Salary Structures in Private Companies: What's the Easiest Way to Manage Them?

Dear Sir, I am a finance executive in a private company. Could you please suggest the best and easiest structure for the salaries of employees?

Regards,
Manjeet Singh

Principles in Structuring Salary

1. The salary should not be less than the one notified as statutory or what is called minimum wages.

2. If the salary is as per minimum wages notified, ensure that it changes according to changes in consumer price indices. Therefore, it should be adjustable according to changes in CPI.

3. The basic objectives of a salary hike, i.e., to reward the employee for their performance and compensate for the cost of living, should be adhered to. These two objectives should be reflected in the basic salary and dearness allowance respectively. Therefore, the practice of many private establishments where increases are reflected only in the "other allowance" portion/component of the salary will lead to problems in the future.

4. Other than the Basic Pay and Dearness Allowance, any amount that you pay to your employee as demanded by the employee or according to market requirements, elasticity of labor, etc., shall be put in components linked to performance/skill.

5. For salaries attracting income tax, it is advisable to have a few components like house rent allowance, conveyance allowance, education allowance, telephone allowance, etc., as 'reimbursements' rather than simply an allowance. An allowance is taxable, but a reimbursement is not taxable.

Can I work on salary in Excel format? If yes, please suggest a step-by-step process.

You can work on your salary in Excel. No issue. However, it will be fast and easy if you have software for that, especially when the number of employees is high.

For TDS-related matters, in the case of salary structure, everything will be taxable whether paid through salary or reimbursement if the amount is enjoyed by the employee and not used for official purposes.

Methods of TDS Calculation

As of the current date, there are two methods of TDS calculation. In the new method, there is no exemption, but in the old method, there is an exemption for LTA, HRA, DOM.MED, etc. For HRA, there are three tests, and whichever is less will be allowed as an exemption. I know of one case where the organization was reimbursing car/conveyance-related costs in totality. The ITAX authority categorically objected and advised maintaining a logbook showing the actual run for official purposes and actual usage for personal purposes. For personal purposes, the entire amount will be taxable.

Regards,
S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
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