Can you provide information regarding the percentage of basic salary as part of the Cost to Company (CTC)? Is there any predetermined limit on the basic salary?
From India, Ratia
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From India, Ratia
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The percentage of basic salary as part of the Cost to Company (CTC) can vary widely based on the company's policy, the industry, and the specific job role. However, as a general rule of thumb, the basic salary usually forms around 40-50% of the CTC in India.
There is no legal predetermined limit on the basic salary as a percentage of CTC in India. However, it's important to note that the basic salary is a significant component as it impacts other salary components like Provident Fund, Gratuity, and ESIC, which are calculated as a percentage of the basic salary.
For instance, the Employee Provident Fund (EPF) contribution is 12% of the basic salary and dearness allowance. Similarly, gratuity is calculated based on 15 days of the last drawn basic salary for each year of service. Therefore, a higher basic salary would mean higher contributions towards these components.
However, companies need to be mindful not to set the basic salary too low as it could be seen as evasion of statutory benefits.
In conclusion, while there's no legal cap on the basic salary as a percentage of the CTC, it's typically kept at around 40-50% of the CTC in India, keeping in mind the impact on other salary components and statutory benefits.
From India, Gurugram
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74There is no legal predetermined limit on the basic salary as a percentage of CTC in India. However, it's important to note that the basic salary is a significant component as it impacts other salary components like Provident Fund, Gratuity, and ESIC, which are calculated as a percentage of the basic salary.
For instance, the Employee Provident Fund (EPF) contribution is 12% of the basic salary and dearness allowance. Similarly, gratuity is calculated based on 15 days of the last drawn basic salary for each year of service. Therefore, a higher basic salary would mean higher contributions towards these components.
However, companies need to be mindful not to set the basic salary too low as it could be seen as evasion of statutory benefits.
In conclusion, while there's no legal cap on the basic salary as a percentage of the CTC, it's typically kept at around 40-50% of the CTC in India, keeping in mind the impact on other salary components and statutory benefits.
From India, Gurugram
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Dear Deepak Kumar,
The take home salary should be something that meets basic necessity of an employee.
The Cost to Company (CTC) is an unit of measurement.
The option of Minimum Wages is cheaper option for an employer to adopt.
The issue is that the industry would not find employees at the rate of minimum wage.
Therefore, calculate the cost of Basic between 60% to 70% of the Cost to Company (CTC) in absence of DA. This is a common range, but the exact percentage can vary depending components like Dearness Allowance (DA), House Rent Allowance (HRA)@10-15/%, and Provident Fund (PF),ESI and Gratuity contributions are calculated@ 20 to 25/%.
From India, Mumbai
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The take home salary should be something that meets basic necessity of an employee.
The Cost to Company (CTC) is an unit of measurement.
The option of Minimum Wages is cheaper option for an employer to adopt.
The issue is that the industry would not find employees at the rate of minimum wage.
Therefore, calculate the cost of Basic between 60% to 70% of the Cost to Company (CTC) in absence of DA. This is a common range, but the exact percentage can vary depending components like Dearness Allowance (DA), House Rent Allowance (HRA)@10-15/%, and Provident Fund (PF),ESI and Gratuity contributions are calculated@ 20 to 25/%.
From India, Mumbai
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There is no such percentage as per law. Whatever is agreed by the employer for the service of an employee is his basic salary. Anything which is paid as part of general policy of the management is allowance not forming part of salary. But the present HR practices have taken it wrongly to interpret that salary shall include allowances which do not form part of or qualify for payment of various contributions that the employer should make as per various law.
If you take laws relating to EPF or Gratuity, the definition of wages is almost the same, and the same would include all emoluments that an employee earns as per contract of employment. The only exclusions are Commission (you can take incentive also), overtime allowances, bonus, house rent allowance and similar other allowances. These exclusions have certain common characteristics. The first one is that, the amount of these allowances will not be pre fixed and will not be available in the contract of employment or salary structure. The second is that these allowances are paid depending upon certain conditions, say, meeting a target, doing overtime work, company making profit, children of the employee studying (Education allowance), the employee placed in a hill station (Hill station allowance) or high altitude (high altitude allowance), employee coming to office using his own vehicle (travel allowance or fuel reimbursement) or employee staying in rented accommodation and the spouse of the employee not getting any HRA( house rent allowance).
The above said allowances will not be available to all employees but to certain employees who meets target, does overtime work or staying in leased accommodation. But the new generation HRs have included everything in the salary and made it known as CTC. It is to be noted that under the present situation even the HRA is paid to all employees without reference to who stays in leased accommodation. The funny thing is that if the employee remains absent for a day or two, the HRA is proportionately reduced! But the actual HRA which is not part of salary will be available to the employee even if he is on leave.
Therefore, the compensation structure should take the basic salary first, and then construct the gross salary and Cost To Company by adding allowances to it. The practice of taking percentage of CTC is legally not correct.
The Provident Fund is payable on the gross salary. The only exclusion available is HRA. But if it is paid to all employees, it will certainly become part of wages. However, the PF being payable on a certain wages, ie, Rd 15000, the EPFO will not be so curious to ask why the same is not included for PF contribution. It is a common question that will you give HRA to an employee whose salary is less than Rs 15000. Obviously, we will be prepared to hire an employee by paying house rent and other benefits only when the position is high which commands or requires reimbursement of such costs by the employee.
In the case of gratuity, the calculation is not actually on Basic wages alone or basic and DA alone. In the Act there is no mention about calculation of gratuity on basic pay alone. But we have the practice of paying gratuity calculated on basic wages and dearness allowance and it is accepted by practice. But it will be questioned when the scenario is like that the employees basic pay is not increased over certain years and there has been no allowance called dearness allowance. Then the simple question is why should an employee get salary increment every year? The answer is to compensate the cost of living increase and to reward his performance. The former will be documented by giving increase in DA and the latter by giving increase in basic pay. But instead of increasing these two components, if the employer is increasing some other allowances, it would be construed as an attempt to reduce his burden of gratuity only. Moreover, nowhere in the Payment of Gratuity Act it is said that gratuity shall be calculated only on basic pay and dearness allowance whereas the definition of wages says that wages mean total amount excluding allowances like commission or overtime.
It is also common for the employer to have an allowance called "other allowances" !! What is the meaning of other allowance? An allowance should be a compensatory allowance or some thing to compensate a cost. It can be paid to compensate the additional time the employee has spent (overtime), or it can be to compensate the cost of education of the children, petrol cost or rent paid. There cannot be just an "other allowances" !!
From India, Kannur
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If you take laws relating to EPF or Gratuity, the definition of wages is almost the same, and the same would include all emoluments that an employee earns as per contract of employment. The only exclusions are Commission (you can take incentive also), overtime allowances, bonus, house rent allowance and similar other allowances. These exclusions have certain common characteristics. The first one is that, the amount of these allowances will not be pre fixed and will not be available in the contract of employment or salary structure. The second is that these allowances are paid depending upon certain conditions, say, meeting a target, doing overtime work, company making profit, children of the employee studying (Education allowance), the employee placed in a hill station (Hill station allowance) or high altitude (high altitude allowance), employee coming to office using his own vehicle (travel allowance or fuel reimbursement) or employee staying in rented accommodation and the spouse of the employee not getting any HRA( house rent allowance).
The above said allowances will not be available to all employees but to certain employees who meets target, does overtime work or staying in leased accommodation. But the new generation HRs have included everything in the salary and made it known as CTC. It is to be noted that under the present situation even the HRA is paid to all employees without reference to who stays in leased accommodation. The funny thing is that if the employee remains absent for a day or two, the HRA is proportionately reduced! But the actual HRA which is not part of salary will be available to the employee even if he is on leave.
Therefore, the compensation structure should take the basic salary first, and then construct the gross salary and Cost To Company by adding allowances to it. The practice of taking percentage of CTC is legally not correct.
The Provident Fund is payable on the gross salary. The only exclusion available is HRA. But if it is paid to all employees, it will certainly become part of wages. However, the PF being payable on a certain wages, ie, Rd 15000, the EPFO will not be so curious to ask why the same is not included for PF contribution. It is a common question that will you give HRA to an employee whose salary is less than Rs 15000. Obviously, we will be prepared to hire an employee by paying house rent and other benefits only when the position is high which commands or requires reimbursement of such costs by the employee.
In the case of gratuity, the calculation is not actually on Basic wages alone or basic and DA alone. In the Act there is no mention about calculation of gratuity on basic pay alone. But we have the practice of paying gratuity calculated on basic wages and dearness allowance and it is accepted by practice. But it will be questioned when the scenario is like that the employees basic pay is not increased over certain years and there has been no allowance called dearness allowance. Then the simple question is why should an employee get salary increment every year? The answer is to compensate the cost of living increase and to reward his performance. The former will be documented by giving increase in DA and the latter by giving increase in basic pay. But instead of increasing these two components, if the employer is increasing some other allowances, it would be construed as an attempt to reduce his burden of gratuity only. Moreover, nowhere in the Payment of Gratuity Act it is said that gratuity shall be calculated only on basic pay and dearness allowance whereas the definition of wages says that wages mean total amount excluding allowances like commission or overtime.
It is also common for the employer to have an allowance called "other allowances" !! What is the meaning of other allowance? An allowance should be a compensatory allowance or some thing to compensate a cost. It can be paid to compensate the additional time the employee has spent (overtime), or it can be to compensate the cost of education of the children, petrol cost or rent paid. There cannot be just an "other allowances" !!
From India, Kannur
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SALARY CAN BE SPLIT INTO COMPONENTS BUT NOT LESS THAN THE MINIMUM WAGES.docx
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(Fact Checked)-Your explanation is comprehensive and accurate. You've correctly outlined the components of salary and allowances, and their implications on PF and Gratuity. Well done! (1 Acknowledge point)