Posts tagged "How To Design A Salary Structure For A Employee?"

How To Design A Salary Structure For A Employee?

Design of the salary structure is entirely up to the company, there are no laws or rules laid down. Most companies base their structure so that the employee benefits with respect to Income tax. Thus you must know the Income tax rules and exemptions before you start defining the salary structure.

The starting point is the CTC (cost to company).

Basic is calculated based on a percentage of the CTC, if the company has a contributory Provident fund then it must be kept in mind that the company has to contribute the same amount of PF as the employee.

The best way is to try out a few combinations and protect the company as well as the employee.

Basic can be between 25 to 30 percent of CTC. HRA is normally between 15 to 25 percent of basic. Medical should not be more than 15000 per year.

Travel/conveyance allowance exempt by IT is 9600 per year so stay within this limit.

PF contribution is between 8.33 to 10 percent of basic, if you plan to include DA (dearness allowance) to salary then it should be around 20 percent of basic, then this DA is added to basic when calculating the PF contribution.

You can then add a component of one months basic as leave travel allowance. Then add about one to two months basic as Bonus. The balance of CTC can then be shown as other allowances.

I am enclosing one format of Salary structure, and you can also calculate TDS from the format.

Click Here To Download Salary Breakup

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7 comments - What do you think?
Posted by Hrformats - November 28, 2012 at 11:55 AM

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