If a person is offered CTC-350,000/p.a, i.e., 29,167/month. How to know the Gross salary then as Gross will always be less than CTC.
Gross components include HRA, Conveyance, Medical, Education, and Special Allowance. But with these components, what will be the maximum percentage or when to stop saying that this is the gross amount. And is the basic percentage of gross or CTC?
Kindly shed some light on it.
Regards, Vikas
From India, Calcutta
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6Gross components include HRA, Conveyance, Medical, Education, and Special Allowance. But with these components, what will be the maximum percentage or when to stop saying that this is the gross amount. And is the basic percentage of gross or CTC?
Kindly shed some light on it.
Regards, Vikas
From India, Calcutta
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HI Vikas, The basic should be fixed from the CTC as a gross +Employer PF contribution . It should be 40% of CTC. Regards, Suresh Kumar. R Sr.Executive-HR , Kanchipuram, Tamilnadu.
From India, Chennai
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From India, Chennai
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Can you please support your statement with the help of any provision of law? In which law is it stated?
Regards
From India, Mumbai
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Regards
From India, Mumbai
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To the best of my knowledge, there is no law that fixes a minimum percentage of basic for monthly salaried employees. You may see a very useful post by Mr. Balaji on this at this link: https://www.citehr.com/342584-percen...-download.html
Understanding Cost to the Company (CTC)
Cost to the Company (CTC) is the total of 'salary' and includes components such as the employer's PF contribution, ESI, or medical insurance if any, etc. Some companies may allow some employees personal loans at subsidized interest rates (this one has Income Tax implications also). The employee will not see these components in "cash" every month but will enjoy them at a later date. Non-cash elements such as food coupons may not be perceived as 'cash' but still, the employee gets the benefit. All these payments cost the company, hence the term "CTC".
Calculating Gross Salary from CTC
Regarding your particular query on how to calculate gross salary from CTC, the payslip/appointment letter will have the details of all cash payments. If any payments are paid through a voucher (for example, conveyance), these must be added. Total these amounts to know the gross salary.
Cheers,
Ganesh
From India, Bangalore
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Understanding Cost to the Company (CTC)
Cost to the Company (CTC) is the total of 'salary' and includes components such as the employer's PF contribution, ESI, or medical insurance if any, etc. Some companies may allow some employees personal loans at subsidized interest rates (this one has Income Tax implications also). The employee will not see these components in "cash" every month but will enjoy them at a later date. Non-cash elements such as food coupons may not be perceived as 'cash' but still, the employee gets the benefit. All these payments cost the company, hence the term "CTC".
Calculating Gross Salary from CTC
Regarding your particular query on how to calculate gross salary from CTC, the payslip/appointment letter will have the details of all cash payments. If any payments are paid through a voucher (for example, conveyance), these must be added. Total these amounts to know the gross salary.
Cheers,
Ganesh
From India, Bangalore
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Thanks to all for your valuable suggestions. I am aware that the basic salary fluctuates and there is no fixed formula for it. CTC includes Gross + Benefits given to the employee, such as bonus, gratuity, etc. Net salary = Gross Salary - Deductions.
To reframe my query, I want to know the relation between basic, gross, and CTC in terms of finding the basic salary. Is the basic a percentage of the gross or CTC, or can any of these be taken?
Let me illustrate with an example:
CTC proposed = 100/month
Basic 40% = 40 (of CTC)
HRA 26% = 26 of basic
Conveyance 8% = 8
Washing Allowance = 2
Medical Allowance = 8
Special Allowance = 2.79
Total Gross = 86.79
Now, as the proposed CTC includes other benefits, this makes the gross amount less. But I have confusion relating to the total gross amount as to why 86.79 is only taken. Why not more or less? Why not add any more components to increase it or remove any components to decrease it? Is there any specific criteria to fix the gross between 80-90?
Secondly, if a person is offered CTC but their basic is calculated on the gross amount, how do we calculate the gross amount? Because if we don’t know the gross amount, we won’t be able to find the basic.
Last but not least, as there are certain percentages fixed for various components in the above-stated example, if we leave the basic and HRA assuming them to be fluctuating, how can other components, including or excluding them, be fixed or fluctuated in percentage so that the total percentage amounts to the proposed CTC? If possible, kindly illustrate with an example.
Regards,
Vikas
From India, Calcutta
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To reframe my query, I want to know the relation between basic, gross, and CTC in terms of finding the basic salary. Is the basic a percentage of the gross or CTC, or can any of these be taken?
Let me illustrate with an example:
CTC proposed = 100/month
Basic 40% = 40 (of CTC)
HRA 26% = 26 of basic
Conveyance 8% = 8
Washing Allowance = 2
Medical Allowance = 8
Special Allowance = 2.79
Total Gross = 86.79
Now, as the proposed CTC includes other benefits, this makes the gross amount less. But I have confusion relating to the total gross amount as to why 86.79 is only taken. Why not more or less? Why not add any more components to increase it or remove any components to decrease it? Is there any specific criteria to fix the gross between 80-90?
Secondly, if a person is offered CTC but their basic is calculated on the gross amount, how do we calculate the gross amount? Because if we don’t know the gross amount, we won’t be able to find the basic.
Last but not least, as there are certain percentages fixed for various components in the above-stated example, if we leave the basic and HRA assuming them to be fluctuating, how can other components, including or excluding them, be fixed or fluctuated in percentage so that the total percentage amounts to the proposed CTC? If possible, kindly illustrate with an example.
Regards,
Vikas
From India, Calcutta
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Understanding Pay Fixation and Salary Components
The entire process of pay fixation by the new generation HR is fundamentally flawed. You should visit the Personnel Department of some established companies to see how it is structured. First of all, the basic salary is not a percentage of CTC (Cost to Company) or Gross Salary. It is the foundation that should be laid first when structuring pay. For that, there should be a pay scale for a particular grade of employees. The amount of basic salary should be decided based on the salary scales in similar industries, or you can take the basic salary as per the minimum wages notification. Then decide on how much the annual increment should be. It may be around Rs 50 or 100, depending upon the grade. Accordingly, you will have to prepare an accelerated scale of pay for each grade of employees.
If you employ a fresher in the unskilled category, say, grade 1, they shall be given the lowest of the basic in the respective scale of pay. On the other hand, for a person with 2 years' experience, you can give four or six increments, add these to the basic salary, and fix their basic salary.
You can have a scale for semi-skilled workers, say grade 2. Here also, you can take the minimum wages as per notification as the lowest level and put increments (higher than that of grade 1) and construct a pay scale for grade 2. If a semi-skilled person (say, a person from ITI may be semi-skilled, whereas a person who does not possess any basic qualification is unskilled) joins you, you can put them at the lowest level in grade 2. If, on the other hand, the person joining has experience, depending upon the experience, you can add increments and fix a basic pay for them.
In a similar way, you have to fix basic scales of pay for all categories of employees. This will enable you to fix the salary of an employee based on their qualification, experience, and responsibilities that they have held in the past. Also, when an existing employee is promoted, they are given a higher grade and pay.
Components of Salary
Now, coming to other components of salary, the most important is Dearness Allowance (DA). There can be two types of DA: Variable Dearness Allowance and Fixed Dearness Allowance. Variable Dearness Allowance is based on the consumer price index of the respective locality where the establishment functions. It varies based on changes in the consumer price index. In some states, it is published every year considering the average of consumer price indices throughout the year, whereas in some states, it is adjusted every month based on the monthly CPI. Normally, VDA is given as part of the salary of employees below the grade of Managers.
For Managers and higher salary employees, it can be Fixed Dearness Allowance, which will be a fixed percentage of the Basic Salary. It can be 30% or 40% of the Basic Salary. The percentage may change depending upon the category of employees.
It will be the Basic Salary and the DA that will be considered as statutory salary for most purposes, like the calculation of Bonus, Gratuity, leave encashment, and other benefits.
Other Salary Components
Now, there can be another component of salary, viz., House Rent Allowance (HRA). This can again be a percentage of Basic Salary. The percentage may change depending upon the category of employees and may be around 15% to 20% of the basic salary. HRA can be a fixed amount also. The amount may also vary for different categories of employees.
There can be other components, like Conveyance allowance, telephone allowance, medical allowance, fuel allowance, etc. The amount may be fixed for each category/grade of employees. For persons who are subjected to income tax, it is better to make these as reimbursements so that they get the full benefit of tax exemption.
Special allowance is something that is paid to persons who perform special tasks. This can also be an amount paid to adjust the salary demanded by the employee against the scales on which we are operating. That means, when there is a difference in the salary fixed as per above and the salary the candidate is demanding, then we have to take this component and adjust the salary as per their demand.
The sum total of the above will be called Gross Salary. Now we take the perks, annual components like performance-linked incentives/variable pay, bonus, and the contributions that the employer will make for the employee, like ESI, EPF, and a provision for Gratuity also. This will be equal to the cost that the employer will incur by employing a person. This is called CTC or Cost To Company.
Now the practice is to decide first how much should be the cost to company and work backward and bifurcate into small components. Years back, I had posted an article on this site titled CTC Vs BTC (which is also available in the blog - link: Madhu.T.K: CTC Vs BTC). Please read that also along with these comments.
As already pointed out in the beginning, it will be better to spend some time in the Personnel Department of a good organization to get more detailed information about pay fixation.
Regards,
Madhu.T.K
From India, Kannur
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The entire process of pay fixation by the new generation HR is fundamentally flawed. You should visit the Personnel Department of some established companies to see how it is structured. First of all, the basic salary is not a percentage of CTC (Cost to Company) or Gross Salary. It is the foundation that should be laid first when structuring pay. For that, there should be a pay scale for a particular grade of employees. The amount of basic salary should be decided based on the salary scales in similar industries, or you can take the basic salary as per the minimum wages notification. Then decide on how much the annual increment should be. It may be around Rs 50 or 100, depending upon the grade. Accordingly, you will have to prepare an accelerated scale of pay for each grade of employees.
If you employ a fresher in the unskilled category, say, grade 1, they shall be given the lowest of the basic in the respective scale of pay. On the other hand, for a person with 2 years' experience, you can give four or six increments, add these to the basic salary, and fix their basic salary.
You can have a scale for semi-skilled workers, say grade 2. Here also, you can take the minimum wages as per notification as the lowest level and put increments (higher than that of grade 1) and construct a pay scale for grade 2. If a semi-skilled person (say, a person from ITI may be semi-skilled, whereas a person who does not possess any basic qualification is unskilled) joins you, you can put them at the lowest level in grade 2. If, on the other hand, the person joining has experience, depending upon the experience, you can add increments and fix a basic pay for them.
In a similar way, you have to fix basic scales of pay for all categories of employees. This will enable you to fix the salary of an employee based on their qualification, experience, and responsibilities that they have held in the past. Also, when an existing employee is promoted, they are given a higher grade and pay.
Components of Salary
Now, coming to other components of salary, the most important is Dearness Allowance (DA). There can be two types of DA: Variable Dearness Allowance and Fixed Dearness Allowance. Variable Dearness Allowance is based on the consumer price index of the respective locality where the establishment functions. It varies based on changes in the consumer price index. In some states, it is published every year considering the average of consumer price indices throughout the year, whereas in some states, it is adjusted every month based on the monthly CPI. Normally, VDA is given as part of the salary of employees below the grade of Managers.
For Managers and higher salary employees, it can be Fixed Dearness Allowance, which will be a fixed percentage of the Basic Salary. It can be 30% or 40% of the Basic Salary. The percentage may change depending upon the category of employees.
It will be the Basic Salary and the DA that will be considered as statutory salary for most purposes, like the calculation of Bonus, Gratuity, leave encashment, and other benefits.
Other Salary Components
Now, there can be another component of salary, viz., House Rent Allowance (HRA). This can again be a percentage of Basic Salary. The percentage may change depending upon the category of employees and may be around 15% to 20% of the basic salary. HRA can be a fixed amount also. The amount may also vary for different categories of employees.
There can be other components, like Conveyance allowance, telephone allowance, medical allowance, fuel allowance, etc. The amount may be fixed for each category/grade of employees. For persons who are subjected to income tax, it is better to make these as reimbursements so that they get the full benefit of tax exemption.
Special allowance is something that is paid to persons who perform special tasks. This can also be an amount paid to adjust the salary demanded by the employee against the scales on which we are operating. That means, when there is a difference in the salary fixed as per above and the salary the candidate is demanding, then we have to take this component and adjust the salary as per their demand.
The sum total of the above will be called Gross Salary. Now we take the perks, annual components like performance-linked incentives/variable pay, bonus, and the contributions that the employer will make for the employee, like ESI, EPF, and a provision for Gratuity also. This will be equal to the cost that the employer will incur by employing a person. This is called CTC or Cost To Company.
Now the practice is to decide first how much should be the cost to company and work backward and bifurcate into small components. Years back, I had posted an article on this site titled CTC Vs BTC (which is also available in the blog - link: Madhu.T.K: CTC Vs BTC). Please read that also along with these comments.
As already pointed out in the beginning, it will be better to spend some time in the Personnel Department of a good organization to get more detailed information about pay fixation.
Regards,
Madhu.T.K
From India, Kannur
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The most important two things being ignored here are the effect of Basic Pay and other acts, such as the House Rent Act, which stipulates the minimum percentile. PF and other benefits are calculated based on Basic Pay. Wise HR professionals would always keep the Basic Pay to a minimum. If any increment is to be given, add that amount (or some of it) to Allowances and not to Basic Pay. This way, the employer's liability will also be limited to that extent.
- Abdul Quadir.
From India, Pune
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- Abdul Quadir.
From India, Pune
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Pension Calculation and Basic Salary Discussion
For the calculation of the PF pension, you may refer to the threads by Abbas P S, ITI. There is a pension calculation Excel sheet created by him. Please refer to it.
Regarding the main issue under discussion, i.e., basic salary, I would like to say that keeping the basic pay to a minimum would benefit the company. I agree, but HR is not an agency to let the company make profits by reducing statutory contributions; it should be employee-friendly. If you see the history of the PF Organisation's move to amend the meaning of PF qualifying salary, you will see that it was due to the attitude of some employers like G4 Security, who kept the basic pay at the lowest slab to reduce their PF contributions. A similar issue was raised in the verdict on Bonus, in which the Delhi High Court had to decide that the bonus should be paid on gross wages and not simply basic wages. There are other instances where the amount of salary agreed upon should be taken as the statutory salary for all purposes, irrespective of bifurcations done for the convenience of the employer.
I still say that it is the system followed by the Personnel Department that is valuable, not the new HR's policy of deterring the rights of employees. Even when saying that HR is something close to employees and creates harmony!
Regards, Madhu.T.K
From India, Kannur
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For the calculation of the PF pension, you may refer to the threads by Abbas P S, ITI. There is a pension calculation Excel sheet created by him. Please refer to it.
Regarding the main issue under discussion, i.e., basic salary, I would like to say that keeping the basic pay to a minimum would benefit the company. I agree, but HR is not an agency to let the company make profits by reducing statutory contributions; it should be employee-friendly. If you see the history of the PF Organisation's move to amend the meaning of PF qualifying salary, you will see that it was due to the attitude of some employers like G4 Security, who kept the basic pay at the lowest slab to reduce their PF contributions. A similar issue was raised in the verdict on Bonus, in which the Delhi High Court had to decide that the bonus should be paid on gross wages and not simply basic wages. There are other instances where the amount of salary agreed upon should be taken as the statutory salary for all purposes, irrespective of bifurcations done for the convenience of the employer.
I still say that it is the system followed by the Personnel Department that is valuable, not the new HR's policy of deterring the rights of employees. Even when saying that HR is something close to employees and creates harmony!
Regards, Madhu.T.K
From India, Kannur
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It is not necessary that the basic should be a certain percentage of the gross CTC. Basic varies from city to city. As per the compliance for Mumbai, the basic should be at least Rs. 10,000. If it doesn't have Rs. 10,000 as basic, then the company comes under the bonus act.
From India, Mumbai
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From India, Mumbai
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Dear Ruchi, Is there any notification regarding fixing 10000 as basic by labour department or you talking of similar industry standards???
From India, Calcutta
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From India, Calcutta
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Can someone help with the following:
What would be the breakdown of the payslip for $320,000? What would be the basic pay for $320,000? The attachment contains details of total earnings and deductions. What would be the specific figures for $320,000?
Alternatively, you can email me at 09fenno@gmail.com.
ASAP!!!
Thank you!
From India, Hyderabad
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What would be the breakdown of the payslip for $320,000? What would be the basic pay for $320,000? The attachment contains details of total earnings and deductions. What would be the specific figures for $320,000?
Alternatively, you can email me at 09fenno@gmail.com.
ASAP!!!
Thank you!
From India, Hyderabad
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CTC SALARY SLIP FORM.xls
Salary & Compensation Guidelines.zip