All About Salary: Terms and Examples Explained For You

People working or performing several tasks for an entity or an individual are entitled to timely compensation for their efforts and services. Salary is defined as remuneration awarded for a service provided by someone, and such kind of remuneration is provided until the person keeps providing his services. The differentiation of concepts of Salary and wage can be segregated with the help of various factors discussed later in this blog.

Did you know? In most countries around the globe, the salaries of individuals are affected by the free market forces of Demand and Supply, and the number of vacancies available for a certain position in the job market.

Definition of Salary 

Salary refers to a consistent amount received as payment given by the employer based on the employee's efforts and services while working in a specific position in the organisational hierarchy. Salary rates are determined by the market forces of demand and supply. The key characteristics of salary are:

• It is considered a straightforward consideration for the service provided by someone.
• It is the employer's responsibility to compensate the employee for the services they provide to the organisation.
• The services provided by the employee cannot be for free. A gift by the employer to the employee cannot be termed a Salary.
• Salary is the personal income of an employee to run his/her livelihood.
• A minimum wage should be guaranteed and provided by the law to every worker.

Also Read: All You Need to Know About Gramin Dak Sevak: Salary, Job Profile & Pay Scale

Advantages of Salary Payments for Employees and Employers

Salaried employees enjoy the security of steady paychecks, and intend to pull in higher overall income than hourly workers. They do have greater access to benefits packages, bonuses, and paid vacation time. Lets look into these in detail.

Consistency in Payroll

When an organisation pays a specific monthly amount to each employee, it can gain the advantage of consistency. The same amount due is reflected on every payday regardless of any holidays or sick leaves. And employees don’t get their payrolls reduced because of sick leaves or holidays.

Compensation Reflects Responsibility

Salaried employees are expected to take up more responsibility for work than workers working on the hourly wage rate. Salaries employees sometimes work beyond the regular working hours to compensate the employer for the remuneration he or she provides to the employees for their services, which indirectly benefits the organisation.

More opportunities for Career Advancement

There are more chances of promotion to a higher position as the responsibility of work is more of a salaried employee than a worker working under the hourly wage rate. Salaried employees often fulfill management roles.

Difference between Salary and Wage 

The terms salary and wage can be segregated on various factors, giving the readers a better idea about the concepts of Salary and wage. The factors determining the difference between salary and wage are:

Payment Period

Salaries paid to employees are fixed and do not change on a weekly or monthly basis. Salaries are calculated for an entire year and subdivided into twelve parts. Sometimes employees get two months’ payment included in the paycheck of a particular month, but on the other hand, wages are paid daily based on an hourly rate system.

Basis of Calculation

Employers in an organisation pay up salaries to the employees on the pretext of services provided by the employee for a month or an annual year. The income of a salaried employee always remains the same whether he takes sick leaves or goes out on holidays during workdays. The wages paid to a worker could vary depending on his work hours.

Note:

Managers can be considered a suitable example for salaried employees since their monthly pay remains the same even if they work longer hours. On the contrary, workers involved in the production and manufacturing process are entitled to wages and are usually paid an extra amount for overtime beyond the normal working hours.

Also Read: What is the Format of a Salary Certificate?

Salary Slip

The above representation is an ideal example of a salary slip provided to salaried individuals working in an organisation.

Salary Strcuture

An employee’s salary structure determines how the salary is split, what are the deductions and the net salary or take home pay.  The Salary structure of a salaried individual consists of the following:

Basic Salary

It refers to the fixed part of an employee's income, which excludes any overtime pay, allowances and bonuses, or any Gratuity payments. Generally, it comprises about 30-40% of the take-home salary of a salaried individual.

Also Read: Salary, Pay Scale, and In-Hand Salary for ESIC UDC, MTS, and Stenographers

Gross Salary

It refers to an individual's salary before any tax or other deductions. Bonuses, Gratuity, House Rent Allowance, Provident Fund, and Professional Tax are included in Gross salary.

Net or Take-home Salary

Net salary refers to an employee's total salary after all kinds of tax, provident funds and important deductions are made from the total gross salary.

The pay scale of an employee depends on the position of authority and the number of years of experience. There are certain allowances provided to an employee by an organisation, which are:

• Conveyance allowance
• House Rent allowance
• Dearness allowance
• Medical allowance
• Performance allowance and other allowances

Similarly, various deductions form a part of the salary component of an employee, which are:

• Tax deducted at Source ( TDS)
• Employee Provident Fund
• Professional Tax
• Life and Health Insurance.

Also Read: Salary Calculator 2022-23 - Take Home Salary Calculator India

Conclusion:

In conclusion, salary is not only about paying an individual but has a wide aspect of employment. Usually, Salaries are paid at the beginning of every month, but some organisations pay salaries every week, every fortnight, bi-monthly or even annual.Salary is a broader concept which is why many constituents make up the meaning of Salary. There are also distinctive types of Salary based on various important factors. 

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.