Is Our New Salary Structure on Track? Seeking Your Feedback on Changes

Respected team members,

Please suggest what's correct and what's wrong with the structure.

Previous Year Structure Components

Our previous year structure components are monthly (CTC, Gross, Basic 70%, HRA 15%, Con. 15%, PF deduction EPR 13%, EMP 12%, ESI deduction EPR 3.25%, EMP 0.75%, Net in hand).

Current Year Structure Components

Our current year structure components are monthly (CTC, Gross, Basic 70%, HRA 15%, Con. 15%, PF deduction EPR 13%, EMP 12%, ESI deduction EPR 3.25%, EMP 0.75%, Gratuity (Basic*15/26/12), Net in hand).

Example

Previous year structure details (CTC-19000, Gross-16911, Basic-11838, HRA-2537, Con.-2537, PF deduction EPR-1539, EMP-1421, ESI deduction EPR-550, EMP-127, Net in hand-15365).

Current year structure details (CTC-20900, Gross-18062, Basic-12643, HRA-2709, Con.-2709, PF deduction EPR-1644, EMP-1517, ESI deduction EPR-587, EMP-135, Gratuity-608, Net in hand-16410).

Please let me know if this year's implemented structure is correct or not. If any changes are needed, please suggest them.

There is no issue in the revised salary structure because there is an increase given in every component of the salary. The only addition is gratuity, and even though it has no relevance, it would only show the CTC at a higher value. Including it would not lead to non-compliance. This is because the CTC as a concept of salary itself has no legal sanctity. Therefore, you can include any figure or component in it, and as long as the contributions payable by the employer towards PF, Bonus, Gratuity, etc., are calculated on the notified minimum wages, there will not be any legal issues.

In your current and proposed salary (CTC) structure, there are mismatches in PF and Gratuity because both are calculated on the basic salary alone, but it can be challenged in the future.

PF Deduction and Gratuity Issues

There are two issues. PF deduction should be on Basic and Conveyance instead of only Basic, subject to a maximum of 15,000/- PF Gross per month.

Gratuity Payment

Gratuity cannot be paid on a monthly basis. It is a terminal payment upon termination for any reason after the completion of 5 years of service, except in death cases. It is always calculated on the basis of the last drawn Basic, not every month. If it were every month, employees would be deprived by receiving less and also non-compliance.

S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]

It is true that gratuity is a terminal benefit payable when the employee leaves the company, and that is after rendering at least 5 years of service. However, it is an accepted practice to show it in the remuneration slip, called Cost to Company (CTC), because, at the end of the day, it is going to be a cost to the employer. That is why I said that CTC has no legal sanctity.

Salary Components and Gratuity Concerns

In the recently introduced Codes, certain aspects of salary components are addressed to some extent. You are free to decide what the pattern should be in place. However, highlighting the CTC structure nowadays is increasingly not preferred by job seekers as they start calculating the Gross and Take Home pay. This is an era in which employees switch jobs more frequently, often with less than 5 years of 'continuous service,' resulting in the denial of a valuable 'gratuity' kitty. There is the least possibility of gaining 'gratuity' if the employee does not complete the required 5 years of 'continuous service' as per the Gratuity Act. 'Gratuity' is to be computed over the number of completed years of continuous service. For instance, candidate 'A' randomly switches between 5 or 6 employers with less than 5 years each; in aggregate, he completes his superannuation without qualifying for payment of 'gratuity' at all during his entire career, resulting in a loss of about Rs. 20-25 lakhs.

Impact of Basic Pay on Other Components

Secondly, a high percentage of basic pay, say 70-75%, is not desirable as this will impact other components that form the basis for computing other allowances such as DA/HRA, EPF, etc.