The Basic Component in Salary Structure
The Basic component is the primary component and the core of the salary structure. It is usually the largest component of the CTC, making up 40-45% of the total CTC. The basic plays an important role in defining the salary as other components like Provident Fund, Gratuity, and ESIC are dependent on it.
For example:
- Basic: 40-50% of CTC
- DA: 5% of CTC
- HRA: 50% of Basic + DA if metro and 40% if non-metro
- Conveyance: Rs.1,600 a month
- Medical: Rs.1,250 a month
- LTA: No real benchmark, can even be used as a plug, but if not can set as 10% of Basic
- ESIC: 6.5% of Gross Salary (in which employer contribution 4.75% & employee contribution 1.75%)
- Special Allowance: Usually used as a balancing component
- Provident Fund (Employer): 12% or 10% of Basic + DA
- Provident Fund (Employee): 12% or 10% of Basic + DA
- Gratuity: 4.81% of Basic + DA (paid by employer)
- Child Education Allowance: Rs. 100 every month for a maximum of two children
- Professional Tax: As per state-wise slabs
- Labour Welfare Fund: As per state-wise slabs
Considerations for Ideal Salary Structures
While creating the ideal salary structures, there are three things you should keep in mind:
- It should be tax efficient: This means that it should give employees the opportunity to save as much tax as possible. Salary amounts should be divided into components giving the employee the opportunity to avail as much tax deduction as possible.
- Reduce the employer’s liability: The salary structure should reduce the liability of the employer. The employer’s contribution to PF, Gratuity, etc., should be kept as low as possible.
- It should be compliant: Compliance norms like minimum wages and PF laws should be kept in mind while drafting the salary structure.
Regards, Amit