When I received my first pay check over a decade ago, I was taxed 10 per cent on my annual salary. To be fair, I didn’t understand the Indian Taxation System, and for someone barely earning 1.2 lakh per annum, I felt cheated. What I didn’t bother to find out was, why. Fortunately, over the years, I made an effort to understand what a salary breakup meant for my net take-home. I even became conscious about my salary, my saving and spending habits, and my income tax returns. But, when I look back at my “fresher” days, I always wish I had someone older and wiser to help me understand what I was getting myself into.
If you are like my former-naïve self, pay attention. Prachi Ayerkar, assistant manager - Human Resources, Orra Fine Jewellery, helps you understand your pay slip, analyse that salary breakup, and identify any blind spots you may be missing.
Tell us, what is the purpose of a payslip?
The basic purpose of a payslip is to understand the salary computation of a said month. The payslip also acts as proof of employment. It specifies the various components of your salary, and can be used for tax filing. Moreover, it mentions your Provident Fund (PF) number, Employee State Insurance Corporation (ESIC) number, your designation, date of joining—all vital information when it comes to switching jobs, and having supporting documents. They’re also useful when it comes to verifying a person’s tenure and job role.
What are some of the important aspects to keep in mind when analysing a payslip?
To be able to fully comprehend what a payslip means, you first need to carefully monitor the following details:
• The number of days you worked
• Your PF and ESIC, and whether it is being paid as per statutory standards
• The breakup of your salary. Understand the amount against your basic, house rent allowance (HRA), daily allowance (DA), etc.
• Incentives, if any
In order to understand one’s growth rate, how important is it for your base salary to grow, as opposed to one’s overall cost-t0-company (CTC)?
This is perhaps one of the most important aspects when it comes to a higher take-home. It’s important to understand that many other components are calculated basis this. An increase in your basic means an increase in PF, HRA, DA, etc. Your CTC, on the other hand, is the overall cost to the company, and this which may include components which may not affect you take home salary. Take for example, mediclaim, travel allowance, etc.
What are some of the categories/sub-categories in a payslip? Can you elaborate on what a salary break-up entails?
While the standard salary breakup across all companies will include a basic, HRA, and DA, other companies will offer employees other components like:
• Incentives
• Bonus
• Special Allowance
• Medical Allowance
• Transport Allowance, and
• Variable pay
However, to avoid any blind spots, make sure to ask the HR what it means for your taxation, in-hand salary. This is what most employees tend to miscalculate after factoring their tax bracket and trying to understand their monthly take-home. While some professionals have a higher CTC, their net take-home is far less than what they may have expected. Employees need to understand the fundamental difference between their cross income and net income. Gross salary includes the PF and ESIC contribution of the employee; the net salary is the actual take home salary post all deductions.
What are some components that can throw a person off when they try calculating their actual take-home?
Many companies include mediclaim, travel allowance, life insurance premium, uniform, and even grooming allowance as part of the CTC. However, these are all deductions. After all these deductions have been accounted for, a person is properly able to calculate his or her actual take home salary. In such cases, and to avoid confusion, it is always advisable to ask the HR to calculate your net take-home for you, when an offer is first made.
How can employees be careful of the blind spots in their pay structure?
A lot of salary components are calculated on the basic salary offered. Take into account that the PF is 12 per cent of the basic, and gratuity. This is why many employers prefer to keep the basic salary low. Many companies also put gratuity contribution as part of CTC as a way to increase the overall CTC amount. Gratuity is paid to an employee after a period of five years. This means, if an employee does not stay at the company for a period of five years, he or she is not applicable for gratuity, and will have to forfeit that amount. This is one major blind spot that most people aren’t aware of.
Is there any advice you have for persons negotiating a salary at a new organisation?
As a rule, it’s important to check the deductions that are applicable when you’ve received your initial offer. Different companies introduce different components as part of the salary breakup, to increase the overall CTC. In such cases, even if an employee gets a good hike on their CTC, the hike on the take home salary might not be much. A vital piece of advice is to compare the basic salary with the current income. An increase in one’s basic is indicative of a higher take-home.