Struggling with Salary Structure: How to Define CTC and Calculate Minimum Wage?

We are trying to make a salary structure for our employees but are struggling to understand what the basic component should be. I have read somewhere that the basic component of salary should be more than 50% of CTC.

How do you define CTC?

Does it include the employer contribution of PF (13% including admin charges)? Or does it only include the employee contribution of PF? Also, is that 50% number a requirement by law or is it just a good practice? Can we keep it at 42%?

Please note that we want to keep the salary so that the basic is as low as possible.

Calculating the monthly minimum wage

I also want to know how the monthly minimum wage is calculated. In my company, the employees are only required to work from Monday to Friday. The minimum wage for a semi-skilled person is 400 Rs in my state. But there is no minimum wage defined per month. Should I calculate the minimum monthly wage by multiplying 400 by 20 (5 days per week x 4 weeks), or would I have to define the minimum monthly wage by multiplying 400 by some other number like 26 or 30?

Thanks,

Karan Gupta

There is no rule that the basic salary should be 50% of the Gross salary or CTC. CTC is a concept which has no legal sanctity. At the same time, the gross salary is the salary that is agreed to be paid to the employee in consideration for the services that he gives to us. Any contribution payable by the employer following any statute like PF, ESI, Bonus, gratuity, etc., should be over and above the gross salary. The sum of these two (gross salary and the contributions payable by the employer towards ESI, PF, and bonus payable annually, etc.) will be referred to as Cost To Company. Since this is a cost of hiring an employee, the concept has gained acceptance.

Minimum Wage and Its Components

The minimum wage is the statutory wage notified by the government which should be paid and the amount below which no employer is expected to pay. It shall consist of a basic wage and a dearness allowance which will change depending upon the cost of living index. If your state basic wage is Rs 400, I understand that there should be a dearness allowance also to be payable over and above this amount. Please check the gazette notification.

Calculating Monthly Wage

Normally, a notification will contain a daily rate or monthly rate. If you have only a daily rate, then in order to get the monthly rate, you should multiply the daily rate by 26. It is okay that you work only for five days in a week. But multiplying the daily rate by 26 only would give the employee one paid weekly off.

Structuring the Salary

While structuring the salary, you should not go for 50% or 60% but take the sum of the basic wage and DA as the base wage. Suppose that the basic wage is Rs 10400 (400X26) and there is a DA of Rs 3900 (150X26). Then the gross minimum should be Rs 14300. It is not possible to hire employees by offering the notified wages, and you have to offer an amount additionally. Suppose the offered salary is Rs 20000 per month. Then the difference of Rs 5700 shall be put under any head, as an allowance. This is the simplest and legally compliant salary structure.