Payroll structure is the details of the salary that have been offered in terms of the breakup of different components constituting the compensation. Knowledge of the components is very crucial to the employee as he gets an idea about how much goes into forced savings and what kind of tax exemptions to claim.

Components of Pay Structure in India

Basic Salary

It is the base income of an employee, comprising of 35% – 50% of the total salary. This is determined by the designation of the employee and the industry in which he or she is working. Many other components, such as allowances, are based on basic salary. This amount is taxable.

Allowances

The amount paid to the employees during their regular job duty. It can be fully or partly taxable.

Dearness Allowance: This is a certain percentage of the basic salary paid to the employees, aimed at mitigating the effects of inflation, price rise. Generally, it is paid by the government to its employees and the pensioners.

House Rent Allowance: It is offered to the employees to cover the cost of renting a home. It provides tax benefits to employees.

Conveyance Allowance: It is a kind of allowance offered by employers to their employees to meet their travel expenses from home to the workplace and vice versa.

Leave Travel Allowance: Leave travel allowance is offered to cover the employee’s travel expense when he or she is out of work. It is eligible for tax exemption.

Medical allowance: It is a fixed allowance paid to employees of an organization to meet their medical expenditure.

Gratuity

Gratuity is an essential component of the payroll structure in India. It is a lump sum benefit payable by employers to those employees who are retiring from the organization. It is payable to those who have completed 5 years or more with the company.

Employee Provident Fund

It is an employee benefits scheme where investments are made by both the employer and the employee each month. It is an essential component of salary breakups.

Professional Tax

It is another important component of the payroll structure in India. It is levied on income earned by the salaried people. Employers generally deduct professional taxes at prescribed rates from the salary paid to the employees and pay it on their behalf to the state government. The revenue collected is used towards the Employment guarantee scheme and the employment guarantee fund.

Perquisites

These are fringe benefits or non-cash benefits that some employees enjoy due to their official position. Some examples are permitted to use the official vehicle for personal use, rent-free accommodation, payment of premium on personal accident policy. The monetary value of perquisites gets added to the salary, and tax is paid on them by the employee.

ESIC

If any company has 10 or more employees (20 in case of Maharashtra and Chandigarh) whose salary is less than Rs. 21000 per month, then the employer is required to avail ESIC scheme. 

The points mentioned above constitute an essential part and parcel of pay structure in India, and employers mostly keep these in mind while rolling out an offer letter. Maintaining a payroll structure compliant with the statutory norms is crucial. A right Payroll Vendor can help you with the details and efficiently handle your payout.