Every organization requires a clear salary structure to retain employees and meet their satisfaction. Retaining employees in the organization and meeting their expectations is a challenging process and offering a certain pay structure can help. The salary structure has a very important role in how the workers perceive their payment, how satisfied they are with their positions, and their loyalty to the organization. A thoughtfully designed salary structure will assist not only in retaining essential employees, but it will also ensure that employees are encouraged to work at their optimal levels.
In this article, we look at the key components of a salary structure’s operational and strategic aspects, as well as how to optimally implement and adjust the salary structure for the company and employees’ needs.

What is Salary Structure?

A salary structure is a tool a company uses to pay employees. Employees are separated into levels or grades which dictate how much the organization shall pay them. Each employee has a fixed basic salary along with the benefits and bonuses they. Employees grade is the organization’s what total cost to company (CTC) consists of employees’ basic salary, perks, allowances, and extra financial assistance. An orderly salary structure system fosters equity, motivates employees, and drives performance.

Primary Elements of Salary Structure

1. Cost to the Company (CTC)

Cost to Company (CTC) is referred to as the total expenditure incurred by any organization for hiring an employee. It is calculated by adding basic salary with other components like, ctc components meaning, titled  mediclaim or term life insurance) , any allowances or, c- companies often share expenditure incurred as additional bonuses or cornice other than stated salary covers. Salary structure may be split into two standard parts like mentioned below :

Fixed Salary:

This part of the employee’s salary is assured, regardless of the employee’s efforts. The guarantee helps employees have some form of financial well-being so that they can strategize their expenses and savings well. Nonetheless, this should also be founded on some rudimentary parameters like KPIs (Key Performance Indicators) and performance appraisal systems so that employees remain involved even with the certain restrictions to achieve them.

Variable Salary:

The direct proportion of the salary a person earns based on the performance of the organization is termed as a wage, generally includes payment for service rendered and Other two forms that are . Salaries of the company employees (workers, managers, and staff members).

Commission/Incentives:

This is reward based on the employees meeting or exceeding their sales targets. Selling an exemplary good product is worth a 1% commission of revenue from sales greater than 100 crores.

Bonuses:

This is also pre-decided bonus structure. There is also a bonus for sales equating two and above 100 crores. The company issues a 2% additional bonus over expenses beyond revenues of 100 crores.

2. Salary Distribution Per Department

Every department should be assigned their own specific salary structure according to their individual activities and allocated responsibilities. The following is some information that could be helpful in formulating salary structures for certain departments:`:`

Purchase Department:

This department’s primary function is to obtain goods and materials required by the company. The variable salary could be linked to such factors like product quality and third party checks to avoid losses due to discrepancies in purchases. Targets can be defined based on past performance and quality standards.

Operations Department:

Even though the operations department does not generate profits directly, their work has an effect on quality of products/services and production efficiency as well. Employees can be rewarded with bonuses for attaining quality and efficiency targets for certain defined period. However, bonus on it should not be, say, exceed 10% of the salary.

Sales Department:

Sales teams often have a high variable component because they are in direct contact with the company sales. There is usually a large variable component which shouldn’t exceed 50% of the total payment. Employees’ well-being also depends on feeling safe while professionally active, knowing that performance can be improved in order to meet the expectations.

Accounts Department:

Because of the qualitative nature of their work, the accounts department’s salary is predominantly fixed, and there is little to no room for variable pay. Nevertheless, offering small-performance rewards such as a cost-saving bonus with an upper limit of ten percent helps keep them engaged.

3. Fixed Salary Components  

The Fixed Salary is composed of several parts that comprise a particular employee’s base salary. These components include but are not limited to:

Basic Salary:

It is the fundamental part of an employee’s salary. Basic Salary is the figure that is mentioned in the employment contract which is augmenting with other allowances and deductions after terms and conditions are legally attached.

House Rent Allowance (HRA):

HRA which is commonly termed as House Rent Allowance is granted to employees of the organization in order to enable to recover their housing employees which is usually 50% of the basic salary. Under certain conditions, it allows tax benefits.

Employee Provident Fund (EPF):

EPF is optional for employees who earn more than INR15000 per month and for all other employees a certain percentage of the salary is deducted for it which is 12% and an equal amount from their employer is contributed. The EPF Fund serves as the retirement finance saving aid.

Allowances:

Tax claim benefits like leave travel concessions (LTC), internet and mobile allowances, and medical allowances can also help in saving taxes. For instance, travel allowances have a ceiling of ₹1,600 per month and do not require supporting documentation. Provided the employee pays petrol expenses and driver’s wages, the expenses can be claimed as tax-free allowances if valid bills are submitted.

Medical Allowance:

Employees are further able to enhance their disposable income by claiming medical expenses up to ₹15,000 per year, thereby increasing his take home salary.

Key Considerations When Designing a Salary Structure

An employee’s well-structured salary not only motivate him or her but also helps in optimized tax savings and compliance issues. Keep the following points in your mind when formulating a salary structure:

Custom Salary Slabs – Depending on the employees’ position, depth of responsibility, and the experience level, different salary slabs may be applicable. A small company is able to negotiate each of the salary components separately, while a larger organization is likely to benefit from having predetermined salary scales by different job grades.

Retention through optimization of the salary structure: A properly conceived salary structure has a direct impact on retention. To illustrate: An employer budgets salary of ₹5 lakh per month for an employee, but the salary structure is very basic. There is a huge tax burden with little opportunity for saving or good take home amount. A company may make many employees happier by offering ₹4.5 which on paper does not look good but on salary structure which has tax saving allowances and better take-home saving is optimized.

Final Thoughts on Salary Structure for Business Success

A good payment system helps an organization to both attract new employees and retain its best talents. A combination of a well-organized salary, allowances, and tax saving benefits ensures employee satisfaction and motivation, security, and satisfaction. Further, taking proactive measures towards optimizing the payment system helps the organization retain loyal and engaged employees. There is no doubt that working with professionals such as CAs will help the organization in aligning the salary structure with the goals of the organization as well as the employees.