It refers to the detailed description of the company or organisation’s payroll that it pays its employees. It is one of the most critical tasks of HRM management. This is a never-ending process in a company as every month, employers have to prepare a salary structure for the employee. Companies are currently shifting towards specific software for payroll management, which offers an automated calculation of the salary structure of every employee in the company and minimizes the occurrence of human error.
The management of salary structure can be complex if the organization does now ensure a systematic process. The process of salary structure varies from company to company, the work culture it follows, elements that the company includes in the salary distribution, leaves offered by the company, and many more.
Components like net pay, cost to the company, allowance, gross salary, deductions, and payslips are essential when calculating salary structure. Various companies do not include all the components, which makes it easier for them to manage salary structure. For employers or HRM, it is essential to understand the concept of salary structure and its associated terms.
Division of components in Salary structure
CTC > Gross salary (Basic salary HRA other allowance) Net Salary (Gross salary- professional tax- public provident fund- Income Tax) Prerequisities (Fringe benefits such as car, phone, internet services, non-cash benefits) Allowance (Medical allowance, LTA, children education allowance, conveyance allowance).
CTC: Cost to company refers to the total amount the company spends on the employee monthly. It includes components like Gross salary, Gratuity, and PF.
Gross salary: It refers to the amount that includes the basic wage given to the employee every month before any kind of Tax deductions, overtime, holidays or other such components.
Net Salary: The amount the employee can take with them after all the tax deductions and allowance additions as per company policies.
Allowance: The monetary benefits the employer provides the employee above the basic salary, which can also be taxable and non-taxable.
Medical: It refers to the fixed allowance that the company offers the employee, which he or she can use to meet the medical expenditures.
Rent allowance: This includes the expenditure that the employee uses to pay his or her home rent. This allowance also provides tax benefits to employees every year.
Travel Allowance: This refers to the amount paid by the company to the employer travelling when they are on leave. This allowance is only applicable on domestic travel.
Prerequisites: It refers to all the non-mediatory benefits that the company provides to the official employees of the company, such as cars, Internet service, phones and many more.
Deductions: This refers to the amount that needs to be deducted from an employee’s salary. It may include tax deductions, applicable charges, unpaid leave deductions or loan deductions if applied.
Provident Fund: This refers to the employee benefits scheme, which gives a fixed investment opportunity to the employer and employee every month. This applies to the company having 20 employees.
