Designing Salary Structures for Startups: How Do You Calculate Basic and CTC?

Hello everyone,

I will be designing salary structures for the first time for a startup organization. I have just 5 days to finalize the same. Can you help me on how to design a salary structure? How do you decide on the CTC amount? In case the CTC amount is 7.25 lacs, then how do you calculate the Basic? Once you know the basic, you can calculate the remaining amounts.

Please help. Urgent.

Sal

What components (allowances & other reimbursements) do you want to extend to employees besides basic salary? Think of the same & then reshare your query.

Hi R. ChandraKant,

The basic salary is calculated in a range of 30%-50% of CTC depending on the compensation philosophy of the company.

Thanks

Considerations for Designing a Salary Structure

As suggested by experienced members, before implementing or preparing any salary structure, you should first determine which components you want to include in your establishment (State). Consider whether Professional Tax (PT) is applicable in your state. Some establishments show the Provident Fund (PF) contribution as 12% (being the employer's contribution to the member’s PF), while others include the administration and EDLI, etc., as well (being 13.15%, as per today's rate).

Moreover, you should search for the options available in the forum. You can find a number of CTC structures with different patterns.

However, since you have raised the query for an urgent solution, the forum is always ready to help and advise its new members. Please find attached the salary structure as required by you. It can be modified as per your requirements.

Definition

An act to provide for a scheme for the payment of gratuity to employees engaged in "Factories, Mines, Oilfields, Plantations, Ports, Railway Companies, Shops or Other Establishments" and for matters connected therewith or incidental thereto. This Act extends to the whole of India except the State of J&K.

Concept of Gratuity

This is a social security enactment. Gratuity is derived from the word "Gratuitous," which means 'Gift' or 'Present.' This is a retirement benefit paid when the employee retires or leaves the service, so that the employee can live comfortably after retirement.

Applicability

Every factory, mine, oilfield, plantation, port, and railway, every shop or establishment within the meaning of any law in which ten or more persons are employed, or were employed, on any day of the preceding twelve months, or to such other establishments as the Central Government may, by notification, specify. Once this Act has become applicable to any establishment, it shall continue to be governed by this Act even if the number of persons employed falls below ten.

Wages

"Wages" shall consist of basic pay plus D.A. However, allowances like bonus, commission, HRA, overtime, etc., are not to be considered for calculations of gratuity.

Eligibility

Gratuity is payable to an employee who resigns after completing at least "5 years" of service. For gratuity payment, every employee is eligible irrespective of the salary.

Formula for Calculating Gratuity

Gratuity is payable at 15 days' wages for every completed year. If in the last year, the service is more than 6 months, it will be counted as a full year for the purpose of gratuity. It is applicable only after the 5th year onwards. The general formula is: (15/26) * Number of service years * Last wages drawn. Gratuity is not a deductive component. It is paid by the employer over and above the monthly salary. However, HR can show the gratuity as a part of CTC.