Dear Cite HR Family,
Newly joined as HR, they asked me to bifurcate the CTC (Cost to Company) of a new employee. I request that you please share the knowledge on payrolls. How to do payrolls and how to calculate CTC and bifurcate? Send me the calculation of the template of payslips. We need a KT on payrolls.
Please help me out on this.
Thank you in advance,
C. Lakshmi Narayana.
From India, Hyderabad
Acknowledge(0)
Amend(0)
1Newly joined as HR, they asked me to bifurcate the CTC (Cost to Company) of a new employee. I request that you please share the knowledge on payrolls. How to do payrolls and how to calculate CTC and bifurcate? Send me the calculation of the template of payslips. We need a KT on payrolls.
Please help me out on this.
Thank you in advance,
C. Lakshmi Narayana.
From India, Hyderabad
Acknowledge(0)Amend(0)
"KT" on payroll refers to the notice period that an employee must serve before leaving a company.
Creating a Salary Structure
If you are tasked with creating a salary structure starting from the total cost to the company, the fundamental principle to adhere to is the statutory minimum wages set by the government for your industry. Payroll management should commence from the officially specified minimum wages. As long as you are compensating above the minimum wages, any breakdown would hold legally. However, determining the employer's contributions and obligations concerning each employee in compliance with various statutes should be based solely on the notified wages. Failure to do so may lead to complications in the future when calculating compensation or gratuity payments.
Salary Components and Practices
There is no requirement for the overall salary to be divided into smaller components such as Basic salary, Dearness allowance, House Rent Allowance, conveyance allowance, education allowance, etc. Nevertheless, there are common practices of segmenting the salary to potentially decrease the employer's liability. The assumption is that only Basic salary would be considered for bonus payments, leave encashment, Provident Fund (PF), gratuity, or other compensations. Consequently, numerous companies, including those publicly traded and highly ranked in the market, allocate a minimal amount to Basic salary and a larger portion to House Rent Allowance (HRA). HRA is an excluded salary component under various Acts, making it significant to payroll administrators. However, HRA is essentially a compensatory allowance and is exempted only for employees residing in leased or rented accommodations for work purposes.
Income Tax and Allowances
For income tax purposes, even though rent receipts or lease agreements are collected from individual employees, they are often not directly linked to their HRA as a salary component. Therefore, the gross or total salary is the basis for deductions due to unauthorized leave (LOP), not the basic pay. Similarly, conveyance allowances may be paid to all employees without factoring in their actual travel costs, while special allowances may be provided without consideration of the specific skills possessed by the employees beyond those generally required for their roles. Court rulings indicate that (special) allowances universally paid to all employees should be considered part of basic wages.
Structuring Pay
Hence, structuring pay should be a meticulous process conducted after thorough examination of prevailing laws and potential risks. The safest approach is to strike a balance between the statutory and market salaries, ensuring that the basic pay always exceeds the statutory basic and Dearness Allowance levels. Any additional payments should be categorized as allowances. However, there is no guarantee that these allowances will not be included in salary calculations for gratuity, as emphasized by the Supreme Court in the Roofs and Bridges case, where allowances paid to all employees throughout the company are deemed part of the basic pay.
From India, Kannur
Acknowledge(0)Amend(0)
Creating a Salary Structure
If you are tasked with creating a salary structure starting from the total cost to the company, the fundamental principle to adhere to is the statutory minimum wages set by the government for your industry. Payroll management should commence from the officially specified minimum wages. As long as you are compensating above the minimum wages, any breakdown would hold legally. However, determining the employer's contributions and obligations concerning each employee in compliance with various statutes should be based solely on the notified wages. Failure to do so may lead to complications in the future when calculating compensation or gratuity payments.
Salary Components and Practices
There is no requirement for the overall salary to be divided into smaller components such as Basic salary, Dearness allowance, House Rent Allowance, conveyance allowance, education allowance, etc. Nevertheless, there are common practices of segmenting the salary to potentially decrease the employer's liability. The assumption is that only Basic salary would be considered for bonus payments, leave encashment, Provident Fund (PF), gratuity, or other compensations. Consequently, numerous companies, including those publicly traded and highly ranked in the market, allocate a minimal amount to Basic salary and a larger portion to House Rent Allowance (HRA). HRA is an excluded salary component under various Acts, making it significant to payroll administrators. However, HRA is essentially a compensatory allowance and is exempted only for employees residing in leased or rented accommodations for work purposes.
Income Tax and Allowances
For income tax purposes, even though rent receipts or lease agreements are collected from individual employees, they are often not directly linked to their HRA as a salary component. Therefore, the gross or total salary is the basis for deductions due to unauthorized leave (LOP), not the basic pay. Similarly, conveyance allowances may be paid to all employees without factoring in their actual travel costs, while special allowances may be provided without consideration of the specific skills possessed by the employees beyond those generally required for their roles. Court rulings indicate that (special) allowances universally paid to all employees should be considered part of basic wages.
Structuring Pay
Hence, structuring pay should be a meticulous process conducted after thorough examination of prevailing laws and potential risks. The safest approach is to strike a balance between the statutory and market salaries, ensuring that the basic pay always exceeds the statutory basic and Dearness Allowance levels. Any additional payments should be categorized as allowances. However, there is no guarantee that these allowances will not be included in salary calculations for gratuity, as emphasized by the Supreme Court in the Roofs and Bridges case, where allowances paid to all employees throughout the company are deemed part of the basic pay.
From India, Kannur
Acknowledge(0)Amend(0)
Thank you for the Knowledge Transfer (KT). Please provide me with the template on how to calculate CTC for a construction company and how to prepare the salary structure of an employee. A clear picture of the calculations and how to prepare the payroll of an employee would be appreciated.
[Email Removed For Privacy Reasons]
From India, Hyderabad
Acknowledge(0)Amend(0)
[Email Removed For Privacy Reasons]
From India, Hyderabad
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
SALARY SHEET CALCULATION.xls
Salary calculation.doc