A salary breakup structure or a CTC (cost-to-company) breakup structure is the structure in which the CTC is divided into various components to arrive at the in-hand salary of an employee.
Understanding the salary breakup structure is equally important for employees & employers. But it can be a bit confusing since many components are included in the calculation of salary.
This article explains all you need to know about the CTC, salary breakup, and its components.
What is CTC?
The CTC, or cost-to-company, is the total salary package that the company offers an employee during recruitment. Having said that, it is essential to note that CTC is never equal to the take-home pay received at the end of the month.
CTC is the total amount spent by the company on an employee, whether directly or indirectly. It includes various components like basic pay, provident fund, allowances, etc. Some companies calculate it by adding the employer’s contribution towards PF (Provident Fund) and Gratuity to the gross salary.
Fun Fact: RazorpayX Payroll platform provides this as a configuration option to users, so you can choose how to define the CTC structure for your employees.
What is Salary Breakup?
A salary breakup structure consists of various components like basic salary, house rent allowance, special allowance, LTA, car allowance, Provident Fund etc.
This salary structure is pre-defined by the employer, and the gross and in-hand salary is calculated in accordance with the salary breakup structure.
How is Salary Structure Determined?
The salary structure of every employee is distinct and is decided based on several factors, such as:
The level of education and the years of experience
The industry they belong to and the significance of the work being done
Location of the job and the cost of living in the city
The skill sets that the employee possesses and the demand for those skills
The demand and supply of the talent in the given area
Components of Salary Breakup Structure
1. Basic Salary
The basic salary is the fixed component of the salary, excluding any benefits and privileges. It can vary depending on the job location, industry and designation. It accounts for around 40-60% of the CTC and is fully taxable. Therefore, if the basic salary is too high, it will result in increased tax and PF liabilities, and if it is kept too low, it could violate the minimum wage norms.
Allowances refer to the expenditure incurred by the employer to enable you to render the services required. These allowances depend on the location, designation and your job role and are provided over and above the basic salary. The amount of allowance depends on the individual policies of the company. Given below are the most common forms of allowances.
House Rent Allowance
Leave Travel Allowance
Conveyance Allowances
Special Allowances
3. Statutory Bonus or Performance Bonus
The company provides a statutory bonus as a reward for an employee’s excellent performance. It is given in addition to the basic salary and is paid to motivate the employees under the Payment of Bonus Act, 1965. The bonus amount is expressed as a percentage of the basic pay, depending on the company’s policies.
4. Employee Provident Fund (EPF or PF)
A provident fund is a retirement benefit that the employer provides to the employees. A certain percentage of the basic pay is dedicated every month from the CTC of the employee, and the same amount is contributed by the employer every month towards this fund.
An employee can withdraw this amount after being unemployed for 1 month. This is a part of the retirement benefit plan of the company and is generally calculated at 12% of the basic salary.
Read more in our blog post ‘Employee Provident Fund’
5. Gratuity
It is the lump sum amount paid to the organisation’s employees after they complete 5 years of service. As the name suggests, it is the amount paid as a gratitude towards the employee for their dedication and hard work over the years of their service. The gratuity amount is calculated at 4.81% of the basic pay, per the Payment of Gratuity Act, 1972.
Read more in our blog post Gratuity – Meaning, Formula, and Taxation Rules
6. Insurance
Many companies provide group or individual life health insurance policies to promote the health and well-being of their employees. A small amount is deducted from the CTC of the employee every month and used towards the payment of the premium.
Provide Best Group Health Insurance
7. Taxes and Liabilities
After all the allowances, PF, gratuity, and bonus are deducted from the salary; the remaining amount is then adjusted towards the income tax and the professional tax. The tax due on the salary is calculated based on the slab rates applicable. Employees can choose between the new tax regime and the old one.
The amount of tax calculated is directly deducted from your salary before crediting it to your account. This amount deducted by the employer is known as TDS (Tax Deducted at Source).
8. Gross Salary
It is the total salary before accounting for various deductions. Gross salary can be arrived at by adding the basic salary, HRA, bonus, and allowances.
9. In-hand or Take-Home Salary
The amount left after all the above adjustments are made is known as the in-hand or take-home salary. It is the salary that employees receive at the end of every month. In other words, it is the amount that is credited into employees’ bank accounts every month.
Net Salary = Basic Salary + Allowances – (Provident fund + Gratuity + TDS + Professional Tax)
How is Salary Breakup calculated?
There are usually 3 components of salary: Basic Salary, Allowances and Deductions. Net Salary is calculated as follows:
Particulars
Amount
Basic Salary
(A)
XXXXX
Add: Allowances
(B)
XXXXX
Gross Salary
(C = A+B)
XXXXX
Less: Deductions
(D)
XXXX
Net Salary (In-hand Salary)
(E = C-D)
XXXXX
CTC is calculated by adding the employer’s contribution for PF and Gratuity to the Gross Salary.
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Salary Breakup Calculation Example
Let’s consider an annual CTC of Rs. 3,60,000. For this the salary breakup structure will look like this:
Salary Components
Calculation
Amount
Deductions
Amount
BASIC
50% OF CTC
15000
PF EMPLOYEE CONTRIBUTION
1800
HRA
50% OF HRA
7500
PF EMPLOYER CONTRIBUTION
1800
LEAVE TRAVEL ALLOWANCE
FIXED AMOUNT
3000
SPECIAL ALLOWANCE
BALANCE FIGURE
2700
PF EMPLOYER CONTRIBUTION
[GROSS-HRA] * 12 % LIMIT TO 1800
1800
GROSS SALARY
Basic + allowances
30000
TOTAL DEDUCTIONS
3600
Hence, Net Pay or in-hand salary = 30,000 – 3600 = Rs. 26,400
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FAQs
What is a Payslip or Salary Slip?
A Payslip or Salary Slip is a document provided by the employer to all the employees. It is a monthly statement that consists of the details about all the components of the salary. All elements of the salary breakup, including the deductions, are enlisted in a payslip or a salary slip. It provides the detailed structure of the salary at a glance.
What is the difference between CTC and in-hand salary?
While CTC represents the sum total of all components of the salary breakup structure, the in-hand salary is the amount that you actually receive in your bank account after deductions. Read more in the blog post.
What are the components of salary breakup?
Basic salary, allowances, performance bonus, EPF, gratuity, insurance, tax & liabilities, gross salary, and in-hand salary. Read the blog post for more details.
Here, Earnings = Basic Salary + Dearness Allowance + House Rent Allowance + Conveyance Allowance + Medical Allowance + Special Allowance. Given below is a simple example of a salary slip showing all the basic breakups under two heads, earnings and deductions.
A salary breakup structure consists of various components like basic salary, house rent allowance, special allowance, LTA, car allowance, Provident Fund etc. This salary structure is pre-defined by the employer, and the gross and in-hand salary is calculated in accordance with the salary breakup structure.
Multiply Regular Hours by Hourly Rate. Click cell "F1" and type "Regular Salary." Press "Enter." Click cell "F2" and type "=E2*C2" in the cell. Press the "Enter" key. This formula multiplies the employee's regular hours by his hourly rate.
For example, Jamal is hired by a company that agrees to pay him 4,000 dollars per month. That is his basic salary. When he receives his first monthly paycheck, he sees that he has also been paid a 1,000-dollar hiring bonus, so his gross earnings for the month total 5,000 dollars.
The basic pay of an employee will be 50% or more of the total salary from April 2022. Most companies keep the non-allowance part of the salary less than 50% so that they have to contribute less to EPF and Gratuity. Also, there is a lesser burden on employees.
If you make ₹ 25,000 a year living in India, you will be taxed ₹ 3,000. That means that your net pay will be ₹ 22,000 per year, or ₹ 1,833 per month. Your average tax rate is 12.0% and your marginal tax rate is 12.0%.
If your salary is 30000 Rs per month, then your salary structure will consist 50-60% basic wage, 40% HRA (for non metro cities) and 50% (for metro cities), 1600 Rs for conveyance allowance, 1250 Rs for medical allowances, and remaining amount will be included in other allowances (or) special allowances.
For instance, if an employee's salary is Rs. 50,000 and the organization pays an additional bonus of Rs. 5000 for their health insurance, the CTC is Rs.55,000.
The Basic component is the primary component and the core of the salary structure. It is usually the largest component of the CTC making up for 50% of the total CTC. ... Note: The salary structures is updated effective FY 2021-2022.
The most commonly used day rate calculation method is 260 working days per year. This method is based on a standard 5 day working week. A day rate on this method is calculated by dividing a team member's annual salary by 260.
Base pay is the initial salary paid to an employee, not including any benefits, bonuses, or raises. It is the rate of compensation an employee receives in exchange for services. An employee's base pay can be expressed as an hourly rate or weekly, monthly, or annual salary.
What is basic salary percentage? Usually, the basic salary is 40% to 60% of CTC (Cost to Company). The statutory components: bonus, PF, gratuity and other benefits are determined based on the basic salary. An increase or decrease in the basic salary calculations can affect the employee's CTC.
Fixed Pay is the portion of the salary which does not vary every month depending on company policies or individual productivity. This salary type is stated in the Salary Slip with basic salary and allowances like HRA, DA, TA, Conveyance Allowance, etc. Also known as Salary Total in some companies' policy documents.
All employees drawing a salary are eligible for EPF. Moreover, it is compulsory for all employees earning less than ₹15,000 to register for the EPF. However, employees earning more than ₹15,000 can also voluntarily stay in the EPF scheme.
With the implementation of the New wage code Bill 2022, CTC will get affected by the increase in the basic salary and if the basic salary of an employee has been less than 50%, it should be increased. Allowances such as leave, travel, overtime and conveyance will be capped to the remaining percentage of the CTC.
Basic salary is always taxable and should, therefore, not be more than 40% of the cost to company. However, it should also not be kept too low since it will then result in reduction in the other constituents of the salary.
3.50 LPA? IT will be in the region of about Rs.25,000/- per month, on an average, [assuming you would get 100% of variable pay being paid, if any, as per the payout period], but included in the monthly amount calculation, for computation.
CTC in colloquial terms is the cost an employer bears to hire and sustain its employees. Formula: CTC = Gross Salary + Benefits. If an employee's salary is ₹40,000 and the company pays an additional ₹5,000 for their health insurance, the CTC is ₹45,000.
Take for example, the company offered you a CTC of Rs. 4 Lakhs per annum, which makes it somewhere round 40,000 per month. However, when you receive the salary at the end of the month, you receive only Rs. 34,000 in your back account. ... Understanding the difference between CTC, Gross and Take Home Salary.
Average salary for a LPA in India is 2.3 Lakhs per year (₹19.2k per month). Salary estimates are based on 155 salaries received from various LPAs across industries. What are the top paying companies that employ LPAs? What is the starting salary for a LPA in India?
What is 6 LPA salary? 6 lakh rupees per year translates to 50,000 rupees per month, but only in mathematical terms, not according to company's laws. You see, the package of 6 LPA that you mentioned is basically your CTC. CTC stands for Cost to Company which means, you cost 6 lakh rupees annually to the company.
In a nutshell, Net Salary = Basic Salary + Allowances – Income Tax/ TDS – Employer's Provident Fund – Professional Tax. Add the allowances to the basic salary and you arrive at the gross salary.
This is the amount you get (or pay) after deductions such as PF, ESI, PT, TDS, loss of pay, and other deductions as per your company. Gross salary: This is the salary which is shown in the payslip. This salary is the total earnings of an employee excluding statutory and non-statutory deductions.
SAP takes total calendar days of the month for calculation of salary in Indian payroll if it is 30 days in a month it takes 30 days and if it 31 days in a month, it takes 31 days.
You multiply by 12 because there are twelve months in a year. For example, if you earn ₹2,000 per month from a part-time job and receive ₹10,000 as house rent, add these two figures and multiply by 12.
Malaysia has a standard way of calculating daily rate of pay - titled the Ordinary Rate of Pay (ORP). This involves using a standardised 26-day ruling for calculation of a 'Regular Day' rate of pay per month for an employee.
If your salary is 30000 Rs per month, then your salary structure will consist 50-60% basic wage, 40% HRA (for non metro cities) and 50% (for metro cities), 1600 Rs for conveyance allowance, 1250 Rs for medical allowances, and remaining amount will be included in other allowances (or) special allowances.
Monthly salary rate is used to calculate payment; the annual rate is not used in calculating monthly payroll. paid 1/12 of their annual salary each full pay period. Monthly employees, including 9/12, are paid 1/12 of their annual salary each full pay period.
The average, full-time, salaried employee works 40 hours a week. Based on this, the average salaried person works 2,080 (40 x 52) hours a year. To determine your hourly wage, divide your annual salary by 2,080. If you make $75,000 a year, your hourly wage is $75,000/2080, or $36.06.
Take for example, the company offered you a CTC of Rs. 4 Lakhs per annum, which makes it somewhere round 40,000 per month. However, when you receive the salary at the end of the month, you receive only Rs. 34,000 in your back account. ... Understanding the difference between CTC, Gross and Take Home Salary.
Results. You can also determine the annual salary of an employee by multiplying their hourly wage by the number of hours they work in a year. Based on a standard work week of 40 hours, a full-time employee works 2,080 hours per year (40 hours a week x 52 weeks a year).
4. Find a monthly-paid exempt employee's final hourly pay rate by multiplying his salary by 12, dividing by 52 and dividing by his regular number of weekly hours.
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The amount of tax calculated is directly deducted from your salary before crediting it to your account. This amount deducted by the employer is known as TDS (Tax Deducted at Source).
