Guide to Understanding the Salary Structure in India

Salary is a monthly remittance undertaken by an employer in favour of their employees as compensation for all the work performed by the employees over a period of time, generally, this period of time is one month, calculated from the 1st of every month. Additionally, when an employee joins an organisation, they are presented an ‘offer letter’ which outlines the total salary that the employee will take home over a period of 12 months. As a result, the monthly remittance is 1/12th of the total salary that is offered to an employee within the ‘offer letter.’

Salaries are paid by government bodies, multi-national organisations, private firms, and public departments to all employees working for them.

When an employer pays their employees a salary, it comprises multiple components which together make up the total salary paid to the employee. These components together form the salary structure and having good knowledge of the salary structure offered to employees in India is very important for every Indian HR. Additionally, knowledge of the salary structure is also important for employees as it helps them understand tax filing and claiming allowances.

Components of a Salary Structure

The total compensation payable to an employee is called CTC, which stands for Cost to Company. This term basically refers to the overall costs that a company must bear in order to hire and retain an employee for their services over the period of 1 year.

CTC Comprises of 3 Components:

1. Gross Salary

Gross salary is the amount payable to an employee which comprises the basic salary and allowances before applying deductions such as taxes. Bonuses and overtime are a part of the gross salary.

a. Basic Salary

Basic salary is an amount that is payable to employees without the addition of any extras or deductions. Extras are bonuses, overtime, and any other compensation. The basic salary is usually 40-50% of the total CTC.

b. Allowances

Allowances are monetary remittances provided in addition to the basic salary for things such as traveling, housing rent, and medical expenditure of the employees. Allowances such as housing rent are 40-50% of the basic salary.

2. Net Salary,

Net salary is the take-home salary that is calculated after the deduction of taxes and other deductions from the gross salary. It’s the actual amount that an employee receives.

3. Perks

Perks are additional benefits that the company provides, however, these are not monetary in nature. Rather, they are benefits such as company-provided mobile phones, cars, internet, and the likes.

These three are the primary components of the CTC. However, they are further broken into smaller components which are important to understand as well.

Additional Components of a Salary

1. Income Tax

The tax levied on the income of individuals is called income tax. Employers commonly deduct tax from the salary of employees. This amount is deducted by the employer before paying an employee, hence it is called TDS or tax deducted at source. This deducted amount is paid to the government by the employer on behalf of their employees.

2. Professional Tax

This is an amount that varies from state to state and is charged by the government in order to let an individual practice their profession. The maximum amount payable per year is Rs. 2500.

3. Provident Fund

A Provident fund is a fund that is collected for every salaried employee by deducting 12% of their basic salary and depositing the deducted amount in an EPF account also called an employee’s provident fund account. Subsequently, the employer also deposits an additional 12% to the same EPF account. This fund is reserved for an individual employee to claim at the time of their retirement.

4. Incentives

When employees perform above and beyond their employer’s expectations, they are sometimes paid an additional monetary remittance called incentives. It’s a mode of payment to compensate for the performance of an employee and not the time they spent doing something.

5. Gratuity

Gratuity is a deduction that is made from the yearly salary of an employee in order to repay an employee a lumpsum amount at the end of a 5-year period.

6. Bonus

When a company earns decent profits, they sometimes decide to compensate employees for all their contributions that allowed the company to earn extra profits. This is called as bonus.

How to Calculate Take-Home Salary

Take-Home Salary = Basic Salary + Actual HRA + Special Allowance – Income Tax – Employer’s PF Contribution(EPF). Let’s say your CTC is Rs. 4 lakhs, including a bonus of Rs. 50,000 for the financial year.  Then your gross salary is actually Rs. 3.5 lakh as gross salary does not include bonuses.

You then proceed to deduct professional tax depending on the applicable amount within your state. You then deduct the EPF contribution, which is 12% of your basic salary. You then proceed to deduct the cost of an insurance premium, which your company deducts from your salary in order to insure you and your near ones.

Hence Your Take-Home Salary is:

TAKE-HOME SALARY = GROSS PAY – TOTAL DEDUCTIONS

How Does an HRMS Help With Salary Calculations?

Modern businesses have already started investing in HRMS platforms that are adept at accurately processing the payroll of all employees by careful consideration of prevailing professional tax rates and other nuances such as allowance rates for employees based on seniority and job roles.
Needless to say, once you program the HRMS to understand the tax rates that are prevalent in your state or district and additionally program the HRMS to understand the allowance limits awarded to employees based on their seniority, the HRMS will automatically calculate all your employees’ salaries month-on-month accurately with minimum human interference.
Since the payment methods may vary from one company to another, some elements such as tax and standard deductions remain consistent. This also means that a single update from the HRMS vendor can instantly make your HRMS up-to-date on the latest government policies.
An HRMS payroll software is ideal to structure your employees’ salaries in advance in order to avoid monthly confusion during manual salary calculations.
Additionally, a good HRMS can also manually automate your company’s entire payroll processing by calculating payroll, generating salary slips, and also sending the salary slips automatically to all employees.

What Else Can an HRMS Do?

As we already discussed, a salary consists of multiple components that together determine the monthly remunerations payable to an employee. Well, a good HRMS also helps in tracking these other components in order to calculate the salary pay-outs fairly and accurately. For example, the software aligns and keeps a track of employee attendance, overtime, and hourly working rates of employees in order to accurately calculate the exact salary that each employee receives.

An HRMS can also perform dynamic tasks reliably, from wage processing to collecting payment and expense reports and tax calculations:

• Companies can personalise the software to process the payroll of any business and its sub-entities. Like adding divisions, departments, and verticals to accurately process salaries and maintain updated data of each employee.
• The most prominent feature is the ability to adjust or alter wage calculations depending on the prevailing standard rates. This is achieved by adjusting tax and reimbursement formulas.
• An HRMS also helps to regulate your workers, based on job performance and leave conditions and associated attendance records. Some software also provides leave encashment and credit repayment solutions.
• An HRMS helps you manage more business with less work by streamlining number crunching, report generation, and customer contact.
• An HRMS helps you manage more business with less work by streamlining number crunching, report generation, and customer contact. An HRMS aids in assessing salaries and also provides you with updated statistics on the overall cost of employment while keeping a record of the individual employees. 

How Can Hoshi Help With Salary Calculations?

Hoshi is a completely automated HRMS with a robust salary calculation framework. Let’s look at some of the features that make Hoshi a reliable HRMS for salary processing:

Payroll and Tax Management Module

Hoshi HRMS excels at error-free salary processing by reducing human efforts and implementing the use of modern payroll automation processes like:

Travel & Reimbursement Management

Another aspect of Hoshi HRMS is assisting with calculating travel reimbursement, which is a part of the salary payable to employees.

Travel Visit Management
Manage and track clients' and employees' visits accurately with precise distance calculation and location tracking. Hoshi's cloud-based computing will store all the details of the visits for a longer time, which can be accessed at any time.

Automated Distance Calculation
The smart feature of automated distance calculation automatically calculates the distance of the visit. Get the distance of the visit calculated automatically with Hoshi's smart feature of automated distance calculation. It makes calculating the reimbursements easier.

Custom Approval Workflows
Get customised and automated approval of travel and expense requests. The flow of the process progresses automatically post the approval.

Paperless Expense/Claims Reporting
Manage expenses virtually with detailed reports and a secure system. Go paperless to manage expenses and claim reports virtually. The data is safe and secure on Hoshi's cloud-based system.

Notifications & Updates
Get instant notifications automatically for expense requests and approval. It maintains transparency by providing the current status of the reimbursement.

Integrated Mobile Application
Make expense applications and add visits using Hoshi's mobile app that is fully integrated with the travel module. It will enable you to make travel requests and reimbursement requests remotely.

Group Travel Application
Make group travel applications at once in no time. It will prevent individual travel requests, which can be hectic for the HR team.

Expense Reports & Analytics
Generate and analyse detailed reports of expenses and travel requests. Generate a complete report of expenses and analyse it whenever required. It makes tracking travel requests easier.

Limit Settings for Expense Applications
Set pre-configured rules for limited settings so that the team does not make unnecessary expenses. HR teams can customise the limit as per the company's requirements.

Timesheet Management System

Timesheet management is important to understand how long your employees have worked and accurately compensate them for the extra time they may have worked or deduct pay if they have not completed their minimum stipulated hours of work per month.

Adding Tasks
Employees can add tasks done for the project they are working on a daily, weekly or monthly basis. Users can fill in the detail of the task assigned by their manager, which HR can use to create an insightful report to analyse resource distribution, billable vs non-billable hours, time management and more.

Notification & Updates
Customised notifications can be sent to employees on their project status, which keeps them updated. The user is notified about their project work being approved or rejected on regular basis.

Ready to Download Reports
This feature helps download all project-related reports like time taken for completion, clients involved, details of approval, etc. These data can be utilised to prepare an analysis report or performance report for each employee.

Virtual Loan & Salary Advance
Hoshi also helps with keeping track of any advance payments made to employees or even loans forwarded. Here’s what Hoshi can do:

Loan Policies Implementation
Hoshi allows setting loan eligibility and employment settings as per the individual's loan policy. Set up loan eligibility criteria based on the salary of an employee and duration of employment with the organisation.

Loan Dashboard
The loan dashboard maintains transparency among the HR teams and employees by enabling them to manage and track every transaction. Employees can request loans which are then reviewed and approved.

Effortless Loan Tracking
Hoshi allows detailed loan tracking from disbursement to EMIs tracking to provide complete clarity in the transactions. HR teams can track every employee's loan details perfectly.

EMI Calculator & Management
Calculate EMIs and administer the loan using Hoshi. Hoshi allows auto calculation of the EMI by using the saved settings provided by the software.

Interest Rates
Configure interest rates and let Hoshi calculate the amount for you. You can change interest rate calculations anytime during the loan tenure.

Loan Disbursement
Get your loan disbursed through Hoshi after a precise approval process. Loan is disbursed after a precise approval process which is then linked with the payroll module.

HRMS with Attendance & Leave Management

• Statutory Compliance
  You would not require spending a huge amount for the payroll to abide by compliances as Hoshi has an efficient payroll process that adhered to the required compliances for a smoother and better payroll.
• Tax Calculations
  The automated process enables error-free and accurate tax calculations in no time and with fewer efforts. Plan finances and keep track of all your tax-related activities with our cloud-based computing system. Manage data related to tax declaration, Form 16 and TDS details easily. Hoshi's tax calculations are error-free and completely secure to make your work easier.
• Error-free Payroll
  Hoshi HRMS sports an error-free, intuitive, and simple payroll management feature. Ideal for users with minimal experience with payroll generation as well. Manual payroll processing is vulnerable to errors, whereas the automated payroll process of Hoshi ensures error-less transactions at a click without losing any data. Store your payroll data using the cloud-computing option, which ensures security and safety.
• Employee Tax Dashboard
  Tax dashboard allows users to generate Form 16, file self-tax-declaration, and complete proof of submission process from a centralised location. One screen grants access to all tax-related functionalities allowing users to view, track, and analyse tax processing with minimal effort. Hoshi’s tax module is powerful and eliminates all dependency on excel sheets and other HRMS platforms.
• Salary Structures
  Create and add salary structures using Hoshi’s smart structure addition feature. Generate a salary structure for every employee and store it on our cloud-based system. The data is classified based on the employee's department and highlights all the salary components.
• Payroll Approvals & Custom checklist
  Hoshi HRMS supports the classified approval process for payroll generation when permission is needed from higher officials. You can also avail a custom checklist as per your business needs so that you don't miss important pointers or pending approvals. You can even get notifications in case you miss any of it.
• Payroll Reports
  Payroll reports keep a track of your payout records on a monthly or daily basis. The payroll reports feature presents users with a detailed look into the payout structure and its many components. You can change and modify payroll reports based on your requirements. Hoshi HRMS also allows HR teams to freeze payrolls and analyse them and support comparison of monthly or annual data.
• Tally Export
  Eliminate manual filing processes by exporting the tally of the payroll reports. This feature allows users to instantly export multiple reports with accurate calculations, leaving no room for errors.
• Cost-Efficient
  Coherent payroll processing with zero errors helps save costs. Outsourcing payroll is sometimes an expensive affair for many organisations. Hoshi HRMS is your in-house payroll software that minimises overhead costs and efforts while ensuring data privacy and eliminating errors. Hoshi HRMS is truly a one-stop solution for all payroll-related tasks, and it reduces your HR department's workload.
• Payslips Tracking
  Say goodbye to employees emailing the HR department for payslips. Hoshi HRMS allows employees to access, manage, and track their own payslips instantly. HR teams can mass email the payslips for better convenience and faster processing and also predetermine when to display the payslips to employees.
• Hoshi HRMS’ attendance and leave management feature allows HRs to track, manage, and prepare reports with ease as the HRMS is designed to reduce administrative processes and enable effortless operations from a centralised location.

  Mobile Check-in/ Check-out
  Hoshi allows employees to check in and out via a dedicated HRMS mobile application from any location. Employees need to upload their selfies while logging in and logging out, which helps the HR department review their staff's attendance.

  Multiple Shift Management
  HRs can trace employees working in specific shifts and manage multiple shifts of many locations.

  Leave management
  Configure leave policies based on work culture, goals, and requirements to manage all types of leave - paid, unpaid, sick, statutory, etc. HRs and reporting managers can retrieve leave reports with ease whenever needed.

  Roster Management
  Benefit from planning and preparing the roster well-in-advance by systematically managing employees' schedules to optimally utilise your resources.

  Biometric integration
  The biometric integration feature allows Hoshi to integrate with the office biometric machine and supports the free flow of punch-in and punch-out data between the device and your HRMS. This feature aims to lower the stress of your HR department, which arises from maintaining a separate muster for entering the entry and exit timings of each employee.

  Overtime and Comp-Offs
  Hoshi HRMS automatically updates custom approval workflows for overtime work and automatically processes the approved amount for working extra hours using its automation feature.

  Mass attendance Updating with Muster Upload
  Updating mass attendance logs through the system saves time and efforts spent to maintain separate data for the muster. With the mass updating system, accessing attendance reports is easy.

  Holiday management
  The holiday management feature prepares holiday lists based on the location of branches to ensure the smooth functioning of the workforce. Users can check the non-working days of specific branches to assist with efficient global operations.

  Custom approval workflows
  Automating attendance and leave management is convenient for HR teams which can save time and allow HRs to focus on complex tasks. This feature eliminates the need to keep track of emails and maintain dedicated excel sheets.

  Leave Reports
  Hoshi’s leave management system consists of a range of report formats to choose from to assist with creating an accurate leave report every month or year-end.

  Fully Integrated with Payroll
  The payroll system integrates attendance and leaves, which automatically synchronises all details. HRs can save the time of maintaining dedicated files for attendances and leaves, which are integral to the payroll generation process.

  Hoshi by Neural IT a cloud-based software helping simplify daily HR tasks. Digitise your HR function & let Hoshi empower HRs to easily onboard new hires, track employee progress, and analyse data to support employee development and organisation.

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