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Basic Pay

How to calculate basic pay from CTC?

Cost to Company (CTC) is the total amount that a company spends on an employee directly or indirectly. CTC refers to the total salary package of the employee. It is inclusive of all monthly components such as basic pay, reimbursements, various allowances, etc. and all annual components such as gratuity, annual variable pay, annual bonus, etc.

Distinguish between basic salary and gross salary?

Basic salary is the base income of any individual, the fixed part of the overall compensation package. The basic salary depends not only on the employee’s designation but also on the industry in which the employee is currently working. Gross salary, however, is the amount computed by adding the basic salary and allowances, deducing the taxes and other deductions. Gross includes bonuses, overtime pay, holiday pay, etc. 

Basic salary is the amount agreed upon by an employer and employee excluding overtime or any other extra compensation. Gross salary, on the other hand, is the amount paid before tax or other deductions but includes overtime pay and bonuses. To summarize, gross salary is the addition of Basic Salary, Contribution to Pension/Provident fund, Overtime & Bonus, and House Rent Allowance, Travel Allowance, Children Education Allowance, and other similar allowances.

What is the 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 can affect the employee’s CTC.

What is the minimum basic salary?

As per the US labor law and a range of state and local laws, the minimum wage is $7.25 per hour, which is the highest minimum wage that employers have to pay generally. Based on the statistics provided by the Bureau of Labor Statistics (BLS), the median wage for workers in the United States was $905 per week in the first quarter of 2019 ($47,060 annually). These wages were 2.7% higher than the previous year. The BLS report also states that in the first quarter of 2019, men earned a median salary of $52,208 annually, while women earned only $41,912 in comparison to males.

What is the difference between base salary and basic salary?

The base salary is a subcategory of the basic salary, referring to the initial amount of the basic salary range which is given to the employee in the beginning. Simply put, the basic salary usually has a range, and the value in the range is increased over some fixed, incremental periods. The start of this incremental period is always considered as the base salary.

Basic salary is the total amount (before any deductions) paid to employees plus the allowances. It is a fixed amount that is paid to employees by their employers in return for the work performed. The base salary does not include bonuses, benefits or any other kind of compensation from employers, it is the core salary of an employee. It is the fixed part of the compensation structure of any employee and generally depends on his or her designation. The basic salary may increase every year if the employee is appointed on a full-time basis.

Is the basic salary taxable?

Yes, the basic salary is fully taxable. All the employee contracts include the exact percentage of salary that will be taxed. This, however, may turn out to be a loophole in the realm of basic salaries because the basic salary doesn’t include additional bonuses like overtime pay, affecting the total annual salary. It also does not include federal income tax, medicare tax, and social security tax. As the basic salary doesn’t include these taxes, employees will receive less than their annual basic salary indicated in the contract.

What is the excel formula for basic salary calculation?

Basic salary is the base income of any individual/entity. Basic salary is the amount paid to employees (before any deductions) by their employers in exchange for the work performed or performance of the professional tasks by the former. 

The excel formula for calculating salary is given by the equation:

Salary = Basic + HRA + Transport Allowance + FBP Allowance + Bonus – Provident Fund – Income Tax – Insurance.

What are the types of allowances?

Allowance is an amount that is payable to employees during the entire course of their regular job duration. It is taxable, partially or fully, depending on the type of job contract. The allowances that are provided and the limits on the allowances will differ from one company to another, based on their policies. Here are the allowances that are considered:

  • Dearness Allowance - It is a certain percentage of the basic salary that is paid to employees, aimed at compensating the impact of inflation as well. It is paid by the government to all employees and pensioners of the public sector.
  • House Rent Allowance - It is the component of salary which is paid to employees for meeting the cost of renting a house. It offers tax benefits to all the employees for the amount that they pay towards their accommodation per year. Salaried individuals that reside in rented homes can claim this exemption and reduce their overall tax liability.
  • Conveyance Allowance - Also known as transport allowance, it is a kind of allowance offered by employers to their employees for compensating their travel expenses to and from their house and workplace. 
  • Leave Travel Allowance - This allowance is eligible for tax exemption. It is offered by some employers to their employees for covering the latter's travel expenses when he or she is on leave from work. This amount that is paid as leave travel allowance, is exempted from tax. Leave travel allowance, however, only covers domestic travel and the mode of travel needs to be air, railway or any public transport.
  • Medical Allowance - It is a fixed allowance that is paid to the employees of an organization for meeting their medical expenditure. 
  • Books and Periodicals Allowance - It is a type of allowance that is provided to employees to meet the expenses associated with the purchase of books, periodicals, and newspapers. It is exempted from tax up to the extent of actual expenditure that is incurred in the purchase of books and periodicals.

What is the employee’s provident fund?

It is typically a retirement benefit scheme that is available to all the salaried employees. It is a good savings platform that facilitates employees in saving a small fraction of their salary every month. This amount can be used/withdrawn when you are unable to work, or on retirement.

What are the different components of the salary?

The various components of the salary structure are basic salary, dearness allowance, conveyance allowance, medical allowance, HRA, children’s education allowance, leave travel allowance, children hostel allowance, mobile reimbursement, car maintenance, driver’s salary, and books & periodicals.

What is the main difference between Basic Pay and Net Pay?

Even though basic salary does not include any of the deductions made, net pay is something that the employee takes home after all the required deductions are cut.

Net salary (which is also referred to as the Take-Home Salary) can be calculated by initially adding the basic salary and allowances, and then deducing the income tax, EPF and professional tax from it. The net salary will always be less than the gross salary based on mandatory and voluntary payroll deductions.

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