What is a Salary Structure?

Salary Structure is a process that determines how much an employee is to be paid as Compensation, based on set of standards designed in an Organization.

Major Heads for Salary Computation:

1.Basic: 

Basic salary is the amount paid to an employee before any extras are added or taken off. It is a fixed part of one’s compensation structure usually set as per the governing body.

2.Allowances:

Allowances or additions namely, HRA, Conveyance,  Medical, Leave Travel. Some allowances are considered Tax free upto a certain limit defined by the Labor Departments.

3.Claims:

A part of the salary of an individual is made up of billed claims.Examples include Mobile Allowance, food allowance, medical Allowance. However in most organization i have personally come across, there is a maximum limit to claim amount. And a bill needs to be submitted for claims.

4.Deductions:

A major part of the salary structure also included deductions, Compulsory deduction like PF (Provident Fund), PT (Professional Tax) are part of the compensation structure, but you do not get them as part of your in-hand salary. (In the trailing blog post, We will put together in detail the deduction calculation process.)

As such, although it increases your CTC, it does not increment your net salary.

5.Performance Pay:

Linking a part of the salary to productivity and performance has become a trend in today competitive market. You get the complete amount only on achievement of set monthly targets.

6.Gross Salary:

It is the amount of salary paid after adding all benefits and allowances and before deducting any tax.

7.Net Salary:

Is what is left of your salary after deductions have been made.

8.Cost to Company:

Companies use the term “Cost to Company” to calculate the total cost to employ. I.e. all the costs associated with an employment contract. Major part of CTC comprises of compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you not get them as a part of in-hand salary. Sometimes Space Rent, Workstation cost and maintenance allocated to the employee is considered as Cost to Company.

9.Taxes:

Taxes are an unavoidable component and they are part of your earnings. So, ensure that you calculate your tax liabilities with the income in accordance with tax policies as per state and country. A Chartered Accountant or an Experienced HR can help in Tax planning.

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