Struggling with Salary Structure: Should Variable Pay Be Included or Separate?

Respected Seniors and my dear colleagues,

I have been asked to prepare a salary structure, the very basic task an HR has to perform, and I have prepared one. I am posting it right here. I invite your views, suggestions, comments on the same.

Basic Salary - 40% of gross Salary
HRA - 30% of basic
City allowance - 10%
Conveyance allowance - 10%
Sundry medical expenses - $1000 (fixed amount)
Mobile allowance - $500
Other allowances - xxxx Residual amount
Total - xxxxx salary per month

I still think there is a lot of confusion as I don't know whether to show the variable pay, which is 20% of the salary, as a part of the salary or to show it separately. Please help. I am too confused. :roll:

Thanks and Regards,
Indrani Chakraborty

Hi Indu,

Please find the Salary matrix in the attached file. I hope it will help you.

Cheers,
Pawan Krishna Ruddy.CA

Hi,

The salary structure will differ from state to state and city to city. The metro city allowance is different from allowances in other cities, which I am also not aware of.

Regards, Mrugesh

Hi Mrugesh,

Thank you for your reply. Can any senior member of the community guide me on how much should be the city allowance for Pune?

Thanks and Regards,
Indrani Chakraborty

Dear Mr. Pawan,

Can you please clarify another doubt? In case we are paying a medical allowance to the employee, do we need to collect medical bills, etc., from the employee? Is it required to submit such bills to the auditor or CA during an audit to support the fact that the company has actually spent that amount on employee welfare?

Thanks and Regards,

Indrani Chakraborty

Dear Mr. Pawan,

Thank you very much for the help extended. Our company has decided to pay this amount as a part of the salary, and I believe that up to Rs. 1000, it is not taxable. Please correct me if I am wrong.

Thanks and Regards,
Indrani Chakraborty

Note: I will give you a call tomorrow in case I have more doubts. I hope you don't mind. :)

To prepare the salary slip, you need to have the following points:

1. Basic salary
2. HRA
3. Medical allowance
4. Conveyance allowance
5. Mobile allowance (if applicable)
6. TDS
7. Provident Fund
8. ESI
9. Professional Tax
10. Loan Repayment
11. Prepaid/Advance
12. Others
13. Leave encashment

Regards, Chandnisnh

My Dear Indrani,

The salary structure looks okay, madam. You have forgotten PF and gratuity, which are mandatory. PF is 12% of Basic salary, and Gratuity is calculated as 15/26 * 1 month's basic salary (where 15 represents 15 days of the month and 26 is the number of working days).

Please let me know if I have been able to help you a bit.

Regards,
Sheryl

Hi Indu,

I am not sure if you have been asked to prepare a standard template that fits all the positions in your organization. I am not sure if such a template is possible. Depending upon the case, you can play a lot with the fringe benefits. Fringe benefits remain taxable but not to the extent as salary components.

I can only suggest to you the right approach to follow. I will have to do some homework to suggest the necessary components, but for now, I can definitely help you with the philosophy that you should follow to arrive at a pay structure. DEVISE THE STRUCTURE IN A MANNER SUCH THAT THE TAX LIABILITY ON THE EMPLOYEES IS MINIMIZED.

You can now implement the concept of a basket of allowance to give flexibility to the employees. It is generally called "special allowance," and employees are free to play with the basket components depending on their requirements and also how much they would want to take home.

Hope this is some help.

Regards, Pseudonym-Gopikishan :-)

To assist employees in maximizing their tax benefits on higher rent, consider increasing the House Rent Allowance (HRA) to up to 40% of their basic salary, which is deductible from their income.

The fixed medical amount is taxable for employees. Therefore, it may be more beneficial to structure it as a reimbursement. The maximum allowable reimbursement amount is $15,000 per year.

Additionally, empower employees to make decisions regarding variable pays. Offer them the option to claim a Leave Travel Allowance, which can typically be availed once every two years.

Dear Indrani,

The attached file will help you more in the preparation of the Salary Structure. Regarding Medical Allowance, Pawan is correct. If you hold the amount and pay monthly, quarterly, half-yearly, or yearly, it requires bills and is taxable. If you are paying along with the salary, up to 1000/- is not taxable.

Ajay Sharma
09460131855
ajaysheel@gmail.com

Dear Mr. Chandnisnh,

Thank you so much for your valuable inputs. I have incorporated the other components in the salary structure except for loan repayment, prepaid/advance, and leave encashment. We are yet to implement PF and ESI in our organization. We usually don't extend loans to our employees, and leave encashment is a good suggestion that I will discuss with management.

Thank you for your inputs. Keep posting.

Thanks and Regards,
Indrani Chakraborty

Hi Indu,

I saw the structure which was posted to you, there is some correction. I hope you are aware of CTC "COST TO COMPANY." So, all costs will be included in CTC which are incurred by the employee as follows:

BASIC

DA

HRA

CONVEYANCE

SPL. ALLW.

SUPL. ALLW.

FOOD ALLW.

GROSS ------------

PF 12% EMPLOYER

ESI 4.75% EMPLOYER (IF APPLICABLE)

P.TAX (IF APPLICABLE)

BONUS (AS PER COMPANY POLICY)

GRATUITY

SUPERANNUATION

THAT IS CTC

Please see that Basic + DA wages should equal the minimum wages, we can't bifurcate minimum wages. (As it's ordered by the Supreme Court.)

Regards,
Jitender

Dear Mr. Gopikishan,

Thank you for your feedback. I will definitely take care so that the salary structure is employee-friendly.

Keep posting.

Thanks and Regards,
Indrani Chakraborty

Dear Mr. Ajay Sheel,

Thank you very much for the attached salary structure. A member of this community has pointed out that the city allowance is different for different cities. Can you please let me know the figures for Pune?

Thanking you in anticipation,

Indrani Chakraborty

Hi Indrawn,

I want to add some notes.

1. Medical allowance is different from reimbursement. If your company is reimbursing the bills, the company has to pay the Fringe benefit tax on it. However, if it is an allowance, then up to a maximum of 15K is allowed for the employee, and it is tax-free. For the allowance, you have to collect the bills and produce them to the Auditor for the preparation of Form 16 at the end of the financial year.

2. Your salary structure -

Basic Salary - 40% of gross Salary - OK

HRA - 30% of basic - OK

City allowance - 10% - OK

Conveyance allowance - 10% - incorrect (Pune is considered a non-metro area, so the conveyance is fixed at 800 per month with no changes.)

Sundry medical expenses 1000 (fixed amount) - OK, as this will vary from company to company, but for taxation, a maximum of 15K is allowed per year.

Mobile allowance 500 - falls under Fringe benefit tax for the company, and for the allowance to be tax-free, he/she has to produce the bill.

Other allowances xxxx Residual amount - OK

I hope this will keep you happy. If you need anything extra, email me at [Login to view].

Cheers,

Suneel.

Dear Mr. Jitender,

Thank you very much for the help extended. I will mention the professional tax in the CTC; the rest of the things are not applicable to our company. I will also keep in mind your suggestion about the bifurcation of salary.

Thank you. Keep posting.

Regards,
Indrani Chakraborty

Hi Jyothi,

Thanks for the input. I wanted to know whether I am on the right track, so I posted the salary structure on the site. Thanks to citehr, I have received some very important points explained by the members of the site.

Thanks and Regards,
Indrani Chakraborty

Hi Indrani,

Basic is okay.

HRA makes up 50% of the basic as it serves the income tax purpose. Make medical allowance a fixed amount of Rs. 1,250 per month. Set conveyance at a fixed rate of Rs. 800 per month. If possible, consider making 2 months' basic pay as LTA (again, for tax purposes). If feasible, provide a food coupon of Rs. 1,000 per month (for tax purposes). The rest can be allocated as other allowances. Combine other benefits such as PF, ESIC, gratuity, and SA to calculate the CTC.

Regards,

Shiva Kumar H

Dear Indu,

As far as my knowledge goes, the way you term it is also important for tax calculations. If you call it Med 'Allowance' then it's taxable. The justification being that the allowance is paid irrespective of the actual expense.

But if you call it Med 'Reimbursement' then it's tax-exempted up to 15k per annum because it's the reimbursement of the actual expenses incurred by the employee.

You can pay this as part of the salary too, but at the end of the year, you need to collect the bills from the employees. If the employees fail to produce bills for 15k but produce only for say 10k, then 10k is tax-exempted and 5k is added to the taxable income.

Also, you can show the variable pay as part of the CTC, with a mention that this amount is paid only on achievement of performance targets.

Hope this info was useful.

Regards,
Deepthi

Mobile/Telephone reimbursement can be given to all classes of employees. Is it necessary to justify that mobile reimbursement is provided due to a business need, or can it be included as part of the salary structure for any type of industry and be considered valid as per Income Tax Law?

Dear Mr. Shivakumar,

Thank you for your feedback. A member of the community has asked me to make HRA 40% of the basic, and you have asked me to make it 50% of the basic. I am confused now about what to do.

One more thing I wanted to know from you is if our company decides to have a tie-up with Sodexo or Accord for giving food coupons, will the employer incur some expenses while using their services? Can you provide me with information on how the process works? What should be the minimum number of employees required to have such a tie-up?

Thanks and Regards

Dear Indrani,

Medical Allowance is still 1250/-, and you have to claim for a bill for every employee. This is a part of the salary but will not show in the salary sheet. After getting the net earnings, he will claim his medical reimbursement; it may be monthly, quarterly, half-yearly, or yearly depending on the employee.

City Compensatory Allowance is fixed, i.e., 10% of the basic.

You can provide LTA, which is equal to 2500/-.

Child Education Allowance: 200/- fixed

Conveyance Allowance: 800/- fixed

Washing Allowance: 300/- fixed

I hope this information is helpful.

Regards,
RAJNISH SAPRA @ 98711 09974

Dear Mr. Suneel,

Thank you so much for your feedback. I was not aware of the conveyance allowance clause. I will set it as a fixed amount of Rs. 800. In case we are paying a mobile allowance, is it mandatory to submit the mobile bills?

Could you please share your contact number so that I can reach out to you for some more queries? I hope you don't mind. :)

Thanks and Regards,
Indrani Chakraborty

Dear Ms. Deepthi,

Thank you very much for your input. I will term the particular component as "medical allowance." In that case, I guess I need not collect the bills from them. Please correct me if I am wrong.

Thank you once again.

Thanks and Regards,
Indrani Chakraborty

As per my understanding, any allowance paid to employees towards meeting their telephone/mobile bill requirements/obligations falls under the purview of fringe benefits. Ideally speaking, it should be granted to employees who tend to use cellphones/landlines for making official calls. However, other members may be better placed to shed more light on this.

The important point here is that from a taxation point of view, it is always advisable to add fringe benefits rather than multiplying/augmenting the salary components directly. This results in a lesser tax liability for the employees, making them happier!

Comments welcome!

Dear Indrani,

Compensation structure varies from organization to organization. However, these days there is a trend to minimize the components of salary.

Eg:

Part I

Basic pay -

Varies from level to level or can be fixed at 35% or 40%.

HRA -

May vary from level to level or can be the same across levels.

Other allowances -

This is a variable amount and is also flexible. The employees are given an option to choose a fixed number of allowances like Conveyance, Food, Medical, LTA so that they can claim Tax exemption as per the IT act.

Part II

Statutory requirements:

PF

ESIC - if applicable

Statutory Bonus

Part III

Superannuation scheme - if the employer has

Gratuity

Part IV

Performance Bonus - If the performance parameters are defined for each level and are quantified with Performance Indicators. The maximum applicability of Performance Bonus can also be defined as 3 times Basic Pay or 4 times Basic pay, as per the company rules and corpus available for distribution against Performance.

Retention Bonus: This is an amount payable if the employee stays with the company for a specified period.

I hope I have given you a fair idea. If you require any specific details, please call me on 9967539298.

Archana

A prudent choice for HRA can be derived from the taxation structure. For example, Taxable HRA must be the least of the undermentioned three options:

1. Actual HRA received
2. Excess of rent paid over 10 percent of salary
3. 50% / 40% of the salary

As evident in the last statement, the ceiling of 50% and 40% is subject to city type.

Hope this helps.

Dear Mr. Rajnish,

Thank you for your reply. Could you please clarify whether the conveyance allowance falls under FBT or not?

Thanks and Regards,
Indrani Chakraborty

Dear Mr. Gopikishan,

Thank you very much for the clarification. Based on all the inputs received from all you lovely people on cite hr, I have finally decided to put the HRA as 40% of basic.

Thanks and Regards,
Indrani Chakraborty

Dear Mr. Mohan,

Thank you so much for the input.

Regards,
Indrani Chakraborty

Hi Indu,

When it comes to variable pay, it depends on the company policy whether it should be included in CTC or not. Normally, it is included in CTC and is based on parameters like Performance Rating. In such cases, the variable pay has to be paid annually.

Regards,
Jeevan

Dear Mr. Jeevan,

Thank you for your inputs. You are right; the variable pay is going to be linked to the performance appraisal, so we are planning to put it in the CTC.

Keep posting.

Thanks and Regards,
Indrani Chakraborty

Hi Indrani,

The onus lies with the company as far as TDS from employees' salaries is concerned. The Medical Allowance to the extent of Rs. 1000 is exempt, but it is subject to the submission of relevant documents. You need to ask your employees to submit the same; otherwise, deduct tax on such allowance for which no documents are submitted.

You may reach me at [Login to view] for any further discussion.

Cheers,
Prakash

Dear Mr. Kashija,

Thank you so much for the help extended. I will definitely get in touch with you in case I have any further queries.

Thanks and Regards,
Indrani Chakraborty

Still, I didn't understand the salary structure. Can you guide me as the basic salary varies from 20% to 40%? Can you call me or reply to me?

Hi all,

I am very much confused. Can anybody make clear to me what is taxable and what is non-taxable in a salary structure? What is the best possible way to create a salary structure so that an employee can take the maximum amount of their salary home?

Kindly provide me with your invaluable suggestions.

Regards,
Rubina Ansari

Hi Rubina,

Taxable amount includes basic salary and other allowances.

Non-taxable components are food coupons, conveyance allowance, medical allowance (up to 15K maximum), and LTA (produce the bills). In other allowances, if the employee has children (maximum of 2), he/she can receive child education allowance up to 100/- per month per child, which is tax-free. Additionally, for employees in the sales section, petrol allowance is also tax-free.

HRA calculation: The lesser of actual HRA, 40% of basic salary, or rent paid minus 10% of basic salary is tax-free.

I hope this explanation clarifies your doubts.

For more details, feel free to contact me at +919901921296 or via email at suneelmasur@gmail.com.

Cheers,
Suneel

Dear Pawan,

You are showing the Special Allowance head in your Projected salary structure. The above allowance will also be covered within the purview of wages under the E.P.F. Act. i.e. if any employee is receiving Basic + DA wages of Rs. 5000 per month and Special Allowance of Rs. 1000 per month, the P.F. Contribution liability will be fixed on both heads. Therefore, you can replace the Special Allowance with Other Allowance to save on extra contribution liability.

With regards,
S. Singh

Dear Indrani,

Please note the following:

1. Basic + DA = 40% of the total gross salary.
2. HRA is 40% of the basic salary (there is an income tax exemption up to 40%).
3. Conveyance allowance is ₹800 or more (there is an income tax exemption up to ₹800).
4. Medical expenses (there is an income tax exemption - please check).
5. Special Allowance = Balance amount.

Regards,
Hosmath

Hi friends,

I have seen all the comments and I propose the following:

1. As per salary norms, it has not been defined anywhere what salary structure one company can fix, but HRA should not be greater than 60% in any case first.

2. Few structures have already been defined in FBT, but if any company wants to give more than the prescribed amount, in that case, it's up to the employer whether they take FBT from employees or not on bills. But bills are required; otherwise, it would be presumed that it is part of the salary, which would be a taxable amount.

3. There is no definition of perks/cash part as per law; it totally depends on the employer how they want to pay.

4. Nowadays, various companies are paying a friendly salary structure, which attracts employees.

Regards, Arun Kumar

Dear Hosmath,

Please note the following:

1. Basic + DA = 40% of the total gross salary.
2. HRA - 40% of basic (there is income tax exemption up to 40%).
3. Conveyance - 800 or more (There is an income tax exemption up to 800/-).
4. Medical Expenses (there is an income tax exemption; please check).
5. Special Allowance = Balance amount.

Regards,
Hosmath

Dear Mr. Hosmath,

Thank you for your guidance. If I hadn't received inputs from you wonderful people, I would have messed it up.

Thanks and Regards,
Indrani Chakraborty

Dear Mr. Arun Kumar,

Thank you for clearing my doubt on HRA. We have decided to keep the HRA at 40% of the basic. I am trying my level best to make the structure employee-friendly, but then again, I have to keep in mind the FBT part as well.

Thank you once again for your inputs.

Regards,
Indrani Chakraborty

Dear Indrani,

This is an extremely good effort. Please note, as far as medical expenses go, you can provide Rs. 15,000 per annum. If the employee submits medical bills, they can avail tax exemption for the same.

Allocating 40% of the basic salary as House Rent Allowance (HRA) is suitable for Pune, considering it is a Non-Metro City. Additionally, you can include a component called Children's Education Allowance. By submitting tuition bills, the amount can also be deducted from taxable income.

On what basis are you providing a Uniform Allowance? Under the current Fringe Benefit Tax (FBT) regime, this falls under Staff Welfare and is subject to taxes. It is advisable to confirm this with a qualified tax consultant.

Cheers and keep up the good work.

Dwipna

Dear Dwipna,

Thank you so much for your valuable inputs. I work for a software company, so I think I cannot put a uniform allowance (please correct me if I am wrong) as this allowance can be given only to factory workers. Can you tell me whether I can put something called a "washing allowance" instead? Also, will this washing allowance come under the purview of FBT or not?

Keep posting.

Thanks and Regards,
Indrani Chakrabprty

Dear all,

I want to ask one more thing as I am working in a metro city: can I give some special benefits to my employees in their salary?

Regards,
Rubina Ansari

Hi Indrani,

By providing a washing allowance, the amount falls under FTB. However, as the job is considered white-collar, these allowances are not permissible. You could instead label it as an entertainment allowance (taxable for the employee) or an Educational Allowance (non-taxable for the employee).

Cheers,
Suneel.

Hi,

If you are in Metro, HRA will be 50% of Basic. Conveyance will be 1200 (fixed). You can provide the petrol allowance if the employee is coming by his own vehicle.

Cheers,
Suneel.

Dear Mr. Suneel,

Thank you so much for your feedback. I just wanted to clarify one thing - is "Education allowance" the same as children's education allowance? If so, in that case, we cannot provide it to unmarried employees.

Can you tell me what percentage of tax is applicable to entertainment allowance?

Thank you once again for your valuable inputs. Keep posting.

Regards,
Indrani Chakraborty

Hi Indrani,

It comes under the total amount for calculation of tax. There is no separate percentage for it. Education allowance can be given to unmarried individuals as well if they are undergoing some form of education, either academic or departmental.

Cheers,
Suneel.

Dear Mr. Suneel,

Thank you so much for your inputs. Kindly clarify one more doubt: do the employees need to provide some marksheets or documents to support that they are pursuing education, or can we just give away that amount as a part of the salary?

Thank you once again for the help extended.

Regards,
Indrani Chakraborty

It is okay, but it consists of fewer components like medical allowance, attendance allowance, etc. It is not suitable for every post and is not applicable to every industry. For example, in the case of V.D.A., it is not mentioned here, and its scope is limited.

[Login to view]

Dear Mr. Neeraj,

Thank you so much for your input. As I have mentioned in my earlier posts, I work for a mid-sized company where employees join at the entry level. Therefore, I wanted to propose a salary structure that is simple enough for them to understand.

Keep posting.

Thanks and Regards,
Indrani Chakraborty

[Email: neeraj_m@citehr.com]

Dear Indrani,

You can prepare a salary structure as per the below system. If the Gross salary is 6000/-, follow this breakdown:
- 100% (Basic)
- 50% (HRA)
- 12% (PF)
- 1.76% (ESI)

Calculate as follows:
- Rs. 6000 * 100 / 163.76 = 3666 (BASIC)
- Rs. 6000 * 50 / 163.76 = 1834 (HRA)
- Rs. 6000 * 12 / 163.76 = 435 (PF)
- Rs. 6000 * 1.76 / 163.76 = 65 (ESI)

I believe this information will be helpful to you. If it is, please let me know.

Thanks,
Anil

Dear Indrawn,

You need to have a contemporary structure rather than a traditional one. You may consider the following proposed for Middle Magot level:

Basic Salary - 100%
Flex Pay - 100% to 200% of Basic Salary, depending on the position
Performance Pay - 20% to 50% of Basic Salary, depending on the position
Retrials - 31.8% of Base salary (PFUI, SA, Gratuity)
Flexipay may include HR, Conveyance, LATA, Medical Allowance, and other allowances if any. You may give employees the option to choose from the above on a monthly basis. This will help them get tax advantages as per existing rules.
If you do not want to include SA (Superannuation) for this category of employees, you may do so.
You can also add Special Allowance as an Adjustment Allowance if needed on a monthly basis.
If you need any more information, please do get in touch with me.

Thanks and regards,
Madhav Kokanee
9960274001
madhavkekane@yahoo.co.in

Dear Mr. Madhav,

Thank you so much for your valuable suggestions. I still have a lot more queries. I hope you will not mind if I give a call at the number provided by you. Can you let me know whether we need to have some minimum number of employees to disburse food coupons? Can you let me know how much an employer has to pay for availing this service from Accord or Sodexo?

Thanks and Regards,
Indrani Chakraborty

The salary should commensurate with the assignment an employee has got. Further enhancement of the salary should be based on the performance of the employee. The one you have suggested appears to be a fixed one. No annual increment, bonus, LTA, and other annual remuneration have been given. They should also be taken care of. Normally, the pay structure should be worked out matching the net profit of the organization. I would like to suggest that you can take the guidance of organizations in the line you are.

With wishes,

Sengailingam

I think the salary structure should be a combination of fixed and variable components. This would include a basic salary component, a portion tied to the cost of living increase, and another part based on performance-linked pay.

I can provide you with the details if you are interested.

Hi,

You can find the "Salary Structure" files uploaded in this forum. Kindly browse for it.

Regards,
Jyothi

Dear Mr. Shantonu, Mr. PR Kumar, and Mr. Shengalingam,

I have arranged an incentive plan based on the timely submission of the project, along with a percentage of the salary as variable pay linked to the performance appraisal. The performance appraisal system is still in process, so I could not incorporate the figures into the salary structure yet. Once I am done, I will display those details on the site and would appreciate your valuable suggestions being experienced individuals in HR.

Thank you all for your valuable input.

Best Regards,
Indrani Chakraborty

Hi,

In your structure, add conveyance and transport, which should be based on a voucher system. This is partly tax-free. Also, the telephone expense could be up to 1200 and will be completely tax-free.

Variable salary must not be part of the CTC and should be informed, as it will be dependent on performance. This will help employees save on taxes as they are variable and not fixed.

If you still want some more tax-free income structure, add a daily food allowance of Rs 50 in the structure and issue food coupons against it. This will be tax-free, and only 12% FBT will be liable to be paid on it. You can even add a car allowance for higher cadre persons, which again will help them reduce the tax on income.

Regards

I think performance-linked incentives should not be included in CTC of an employee. I have experienced certain situations where the idea behind performance-linked incentives is diluted as this is treated like an employee's CTC.

Dear Mr. Saurabh,

Thank you for sharing your experience. I would like to know what problems one might face if variable pay is included in the CTC. Kindly shed some light on the same.

Thanking you in anticipation,

Indrani Chakraborty

Dear Indrani,

Basic should be 40% to 60% of the gross salary as per the TDS Act. HRA should be 50% of the Basic Salary. Special (Ad-hoc) Allowance should be 15%. Conveyance Allowance 10%. Washing Allowance 3% (It depends on the cost of living in that particular place). Traveling Allowance 5%. Medical Allowance 7%. If the Medical Allowance is paid as salary, it comes under tax. If you have any doubts, please email me.

Regards,

Ravi Kumar T 09964519065

Hi Indrani,

I would definitely reply to your query. Please feel free to call me on my cell - 9819335867.

Ashutosh

Dear HRs,

This post has analyzed all aspects of the salary structure. I appreciate the way Indu has stated her doubts by sharing her work for analysis by the site members and I thank all the contributors to this topic. It has given me a clear picture of the salary structure, and it has answered all my queries on this topic.

Once again, I thank everyone.

Regards,
Benance

Hi,

Different companies have different pay structures. In many companies, variable pay is treated as a performance bonus, which will be given along with the increments based on the rating scale. It should be taken into consideration in the CTC. It can be shown in the TCTC as a performance bonus up to 30% or 20%. However, the minimum will be fixed, such as 5% or 10%. Based on the ratings, the performance bonus will be declared.

Ritish

Dear Mr. Ritish,

Thank you for your input. I just wanted to clarify a doubt. For example, if the variable pay is fixed at 20%, is it mandatory to keep a part of it as fixed? According to the structure we have decided upon, an employee is not entitled to any variable pay if he/she receives the lowest score during the performance appraisal.

Could you shed some light on this?

Thanks and Regards, Indrani Chakraborty

Dear Indu,

Rs. 1250.00 per month or Rs. 15,000.00 per annum is exempted, provided you can get bills/vouchers from the employees.

Cheers!
Rajesh Kumar

Dear Ms. Indrani,

Annual CTC of an employee increases when the PLI is included in it. While scoring, I have experienced that managers tend to be more lenient while scoring the KRAs as they feel like taking money off an employee. In my consideration, PLI is a very good concept to reward performance but in cases where performance is subjective, a lot of it depends upon the supervisor and the situation. I have seen too many errors like the Halo effect and Recency effect affecting the scoring of PLI.

Unless a company is able to devise an efficient process for PLI, it will not be effective. Unfortunately, in my experience, many companies are not ready for the same. Also, I have seen that whenever a surprise reward is given to an employee, it motivates them more than monthly or quarterly PLI.

Kindly let me know your views as well.

Thank you.

Dear Mr. Saurabh,

Thank you for such wonderful inputs. Thank you for reminding me about the biases of PMS. We have tried our level best to design a system with minimum subjectivity, but then again, I think it's not possible to negate the biases completely.

We have also designed an incentive structure based on individual project performance with the expectation that it will increase the productivity of the employees and bring about a positive change in the organization.

Thank you once again.

Regards,
Indrani Chakraborty

The XLS sheet specifying the CTC is excellent. I would suggest a few changes. Details are as follows:

Basic: Ideally, 40% of CTC.
HRA: 50% of basic for Metro; others 40% to gain maximum income tax benefit.
Medical Allowance: Rs. 15,000/- or Rs. 1,250/- per month, again for income tax benefit.
Provident fund: You can cap it at basic Rs. 6,500/-, i.e., Rs. 780/- per month. This will ensure more cash in the hands of the executives.

Should you have any other specific queries, please do feel free to revert back.

Regards,
Dwipna

Hi all,

I require a small clarification on what the salary structure should be for a take-home salary of 7500/- Rs. Please help me out in this matter. How should I consider the ESI (1.75%)?

My components:
Basic 3000
HRA 1800
Conveyance 1500
Others 1200
--_________
Net Home 7500
PT 80
PF
ESI

What should be the ESI and PF calculation for the above package? Please help me out in this regard. Waiting for a reply.

I have an architectural firm named "Ichinen Architects (P) Ltd." There are 30 employees in my company. We do not have any system, and everything is being done like "salary, increment, promotion, etc." just like that.

Please suggest how I should go about making my company a successful organization. I am willing to do the best in the market.

Hi, my HR friends,

I have received much valuable information from you, thanks.

I have one doubt: If the company has not paid the Professional tax for the past 5 years, who will be liable for the nonpayment of the professional tax - the company or the employees? In this scenario, if some employees have left the company at that time, who will be responsible for the issue?

Rajaraman, HR