Flexible Salary Structure: How Do You Tailor Pay Breakdowns to Employee Needs?

Dear all,

I want to know what guidelines one should follow when introducing a flexible salary structure in a company. How is the salary breakup determined for each employee based on their individual needs? My email address is ns_neha1984@rediffmail.com.

Dear Nayani,

You may do it in the following ways:

1. Your company may fix basic (40%-50% as per company policy of CTC).
2. Your company may fix HRA or DA, and the rest of the allowances can be decided by the employee out of a few choices given to them with a maximum and minimum limit, i.e., uniform allowance, medical allowance, fuel and maintenance expenses/conveyance allowance, food coupons, gift coupons, children education allowance, leave travel allowance, hostel allowance, entertainment allowance, furnishing allowance, etc.

For example, the maximum conveyance allowance one may opt for is Rs. 800, and in the case of a car, one may opt for fuel maintenance allowance instead of conveyance. The term "flexi pay" is also called "choice pay."

Warm regards,
Umesh Chaudhary
(welcomeumesh@yahoo.com)

Hi Nayani,

The contents of the salary breakup are as below. You can prepare it at your own convenience. HRA would be 50% or 60% of the basic salary.

- Basic
- HRA
- CCA - 825/- is exempted from tax
- Other Allowance
- Mobile Reimbursement
- Medical Reimbursement of 1250/month is exempted from tax

Gross Per Month = Sum of all the above.
Gross Per Annum = 12*Gross/Month
PF Contribution = 12% of Basic/Annum
ESI Contribution = 4.75% of Gross/Annum

Medical = The mediclaim facility provided to employees who are not covered under ESI, as the maximum ceiling for ESI is 10000/Month. Anything above this will be covered under Mediclaim or will depend on the company policy.

EX-Gratia/Bonus = A fixed amount as a bonus
Annual Fixed Gross Cost = Gross/Annum + Ex-gratia
Annual Total Cost = AFGC + PF + ESIC

Annual total cost is also referred to as CTC. Additionally, food coupons, holiday packages, and furnishing items are included in the CTC.

I hope this clarifies your queries to some extent.

Regards,
Amit Seth.

What's this flexi salary about? Is it the one that is tailor-made for every employee and different from other employees? If it is so, then we need to ask the employee for the breakup of their salary and stop deciding the breakup ourselves.

Dear Nikky,

CTC includes flexible as well as non-flexible components.

Flexible components include those salary heads which can be changed according to employees' tax benefits options:
- Flexible Pay
- HRA
- LTA
- Conveyance Allowance
- Reimbursements
- Books & Periodicals
- Telephone Expenses
- Medical Expenses
- Club Membership
- Car Fuel
- Car Maintenance
- Driver Salary
- FBT
- Special Allowance

Non-flexible components include those components of salary heads which can't be changed. They will be decided by the company itself, like Basic and dearness allowance.

Hope this helps you to understand the same.

Regards,
Amit Seth.

Dear Amit,

I think you missed my point. I know the components, but for me, a flexi salary is something where an employee has the right to decide the shape and form of their pay packet.

Hi Nikky,

You are absolutely right. These are the structures that an employee may choose based on the CTC offered.

Regards,
Amit Seth

Are there any permissible limits for the items mentioned below:

- Flexible Pay
- HRA
- LTA
- Conveyance Allowance
- Reimbursements
- Books & Periodicals
- Telephone Expenses
- Medical Expenses
- Club Membership
- Car Fuel
- Car Maintenance
- Driver Salary
- FBT
- Special Allowance

Hello Everyone,

If a small company does not provide PF, does not deduct any taxes of their employees, can they still follow the Flexi salary structure? Suppose there are 10-15 employees working, and a few are paying their TDS themselves. Can a company create individual flexible salary structures that provide employees with many benefits? Is an "Employee friendly salary structure" valid?