Designing a Simple

Compensation Structure

Payroll Webinar Series

CompensationCompensation is the total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.Compensation also includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and checks, and sales commission.

ObjectivesThe ultimate goal of compensation planning is to reward and encourage employees to do well in their jobs. Some of the objectives are sought to be achieved through effective compensation planning like:

Entice the employees Retain the best talent Ensure equity Reward new ideas and behaviors Cost control Compliance

Content

Classification of Salary Components Compensation Structure Governance/Compliance Sample Salary Component Structure

Classification of Salary Components

Fixed Salary

Reimbursement

Non-monetary/

perks

Deferred Systems

Retirement/Social Security

Benefits

Component Structure

Component Details

Fixed

Salary

• Basic, House Rent Allowance• Conveyance/Transport, Child Education

Allowance, Special/Other Allowance, etc.

Reimbursement

Compone

nt

• Medical, Leave Travel Allowance (LTA)• Petrol/Vehicle Maintenance, Driver,

Telephone, etc.

Non-Monetary /

Perks

• Car, Accommodation, Fixed/Moveable Assets

• ESOP, etc.

Component Details

Deferred Payments

• Bonus/Performance Bonus• Incentive, Exgratia, etc.

Retirement Benefits

• Group Medical/Accident Insurance, Life Insurance

• Provident Fund, ESI, Gratuity• Superannuation, Pension Fund, etc.

Fixed Salary

Fixed Salary Details

Basic Salary 40% to 50% of CTC

House Rent Allowance

50% of Basic Salary for Metro Cities(Chennai, Mumbai, Delhi and Kolkata)

40% of Basic Salary for Other Cities

Conveyance / Transport Allowance Rs. 800 per month (for handicapped Rs. 1600 per month)

Child Education Allowance Rs. 100 per child/per month (maximum of two children’s)

Other / Special Allowance As per Section 10(14) of Income Tax act.

Non – Monetary Benefits

Non-Monetary Benefits / Perks Details

Company Car As per company car policy to senior management staff

Accommodations Company provided accommodations

Fixed Assets Fixed Assets / Furniture & Fixtures

Employee Stock Option Plan (ESOP) As per company ESOP plan

Others

Food Coupons (Rs. 1100pm), Gas, Electricity & Water Helper , House Maid, Gardener, etc.

Reimbursement Components

Reimbursement Components Details

Medical Rs. 15000 p.a. (for self, spouse and dependants)

Leave Travel Allowance (LTA)One month basic salaryTwo claims in a block of 4 years (current block 2014 - 2017)

Telephone As per company compensation policy Rs. 2000 – 4000 p.m.

Vehicle Maintenance/Petrol

Employer car (fuel & maintenance expenses met by employer)No limit – Up to Rs.10000 p.m.Employee car (fuel & maintenance expenses met by employer)a. Rs. 1800p.m. for small car (with 1.6cc)b. Rs. 2400 p.m. for big car (with above 1.6 cc)

Driver Recommended for senior management staff

Retirement Benefits

Retirement Benefits Details

Company Contribution to Provident Fund 12% of PF wage

Gratuity 4.81% of basic p.m.

Superannuation As per company policy / trust by-laws

Pension Fund As per company policy or New Pension Scheme (NPS)

Insurance Group Mediclaim Insurance Group Life Insurance, etc.

Employer Contribution to Employees State Insurance (ESI) 4.75% of ESI wage

Governance & Compliance

Ensure that the salary components are in compliance with income tax rules and labour laws

Refer to minimum wages act-state rules for any specific segment of workers

Union employees salary structures are governed by Union agreement/settlement

Ensure that the special/other/personal allowance is lesser than the other components in salary structure

Sample Salary Structure

Sample Salary Structure

Sample Salary Structure

Webinar link

To get detailed information about Designing a Simple Compensation Structure in video form

please click the link below:

http://www.adp.in/webinars/designing-a-simple-compensation-structure.aspx

Next webinar series

ALIGNING PAY STRUCTURES WITH JOB EVALUATION