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Things to consider before defining pay structure

  • 13 Jan, 2021

Every company and the HR has a big task in front of them, when it comes to defining the salary structure. We had a list of some important aspects which can be considered before finalizing any pay structure, so that both employees are benefited and employer cost is kept low, at the same time compliance is also taken care off.

Norms that should be followed while creating salary structure which will help you avoid some of the important compliance related errors

  1. Your basic salary amount should not be less than Minimum Wages as per your Region/area. And as per new rules atleast 50% of Gross/CTC should be Basic component.

  2. Ideally HRA should be 40 or 50% of your basic, based on your residential location. Since maximum that you can claim is 40 or 50% of the basic.

  3. You can provide various heads like LTA, Car Maintenance, Drivers salary, Books & periodicals but all these should be based on Actual expense, with proof submitted by the respective employees.

  4. ESI is applicable on all heads

  5. PF is now applicable on all heads except HRA until there are sufficient ground to justify that the allowance is variable in nature or linked to production incentive or not given to all the people on board under a category.

  6. ESI contribution should not be restricted to 21K in the middle of the contribution period

  7. PF will be applicable on Salary Arrears

  8. 80GG can be claimed if you do not have HRA as a salary head (Applicable in 2021-22)

  9. Normally LWF is not applicable to Managers and Directors

  10. PF declaration in Form 11 is mandatory for new joinees with past job experience

  11. It is better to avoid any salary structural changes in the middle of the year to avoid TDS complications

So in short, Sal structure can be majorly defined from two broad perspectives.

  1. To Let the employee have an option of Tax planning & savings to the extent possible
  2. Employer can save cost to the extent possible, with being compliant.

More details to follow ....

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