How to Include Performance-Based Incentives in CTC for IT/Product Companies? Seeking Guidance!

Salary Structure Implementation in IT/Product-Based Companies

The current company I've joined doesn't have any salary structure to date, and the CEO himself transfers a fixed amount to employees' personal bank accounts; hence, none of the employees have received any payslip to date. Now, the management has decided to streamline the entire process so that when a new employee comes on board, it will be easy for them and the company to follow. Therefore, we would like to have a salary computation format similar to what IT/product-based companies follow.

We have a total team of 18, out of which 10 people are in software sales in Chennai, Coimbatore, Kerala, and Mumbai. We are now planning to bring new employees on board in Hyderabad and Bengaluru too.

Appraisals have taken place, and the CEO has decided to provide variable pay as well as incentives based on performance. He has mentioned that these are costs to the company and wants the incentives to be included in the salary structure as well.

Including Incentives in CTC

My question is, when the incentive varies and is entirely based on performance, how can we include this in the CTC? If yes, could someone guide me on how to show that within the CTC?

The components we would like to add are base CTC, variable pay, incentives on monthly targets, and daily allowance. For example, for a 7 lakh salary, which includes 50 thousand as variable pay paid on a quarterly basis against performance and monthly incentives based on their targets, with a maximum of 7,000 if they achieve 100%.

Seniors, kindly help in this regard. Meanwhile, I will also try to put in and share with you.

Provident Fund (PF) Implementation

Note: No PF deduction as of now and would like to know when we can start with PF. What is the minimum number required for PF to be added?

Regards,
Usha

EPF and ESIC Registration Guidance

As you have 18 employees, EPF is not mandatory. If interested, you can avail of the voluntary coverage option. Once you reach 20 employees, EPF registration becomes mandatory.

ESIC Registration

Your company will fall under ESIC registration, and my advice is that you initiate the registration immediately.

Professional Tax Certificate

I hope you have received the Professional Tax certificate.

Salary Structure

It is always preferred to maintain the standard salary structure as CTC (Fixed Gross Pay + Company contributions as benefits + Variable pay). If needed, I can share the template to help you decide the salary structure via email.

Regards

Dear Usha,

Mr. Jeevarathnam has clarified the PF-ESI & PT Points. For CTC Structure with "Variable Components," I have drafted a sheet. I have tried to upload an "Excel" file, but unable to do so (I faced this problem earlier also). Please check the format in the PDF file. If it meets your requirements, I will share the "Excel File" in some other way.

Concerns About Current HR Practices

Thank you for your brief reply. I have a few more concerns to mention. Management does not want to proceed with PF now and has not deducted professional tax to date. As a result, the company is not registered for either professional tax or ESIC. Additionally, there are no Loss of Pay (LOP) issues. Employees in the corporate office come in whenever they want, take leaves as needed, and sometimes work on Sundays as well. The working style seems to be more emotionally driven rather than professional.

Onboarding and Leave Policy

Regarding onboarding new employees, there are currently no written policies in place. I shared a leave policy typically followed by IT/product-based companies, but the management disagreed. They have confirmed that they can offer 12 days of leave per year, which could be CL/SL/ML. Given that we are a startup and not a high-paying company, I would appreciate your suggestions on how to engage the team with more employee-friendly activities.

Request for Salary Structure

I will soon share with you the policies I have prepared. In the meantime, please email me the salary structure at [Email Removed For Privacy Reasons]. The salary structure should include a CTC of 300,000, a VP bonus of 50,000 per annum paid quarterly based on performance, a travel allowance of 36,000 per annum, and incentives of 63,000 per year if 100% of the target is achieved, paid monthly.

Your time is valuable, and I appreciate your efforts in sharing knowledge with fellow members.

Thank you once again for your time.

Regards,
Usha