HOW DOES THE SALARY STRUCTURE LOOK LIKE?
Some of the common components of Salary Structure have been stated below:
- Cost to Company (CTC)
Cost to Company or CTC is different from the in-hand/take home salary. Cost To Company (CTC) includes components such as Basic Salary, Special Allowances, HRA, Employee Provident Fund, ESIC, Gratuity etc. This is the actual value or expenses on an employee to the company.
- Gross Salary
The salary amount calculated before the deduction of taxes or any other deduction is the gross salary. Gross salary includes the basic pay, dividends or bonus, or any other differentials.
- Net Salary
This is also the take-home salary after deducting TDS or any other deductions as per the company norms. This is the amount credited to employee’s bank account after deductions.
- Basic Salary
This refers to an employee’s basic income, ideally constituting between 35-50% of the total salary. Basic salary – that is calculated basis employee designation and the industry he/she belongs to – is the remuneration that is paid before considering any deduction or increase (in the form of bonus, allowances, overtime fees, etc). Company’s or Organisations may not have fixed % of Basic Salary but they may adhere the rules as per Govt Norms.
- Allowances
Allowance is an amount payable to employees during the course of their regular job duty. It can be partially or fully taxable, depending on what type it is. Allowances provided and the limits on it will differ from company to company, according to their policies.
- Dearness Allowance – Dearness allowance is a certain percentage of the basic salary paid to employees, aimed at mitigating the impact of inflation. It is paid by the government to employees of the public sector and pensioners of the same.
- House Rent Allowance – A house rent allowance is that component of the salary which is paid to employees for meeting the cost of renting a home. It offers tax benefits to the employees for the sum that they pay towards their accommodation every year. Salaried individuals residing in rented homes can claim this exemption and reduce their tax liability.
- Conveyance Allowance – Conveyance allowance, also known as transport allowance, is a kind of allowance offered by employers to their employees to compensate for their travel expense to and from their residence and workplace. Note – In Union Budget 2018, a standard deduction of Rs. 40,000 has been introduced in lieu of transport (Rs 19,200) and medical (Rs 15,000) allowances.
- Leave Travel Allowance – Leave travel allowance is eligible for tax exemption. It is offered by employers to their employees to cover the latter’s travel expense when he or she is on leave from work. The amount paid as leave travel allowance is exempt from tax under Section 10(5) of Income Tax Act, 1961. Leave travel allowance only covers domestic travel and the mode of travel needs to be air, railway or public transport.
- Medical Allowance – Medical allowance is a fixed allowance paid to the employees of an organization to meet their medical expenditure. Note – In Union Budget 2018, a standard deduction of Rs. 40,000 has been introduced in lieu of transport (Rs 19,200) and medical (Rs 15,000) allowances.
- Books and Periodicals Allowance – Books and periodicals allowance is a type of allowance provided to employees for helping them meet the expenses associated with purchase of books, periodicals and newspapers. It is tax exempt to the extent of actual expenditure incurred towards purchase of books and periodicals.
- Employee Provident Fund (EPF)
This is a benefit scheme for employees wherein equal contributions are made by both the employer and employee every month. A minimum of 12% from an employee’s basic salary (+ Dearness Allowance) is deducted and deposited in the Employee Provident Fund.
However, for employees coming afresh under the EPFO ambit, the employer will not be obligated to make any contribution. Instead, it will be the government making the same contribution at 12% for the first three years. All contributions are maintained by the EPFO (Employees’ Provident Fund Organization).
The PF contribution can be divided into two cases:
Case 1: If the basic salary is lesser than 15000 (per month)
The deduction is 12% of basic salary
Case 2: If basic salary is greater than 15000 (per month)
The deduction can be either 1800 i.e (12% of 15000) or 12% of Basic salary
- Gratuity
This is a lump-sum retirement benefit paid to employees who are on their way out of an organization, after having spent a minimum of 5 years within the company. The gratuity amount is calculated at 4.81% of an employee’s basic salary, as per the Payment of Gratuity Act, 1972.
Change in Gratuity Rules according to the New Wage Code Bill 2021, employees will be entitled to gratuity even if they have been employed for just one year. However, right now, employees are getting gratuity after five years of continuous work in the same company.
- Professional Tax
This is levied on a salaried employee’s monthly income, directly by the state government. While the calculation of professional taxes varies across states, the maximum that can be levied in a year is Rs.2500.
- Perquisites
These are fringe benefits that employees can get access to as a result of their authority and position within a company. Mostly non-monetary in nature, perquisites are offered by companies over and above the monthly salary of an employee.
Some examples include a provision to use a company’s car for personal use, rent-free accommodation, and payment of Personal Accident Policy premiums.
In conclusion, staying on top of the salary structure is important, considering it would give a fair idea of what actually goes into savings and the kind of tax benefits to claim.
10. ESIC
If a company has 10 or more employees (20 in case of Maharashtra and Chandigarh) whose gross salary is below Rs. 21,000 per month, then the employer is required to avail ESIC scheme for such employees. The employer’s contribution will be 4.75% of gross salary, whereas the employee’s contribution will be 1.75% of gross salary.
- Arrears
Arrears refer to payment given for compensating the salaries left, which should ideally have been given earlier. Employees are paid arrears when they get a salary hike in one month but receive the amount in some other month.
- Bonus
Bonus is a reward that is paid to an employee for his good work towards the organization. The basic objective of giving bonus is to share the profit earned by the organization amongst the employees and other staff members.
There can be more components of salary you have in your pay slips, depending on your industry and organization decisions.
In Education industry most of the Staff (Teachers and Admin Staff do not understand the Salary Structure and common difference between Gross Salary and Net Salary, reason they get into dissatisfaction after getting the first salary.
Most of the good organization gives a salary structure with an offer letter with Terms and Conditions which gives a clear picture of income and as well as the working rules which is good thing for an employee to set goals and understand the ethics of organization.
Most of the Schools failure reason is due to dissatisfaction of Staff and not having standard practices in Staff Hiring and People Management.
