Understanding CTC: What Percentage Should Be Your Basic Salary According to the Act?

Hi seniors,

As per the act, how much percentage should be taken as the basic from the CTC?

Regards,
Varun

Hi,

The basic wage need not be less than 50% of the gross salary and the state minimum wage. If the gross salary is, suppose, 10000 and the state minimum wage is 8000, then you need to keep the basic wage at 8000. However, if the gross salary is 20000 and the minimum wage is still 8000, then the basic wage should be Rs 10000.

I hope this clarifies the calculation of the basic wage based on the percentage of the gross salary and the state minimum wage. Let me know if you need further assistance.

Understanding Wage Components Under Indian Labor Laws

The "Act" you referred to is the Minimum Wages Act, 1948, which alone fixes the quantum of wages payable to industrial employees, selectively as a first step towards the realization of the ideal of securing a "Living Wage" for the working class as per Article 43 of the Constitution of India. Though the terms 'wage', 'salary', and 'remuneration' have similarities in their colloquial meanings in terms of nature and outflow, they have certain subtle dissimilarities or differences in their literary and legal definitions in terms of the periodicity of payment, method of computation, the nature of services in consideration of which the payment is made, and the addition of certain components resulting in a structural pattern.

Apart from the MW Act, 1948, being the only Act fixing the minimum rate of wages payable in respect of certain scheduled employments, as I mentioned earlier, there are other legislations relating to wages exclusively too, such as the Payment of Wages Act, 1936, dealing with the mode and periodicity of payment of wages and the legal deductions therefrom, and the Equal Remuneration Act, 1976, mandating equal wages for equal work irrespective of sex, along with other legislations like the Industrial Disputes Act, 1947, the ESI Act, 1948, the EPF Act, 1952, the Payment of Bonus Act, 1965, and the Payment of Gratuity Act, 1972, each having its own modified definitions of wages depending upon their respective purposes.

Therefore, when you intend to break the gross or total wages of a given wage period (e.g., monthly wages) into different components such as basic and allowances, you have to ensure compliance with all these Labor Laws, which have different definitions of the same term.

Basic and Dearness Allowance being the major components invariably finding a place for consideration in almost all the legislations mentioned above, you may consider the breakup of Basic and D.A together as 70% + Other Allowances 30%. Such a practice would ensure unquestionable compliance with all enactments and avert the heartburns of employees regarding their indirect/fringe benefits.

Anyway, do not start the calculation with CTC.

Understanding Basic Salary Allocation

There is no law that specifies the quantum or percentage of Basic Salary in labor enactments. It is at the discretion of the management and varies from industry to industry and organization to organization. You cannot confuse this with the concept of Minimum Wages as defined in the scheduled category of employees under the Minimum Wages Act, which differs from state to state. In common practice, 50% of the total wage or salary of an employee is bifurcated as Basic, and the remaining 50% is allocated as allowances.

Regards, V R RAO PULIPAKA

Minimum Wage and Basic Salary Allocation

The minimum wage (BASIC+DA) applicable to an industry, as mentioned in the Minimum Wages Act (Gazette Copy), varies across different states. This wage should be considered as the BASIC to be fixed, irrespective of the gross salary. For example, in Tamil Nadu, the Minimum Wages are Rs. 9107/- (basic+da). Therefore, the BASIC+DA or BASIC should be equal to or greater than Rs. 9107/-, with the remaining amount allocated as allowances.

General Norms for Salary Allocation

Traditionally, the norm is to allocate 50% to basic and 50% to other allowances. However, in Tamil Nadu, PF authorities require that at least 60% of the gross salary should be BASIC or BASIC+DA.

Current Salary Payment System

Currently, many companies and contractors have adopted a two-title salary payment system:
(i) BASIC - 60%
(ii) HRA - 40%

Definition of BASIC as per the PF Act

According to the PF Act, the definition of BASIC includes all allowances except for OT and HRA.

Dear sir,

I would like to request you to please provide the latest CTC calculator as per the Minimum Wages Act.

Understanding CTC and Minimum Wages

Regarding your query, CTC means Cost to the Company. There is no specific criterion for calculating CTC under Minimum Wages, as mentioned by you. Generally, Minimum Wages vary based on the schedule category of employment, which differs from state to state, i.e., Basic Wages + DA + VDA. VDA changes every six months based on CPI numbers. When calculating CTC, you consider Basic, DA, VDA, allowances like HRA, Conveyance, etc., and also include the employer's contributions towards PF, ESI, Bonus if applicable under the act's ceiling, GPA, Mediclaim, and other benefits provided by the employer.

Thanks & Regards,
V R RAO PULIPAKA

Dear All,

Members have amply clarified various facets of the breakdown of salary. The issue generally arises when an employee is in a tax bracket and wants to pay minimum tax. Yes, generally the basic is kept in such cases up to 50%, and the balance is distributed. The percentage of basic has an impact on gratuity; hence, in certain cases, it is kept at 40%. However, there is no hard and fast rule and no specific Act.

Regards,
Col. Rathi