Salary Structure Dilemma: Should Our Startup Add More Components? Seeking Pros and Cons

We are a freight forwarding startup. Our current company only has three components of salary. I have to include more components, as advised by management. Kindly let me know the pros and cons of adding more components. The current components are Basic + DA = 70% and HRA = 30%.

Kindly advise...

Adding more components to the salary structure

Adding more components to the salary structure can lead to more administrative hassles. On the other hand, your salary structure, in my opinion, is quite scientific.

Employee expectations in India

In India, there is a feeling among employees for more components in the salary structure. They also expect yearly components like LTA, etc.

Now, it depends on the organization's policy and can vary randomly from one organization to another.

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

Salary Components Breakdown

Basic: 40%-50%
HRA: 20%-30%
DA: 0-10%
Conveyance Allowance: 5%-10%
Medical: 5%-10%
Other Allowance: up to 15%

There are at least 4-5 additional heads of allowances you may consider. However, there is no specific rule about the nomenclature or the quantum (percentages), as it is at the discretion of the management.

Conveyance allowance or Conveyance expense reimbursements

1) Medical allowance - This is suggested where employees are not covered by a liberal medical insurance or reimbursement scheme.

2) Children's Education allowance - This is to support employees with the schooling of their children. Reimbursements of tuition fees paid at actuals may also be considered.

3) Uniform allowance or reimbursements - This is required to support the running staff to be neat and tidy.

4) Attendance incentives/bonus to encourage those achieving 100% attendance.

5) Loyalty bonus for long-serving employees, for example, at 10, 15, or 20 years of service. Suitable slabs can be considered. Even advances or additional increments are suggested.

6) Overtime allowance and so on.

Dear Swathy,

The only component that makes a difference tax-wise is the conveyance allowance. The rest of the components are of little materiality, except if you want to use them to favor a particular segment or type of employees or give some additional amount to those who need to spend in line with work.

Earlier, the breakup was important to reduce PF incidence, which is now mostly immaterial after the February 2019 Supreme Court case, which makes almost all allowances other than HRA a part of Basic. For ESIC, the payment is on the gross, so again, no impact.

Once the Code on Wages is implemented, you will need to provide at least 50% of wages as basic. But till then, you can manipulate things by giving more on HRA. But in the end, the impact is marginal.

Also note, Minimum Wages are defined as Basic + DA. In working components, do not end up being below the minimum wages.