross / 30) * number of OT days and add this to the net salary. I pay the total salary as the management instructed that OT should not impact basic pay, PF, and ESI. Is this approach correct?

I urgently need assistance from senior professionals as I have to provide the salary structure to the software department for payroll processing.

Regards,
Hema

Don't worry, the above information about the salary structure and all is enough for you to move ahead. The parameters replied by Chill HR are true and factual, which you should follow and take initiative. You are doing well, and by accepting challenging jobs, you will learn a lot quickly.

Regards,
Uday