Salary for employees in organised sectors contain many ingredients. It will have two major components, the fixed component and the variable component. The fixed component is called the Basic Salary or Basic Pay(BP). The others are allowances. The allowances will be determined as a percentage of the BP. The employer may also give the employee many other facilities by way of reimbursement or yearly allowances like Leave travel allowance, Medical allowance, Medical reimbursement, Bonus, incentives etc. But they will not form part of their monthly salary.These will not be shown precisely in the appointment letter and may be just mentioned only as additional benefits.
Though the prevalent mode of salary in non-organised sector, small firms and proprietary concerns is just a consolidated wage or salary , in the new generation multinational organisations and especially in IT sector. the concept is Cost To Company or CTC.
Under CTC, the employer calculates, fixes and offers the total amount of expense incurred by the company on an employee. That will include the smallest pie spent on the employee from the office time coffee to the statutory and mandatory retirement benefits like provision for provident fund, pension etc.
In the conventional style, a new employee is advised as being recruited in the salary scale of (so-and-so ) Basic Salary with the added mandatory benefits of DA,HRA,CCA permissible and eligible as per terms in force, applicable to the place of posting.
So if the offer is for Basic Pay of Rs 10,000/- then his salary slip will show the components like DA (30 % of Bp for the month) =3000, HRA (2% of BP =200, CCA 1% of BP =100; Gross salary =13300.
Probably the next month, if DA is increased to 12%, then DA will be 12000.that month onwards till next change.
In the CTC mode of salary an employee is advised as offered a compensation of Rs 3,00,000/. This is the figure for a year .The monthly emoluments that the employee gets will, not be 25,000/-(offer divided by 12) but will be less.
If the employer fixes the fixed pay as 1,20,000 , the Fixed allowance as 90,000, Conveyance as 12000, Leave Travel Allowance as 10000, House Rent Allowance as 12000, City Compensatory Allowance as12,000;Quarterly Performance Pay as 20,000,; PF contribution as 14400(12% of FP) Medical Insurance premium as 9600;
Then the monthly salary slip for eg February may show as:
FP=10,000,FA =7500,CA=1000,LTA=833.33,HRA=1000, CCA=1000;. This will total to 20333.33.
The Medical Insurance premium and employer's contribution 1200 are expenses paid by the employer and hence will not be given to you, but shown as an accounting entry only. Your contribution to PF will be shown in the deduction column as PF- 1200 and your net salary will be 20333.33-1200=19133.33.
Some employers give a part of the monthly a compensation as food coupons and if so this may not come in te salary, and salary will be less to that extent. Food coupon or food credit will be given separately.
For March, if the person deserves the QPP depending on the project assigned and accomplished, then an additional amount will be shown QPP=1666.66.
Some employers give the employee some flexibility to request for re adjusting the components to suit his tax liability subject to permissible limits.