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 for 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.1250 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
** 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