Struggling with Salary Components: How Do We Calculate Basic, DA, HRA, TA, and Incentives?

Hi Team, I'm working in a private limited company with approximately 45-50 employees. We are revising HR rules and regulations in the company, and during this process, we recently discussed our salary components such as Basic, DA, HRA, TA, and incentives.

I have conducted some groundwork related to this but have not yet reached a definitive conclusion. We have categorized the salary components as follows:

If the gross salary is $10,000 per month:
- Basic = 50% of gross
- DA = 10% of gross
- HRA = 20% of gross
- TA = 14% of gross
- Incentive = 6% of gross

The CTC includes:
- Statutory compliances like PF, ESIC, and gratuity
- LTA and bonus
- Variable pay (applicable only for technicians and engineers)

My queries are:

1) How much should we contribute for gratuity per year?
2) Is there a rule specifying that we should contribute the mentioned percentages only for various salary components?
3) What is DA?
4) For the traveling allowance, is the amount we have specified high?
5) Is it mandatory that these 5 salary components should comprise 100% of the gross salary?

**Location**: Pune, India

hr rules, statutory compliances, salary components, calculation of salary, variable pay, Country-India, City-India-Pune

1. Gratuity Contribution: In India, the Payment of Gratuity Act mandates that employers contribute a sum equal to 4.81% of the employee's basic salary towards gratuity. The gratuity amount is calculated as (15/26) * 4.81% * Basic Salary per month. Therefore, the annual gratuity contribution can be calculated based on this formula.

2. Rule on Contribution Percentages: While there are guidelines for minimum contributions to components like PF, ESI, and gratuity, the percentages for Basic, DA, HRA, TA, and Incentive can be determined by the company's internal policies and industry standards. It is important to ensure that the total CTC is in compliance with labor laws and fair market practices.

3. Dearness Allowance (DA): DA is an allowance paid to employees to mitigate the impact of inflation on their salaries. It is calculated as a percentage of the basic salary and is usually revised periodically based on the Consumer Price Index.

4. Traveling Allowance (TA): The specified amount for TA at 14% of the gross salary seems reasonable and can vary based on the company's travel policies, industry norms, and the cost of living in the location.

5. Mandatory Composition of Salary Components: While the mentioned components typically add up to 100% of the gross salary, it is not mandatory for them to sum up exactly to 100%. The key is to ensure that the total CTC is competitive, compliant with legal requirements, and meets the needs of both the company and the employees.