written by | May 9, 2022

What is the Meaning of Salary Structure?

×

Table of Content


The decision on salary structure is a matter of determining the salary rates for positions and, in some instances, employees. It combines the market and the importance various jobs bring to the company. The organisational value of any job is calculated by evaluating a job that, in turn, relies on the analysis of jobs to supply the data needed to make an evaluation.

Job market and organisational value are combined by creating a salary structure that defines job levels or grades and determines the pay rate for those grades based on market rates. Today, we'll go deeper into the salary breakup structure.

Did you know?

Allowances can sometimes make or break the game. Besides the basic salary, many job applicants have a sharp eye on these allowances, and similarly, employers also try to attract job applicants using the same.

Allowances can be of many types, such as dearness allowance, house rent allowance, conveyance allowance, leave travel allowance, medical allowance, books and periodicals allowance, etc. Next, understand the salary structure as well as their reasons.

Also Read: Basic Salary in India - Explained with Calculation

What is Salary Structure?

Understanding salary breakup and salary structure are very important because it can be blunderous if you choose the wrong one. And we all know that CEOs don't make the company successful, and the right employees do.

A salary structure is a way to organise your employees' salaries in several ways before they receive them. Any business owner or their HR department must manage salary structuring. Many professionals lack the technical knowledge necessary to understand the process and how to best structure your salary.

A stipulated salary structure has one of its most important goals. The goal is to reduce employer liability. As a business owner, you must comply with compliance norms such as minimum wage and PF laws. A salary structure is essential to ensure that you do this.

The government has made recent changes to the wage norms. These will affect basic salary and allowances, and new guidelines restrict allowances to no more than 50% of your total package. This rule will impact how wage components are calculated in India. This rule will affect the employer's and employee's contributions to the Provident Funds (PF) and the gratuity paid to employees at the end of their employment. Next, you will learn about the salary pay structure examples and the breakdown.

Salary Structure Breakup and Example

When creating a salary structure, there are many factors that you need to consider. These considerations include the merits on offer, the salary and the current structure's evaluation. Here are the ten examples and a detailed breakdown of the salary pay structure.

The following are the most important and common components of a salary structure:

Gross Salary

Gross Salary is the monthly or annual salary before deductions. There are many components to gross salaries, such as the basic salary, house rent allowance, professional tax, provident funds, professional tax, medical allowance, and leave/travel allowance. These are the most important components of gross income.

CTC

CTC is the sum of all money a company spends directly or indirectly on you. This includes basic pay, allowances and provident funds. This is what the company offers as a salary package for you when you are hired. It is not the same as what you get home at the end of each month.

CTC = Gross Salary + PF +Gratuity.

Basic Salary + Dearness Allowance

In most new salary structures, the dearness allowance and basic salary usually go hand-in-hand. It is the amount an employee receives over a set period. The amount can fluctuate depending on the bonuses and allowances, or it can even increase or decrease over time.

The basic salary, which is the salary that an employee earns from his employer, can make up between 35% and 40% of the total salary. The basic salary is generally less than 40% of the full salary structure, and it is both the base and the taxable portion of the salary structure.

Other Taxes and Professional Tax

These taxes are due to the state for the practice of a specific profession, and this varies from company to company and depends on the number of employees and the state. All states may not pay these taxes, but generally, ₹2500 is the maximum. Other taxes taken from your salary are also common—for example, the Income Tax, which is paid to the government.

Also Read: What is the Average Salary in India?

Allowances

An allowance is a monetary benefit that your employer provides to help you meet the costs of fulfiling the service requirements. These benefits are often offered in addition to your basic salary.

Most commonly, these allowances are Home Rent Allowance (HRA), Dearness Allowance (DA), conveyance or transportation allowance and Leave Travelling Allowance (LTA). These allowances can vary from one company to the next, depending on their policies.

Reimbursements

These amounts are usually paid to employees to cover any losses in the business. This is the employee's amount to pay back for everything they have spent. It can come in many forms, including tax refunds or business reimbursements. No matter which business you select to get a job, improve your communication skills.

Provident Fund

The Provident Fund, which benefits you even after you retire, is an investment you and your employer make every month. This amount is usually calculated at 12% of your basic monthly salary if it exceeds ₹15000 and directly transferred to your PF Account. If it is greater than the threshold, the company can still retain its share at 12% of the whole salary (₹15000).

Social Welfare for Workers

This is another mandatory part of the government's salary structure. The state governs the labour welfare fund. It is an employee contribution to help others in need, and it satisfies those who need security or medical assistance and improves work conditions. It is usually deducted from the employee's salary, but it is usually a smaller amount. The total can range from ₹5 up to ₹20.

Insurance and Taxes

Many companies offer insurance, but not all. A small amount is taken from your monthly salary each month, and this money then goes towards your health and life insurance. This amount is not included in the CTC, but it is taken from your net salary.

Your final salary contribution goes towards professional and income tax. Before you receive your salary, the employer directly subtracts the tax amount from your salary according to the applicable slab and tax rate. This tax is also known as the tax deducted from source or TDS. The professional tax is another deduction taken from your salary and income tax. These were all the salary structure components.

ESI

Employee State Insurance (ESI) is a contributory fund that receives contributions from employees and employers. This allows Indian employees to take part in self-funded healthcare insurance.

ESI deductions are mandatory for employees earning less than ₹21,000, and this applies only to companies with 20 or more employees who make a gross salary of ₹21,000 or less. Employers need to contribute 4.75% of their salary, while employees contribute 1.7%.

Conclusion

A solid wage structure is advantageous in separating the entire amount and gaining a comprehensive understanding of allowances and deductions included in your employee's pay. 

This helps your employees be in the position to avoid paying the most tax-efficient amount possible and lowers your obligations to be an employer.
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.

FAQs

Q: How can I create a perfect pay structure?

Ans:

If you wish to understand the ideal structure of paying, here are the steps to create a salary breakup structure:

  1. Establish a specific value for each position in the company
  2. Understand what's your role in your market
  3. Determine compensable leverage
  4. Perform a pay equity analysis
  5. Define salary ranges
  6. Inform each employee

Q: What are various sorts of pay structures?

Ans:

Three types of salary structures are Broadband, Traditional & Market-Based. As per a few surveys, most businesses use market-based structures, and Broadband is the least popular salary structure. Which one to choose highly depends upon your company's size and industry.

Q: How is salary breakup calculated?

Ans:

Net Salary = Basic Salary + Allowances – Employer's Provident Fund – Income TDS/Tax - Professional Tax.

To calculate the gross salary, you need to add basic salary and allowances. Add the allowances to the basic salary, and you arrive at the gross salary.

Q: What are various types of pay?

Ans:

The four major sorts of Direct Compensation: Salary, Hourly, Bonuses and Commission. Most people are curious about direct compensation, especially variable and base pay.

Q: What does pay structure mean?

Ans:

A pay structure means a set of wage levels, grades or bands which link related jobs within a hierarchy or series. It sets out the various payment levels for workers in a specific profession, etc.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
×
Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.