Sum of all earnings make up the total salary of employees and they get the final salary after some deductions from their earnings. All earnings are usually shown on the left-hand side of pay slip.
Payroll Deductions – Payroll deductions are amounts deducted from employee’s salary (or earnings) by the employer for things such as government taxes and employee benefits program.
Employees receive less money than their total salary in bank accounts because of various mandatory and voluntary deductions such as income tax, provident fund, profession tax, etc. All deductions are usually shown on the right-hand side of pay slip.
Fixed Pay – Fixed pay is the guaranteed salary that employees get on monthly basis irrespective of their individual performance, team’s performance, or company’s performance. Fixed pay is pre-defined and is clearly communicated to employees at the beginning of their job.
Base salary, house rent allowance, conveyance allowance, dearness allowance, leave travel allowance, etc. are some common examples of fixed pay components.
Variable Pay – Variable pay, pay for performance, or risk pay, is the compensation, which unlike fixed pay, must be earned every time to be obtained. Variable pay is not guaranteed and is paid only on the achievement of specific qualitative or quantitative goals by individual employee, team or the company.
Variable payment is usually paid out quarterly, half yearly, annually, or on completion of a specific goal. Incentives, bonus, profit sharing, sales commission, etc. are some common examples of variable payment.
Cost to Company (CTC) – Cost to company (CTC) is the total cost of monetary & non-monetary benefits that an employer incurs on an employee during one year.
Generally, the salary offered to employees in India is in form of CTC and the detailed breakup of various salary components (basic, HRA, PF, allowance, etc.) that are included in CTC is given to employees in their offer letters.
Allowance – Allowance is the fixed amount paid to employees, in addition to basic salary, for covering expenses of activities such as travelling to the workplace, renting a house, or eating food. Generally, payment for all allowances is included in CTC of employees.
Allowances are of 3 types – non-taxable allowances (Allowance paid by UNO, sumptuary allowances, etc.), partly taxable allowances (House rent allowance, medical allowance, etc.), and taxable allowances (overtime allowance, dearness allowance, etc.).
Basic Salary – Basic Salary or Basic Pay, is the first and core component of your salary structure and a lot of other salary components such as HRA, Provident Fund, Gratuity, ESIC, etc. are calculated as % of basic pay. e.g. Provident fund at 12% of basic pay is deducted from salary.
House Rent Allowance – House Rent Allowance (HRA) is the amount paid by an employer to an employee for renting his/her home, as part of the salary.
Salaried employees who are living in rented accommodations don’t need to pay income tax on the partial/complete amount in HRA (based on eligibility) and thus, HRA helps employees in reducing their tax liability.
Leave Travel Allowance (LTA) – Leave Travel Allowance (LTA) or Leave Travel Concession (LTC), is a salary component that companies include in CTC of employees to help them save tax on the amount spent on travelling within India, when they are on leave from work.
17th July 2019 From India,