Salary Revision - How Does It Change Basic, HRA, And Other Headings?

Dear Team,

In my company, we are planning to revise the salary for the employees. How will it change in Basic, HRA, and other headings? For example, if the employee is currently receiving 15K as a CTC, the breakup will include Basic Salary, House Rent Allowance, Conveyance Allowance, Medical, Leave Travel Allowance, Education Allowance, Washing Allowance, Mobile Allowance, Statutory Bonus, Special Allowance, and Employer contributions to ESI and PF.

My question is, will there be changes in all the components or are there any restrictions on allowances such as medical and phone allowances? Kindly advise at your earliest convenience.

Thanks and regards,
kumarram

Please ensure that your basic/DA (special allowance) is meeting the requirements of minimum wage norms in your area. The rest can be as per your convenience.

Dear Mr. Prashant,

It was a pleasure to see your answer. I am from Chennai, so Tamil Nadu minimum wage norms will be applicable normally in the private sector, which means basic + DA only, right? In government roles, only DA will be calculated separately, and then Special Allowance is also fully taxable. Could you please clarify this for me?

Additionally, can we apply the same percentage to all the heads? For example, if it is 10%, will it be applied to all the components such as House Rent Allowance, Conveyance Allowance, Medical Allowance, Leave Travel Allowance, Education Allowance, Washing Allowance, Mobile Allowance, and Statutory Bonus?

As you mentioned, it is at our convenience, but I still have some doubts. Thank you for your assistance.

Thanks and regards

Dear,

Basic plus DA is not meant to be equivalent to minimum wage. Ensure that the gross salary should not be less than the minimum wage as prescribed by your state government. You can even revise the salary structure with the mutual consent of the concerned employees by complying with the provisions of Section 9A of the ID Act, 1947 if the employee is categorized as a workman. Make sure all the other components should not exceed the basic salary for the contributions of statutory deductions. The components such as medical reimbursement, HRA, conveyance, LTA, education allowances, etc., are predominantly provided to offer tax benefits to employees and are not categorized as statutory components. Hence, you can allocate a certain percentage of these components without any issue.

Thanks & Regards,
V SHAKYA
HR & Labour, Corporate Laws Advisor

Dear Kumar,

You have to make things clear first. Having said that, you have to have a clear idea as to how to go about it. For the simple reason, you are starting with CTC revision as a whole, right? List out components of CTC, among them what is determined as lump sum (a fixed amount) and what is directly worked on the basic pay/salary in terms of %. Then arrive at what is the quantum of %age of increase overall you are proposing and place it side by side.

First of all, you have to bifurcate your components into two - i.e., payable in cash/cheque or bank credit (recurring monthly) which has a direct bearing on take-home money of employees such as basis, DA, HRA, Conveyance, incentive bonus, etc. Then comes the other components which are not payable monthly (non-cash costs) but form part of CTC. There are other components which are either reimbursed on an actual incurred basis like medical may be recurring monthly or through medical insurance/LTA (allowance paid monthly or annual or paid as reimbursed once in a block of 2 years or 4 years on an actual incurred basis subject to grade-wise slabs/limits prescribed as per your policy. Statutory bonus is an annual affair. There are components which are only due after retirement/separation like resignation, retirement, or encashable while leaving such as EPF, Gratuity, leave encashment. All these are part of CTC.

It is also possible as a part of revision all these, or some of these either in quantum or in terms of %age can be revised as per your present thinking. So if you ask us whether all these components will change or not, the answer to the above observation would give you the suggestion. The answer is with you only. If you tell us what your existing structure is, then we can suggest you. A sample structure is attached to give you an idea (not accurately calculated & blanks, rates to be updated).