ERP Functions : Human Resource Management 3

Last time we saw about Organization chart. This time we shall look upon the major part of Human Resource Management i.e. Salary Structure. 

Before going to salary structure we shall look upon the definition of salary. Salary is compensation given to the employee of a company/organization in return to the work he/she has performed. In most cases it will be fixed amount and periodically given to employees. Salary is the earning of the employees. Salary is the value in terms of money for the work done by an employee to the company. This valuation is very much crucial as the satisfaction of the employee is majorly depends on the salary he/she receives. Therefore, structuring the salary is very much essential part of HR Department.

Salary of an employee is derived from various components. There are statutory and organization policies that effects salary of an employee. The components of the salary is divided into three major parts Basic, Allowance, Deduction.

1. Basic Salary :- The constant amount which is defined for an employee. This is the primary amount on which the calculations of Allowances and deductions are made. Usually this is decided based on Employee category and Designation. There are various labor acts that fixes minimum basic amount of a particular type of employee.

2. Allowances :- Additional amount that are given to employee for different benefits. Traveling Allowance (TA), Dearness Allowance(DA), House Rent Allowance (HRA), Medical Allowance (MA) etc are the common allowances provided by the companies. These allowances are based on the basic salary of the employee. It may be in terms of % of basic salary or fixed amount based on basic salary amount slabs. There are some statutory Allowances and usually Govt. fixes the minimum amount to be paid. There can be some specific company defined allowances which are provided based on various parameters. They are usually called as incentives  or perks.

3. Deductions :- Amount that are to be collected from employee's salary for statutory requirements and other future benefits. Professional Tax (PT), Provident Fund (PF), Employee Security Insurance (ESI), Medical Reimbursement, Loans, Insurance Premiums etc are the deductions in the salary structure. Like any other salary component some of these are also governed by Govt. These are to be collected from employee salary very strictly. Like allowance this is also derived from Basic or/and allowances. Other than statutory deductions there be other deductions based on company policies.

Finally the net salary is calculated by following simple firmula

Net Payable Salary = Basic Salary Amount + Total Allowance Amount -  Total Deductions Amount

Total Basic Amount + Allowance Amount is also termed as Gross Salary.

This is about Salary Structure. In the coming blog we shall look on some of statutory allowances and deductions.

Keep watching this space..