Compensation & Components of our Compensation Pay:

Most of us fail to understand the difference between the cost to company (CTC) and the net salary. Cost to company is the aggregate of all forms of compensation and benefits offered by the company, while the net salary is the total amount received after deducting net tax liability on each component. People are often quick to become elated on receiving a higher CTC, failing to realize that the actual increase in the amount they receive in-hand may be marginal. This makes it necessary to understand the various components of CTC, which affect your in-hand salary directly. Different Salary Components and their Tax Implications The basic is the most important component of your salary. It is the actual compensation given for rendering services. Dearness allowance (DA) is another vital component of salary. These constitute a major chunk of the CTC, and are fully taxable. Other common components of CTC are: House rent allowance (HRA): This is offered to employees for aiding them in meeting the cost of a rented accommodation. The tax treatment of HRA is slightly complicated. The lowest of the following three amounts can be claimed as tax deduction: Actual HRA received 50% of salary (basic + DA) if residing in a Metro, or else 40% The amount by which rent exceeds 1/10th of salary (basic + DA)

Conveyance: This form of allowance is paid to compensate employees for travel expenses incurred by them. Conveyance allowance is fully exempt from tax, provided the travels have been made for official purposes. Besides, in case of conveyance allowance for travel to-and-from work, up to Rs.800 per month is tax deductible. Medical reimbursement: Typically, medical expenses incurred by an employee for self-treatment of treatment of his/her dependant are reimbursed by the employer. These reimbursements are tax exempt, up to a limit of Rs.15,000 per annum. Lunch coupons: It has become a common trend for employers to provide lunch or lunch coupons to the employees. These benefits are fully tax exempt, provided they are not offered in cash.

Annual bonus: This is perhaps the most popular incentive given by Indian employers, offered in the form of cash bonuses and commissions. Such bonuses are fully taxable.

Other Salary Components to Consider

Besides these, there are several other components of salary, including pension, gratuity and leave travel compensation (LTC). Note that some salary components are fully taxable, while others are partially or fully tax-exempt. Remember, understanding these components explicitly will enable you to negotiate for a more tax-saving and flexible salary structure. Compensation has become a far more complicated issue than just deciding how much to pay your employees. Employees also have greater expectations of what should be included in their compensation packages, and they may demand specific benefits. Costly or not, building a fair and attractive compensation packages is critical for attracting and retaining employees. When setting up your compensation package, we need to consider the following components Salary and wages. This is usually the single largest component of a compensation package and, not surprisingly, the most common point of comparison used by employees and potential employees. Salary should be tied to a person's skills and experience. Subsequent increases need to be based on an employee's performance, value and contribution to an organization. Bonuses. Employee bonuses, which are usually paid in a single lump at the end of the year, are one way of providing performance incentives. Long-term incentives. Stock options or stock grants not only provide long-term incentives to employees, but they can also help retain valuable team members. Health insurance. Employer-sponsored health insurance is fairly standard among medium-size companies. And it's a benefit that has great value to employees. Retirement plans. 401(k) plans have become popular because they are relatively easy to administer and are less expensive than traditional pension plans. Many employees like these plans because they maintain some control over the amount of their contribution and how the money is invested. Time off and flexible schedules. This includes holidays, vacations, sick days and personal days. An employer unable to offer competitive salaries may close part of the gap by offering more time off or flexible work hours. Miscellaneous compensation. Other forms of compensation to consider include employee assistance programs, which can provide everything from psychological counseling to legal assistance; discounts on company products; use of a company cars etc.

Law impact on compensation

Organizations need to pay close attention to the laws impact on compensation. Your Compensation Strategy needs to take these into consideration. If your organization fails to do so, dire consequences can follow. Compensation Legislation In the public sector, compensation and the law are very much inter-connected. Every aspect of employee compensation is governed by legislation. In most cases, there is not much room for innovative ideas. The one good thing about this is that the results are predictable at most times. The line of authority is mostly predetermined. Predictability is good for the organization and employees. Legislation makes provisions for job grades, salary band / range, salary increases, promotion, allowances, benefits and so on. When there are needs for changes, the legislation concerned is amended. Before any incentive or a new allowance is given or paid the law must allow it. Career progression does not escape legal provisions. Nobody dares to take the risk of going against the stipulated rules. Some government agencies are usually given some authority under a subsidiary legislation. Their respective Board of Directors can make decisions. But such decisions must not go against the provisions of the incorporation instrument and government general policies. Too much emphasis on laws impact on compensation makes bureaucracy the order of the day. Role of Legislation in Private Sector Compensation Organization in the private sector are "free" to determine the levels and components of their compensation package. They are "free" in the sense that in most cases, legislation leave much of such matters in the hands of corporations. But in another sense private entities are not free to follow their whims and fancies regarding compensation matters. Sometimes, National governments are forced to make decisions compelling private organizations to change their compensation system and practices. For example, anti-

discrimination laws impact on compensation ensure that decisions are not discriminatory as between employees based on gender or race. This can also happen during times of economic recession when sensitive matters such as compensation come under close public scrutiny. If this happens private organizations have no choice but to follow the government-imposed rule. This can bring both positive and negative results. Some argue that self-regulation is a better option and is preferable. Another situation where compensation and the law play a role is when legislation is enacted to impose minimum wage. Here, organizations are 'forced to agree'. This is a controversial issue. Employees at the lowest level and their unions look forward to it. Employers Associations or Federation dread it. Government officers may not know what further action they can take. They are not willing to go against against government policies. Yet they may understand the position of organizations where financial performance is necessary for continued payment of salaries. Another situation in which governments may intervene is when employees, unions, community leaders, commentators and others believe that the cost of living is getting exceptionally high and there is an appeal for government intervention. Your organization may want to offer salary increase to help people cope during hard times. In this way, cost of living (COLA) become one of the factors in deciding the quantum of salary increase. We know that market forces impose "unwritten rules" on the compensation systems. These affect the way organizations operate. Inter-relationship Between Job Performance and Compensation surely you know that job performance has a role to play in determining compensation based on the defined performance measures and standards. Effective performance management is necessary to ensure this is done properly. The Common Law There are situations where legislation does not directly affect compensation issues.

When cases come before the law courts, judges interpret the law, that is, they make new laws, while referring to decided cases in determining whether compensation is payable or not. And if payable, the courts will also rule on the quantum payable by an employer. This is another case where laws impact on compensation of which organizations need to know. However, a lot of these cases are on unfair dismissal or constructive dismissal. In many of these cases 'compensation' means the amount of back pay and wages that the employer must pay to the former employee. The law courts will seldom award economic loss as compensation. Sometimes the courts will also rule that the employer take back the former employee to resume duties. This, in itself, presents difficulties for both employer and employee. Legislation will not impose the requirement on employers to pay damages due to economic loss, that is, for loss of job. Shortcomings can Result in Dire Consequences for Organizations As an employer, you will find it worthwhile and beneficial to get updates on the laws impact on compensation. In the United States, for example, public companies are subject to new laws on compensation. The new Financial Reform Law will impact on compensation of executives and corporate governance. Penalties for non-compliance include de-listing of the companies concerned. This is a clear example of the laws impact on compensation. So, what can you do? Conduct an inventory of the laws affecting compensation and benefits in the country where you are carrying out your activities.

Then make plan to implement compensation strategy complying with these existing legal provisions while taking into consideration sound HR policies.
List of various Central Labour Acts
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Laws related to Industrial Relations The Trade Unions Act, 1926 The Trade Unions (Amendments) Act, 2001 The Industrial Employment (Standing Orders) Act, 1946
The Industrial Employment (Standing Orders) Rules, 1946

The Industrial Disputes Act, 1947 Laws related to Wages The Payment of Wages Act, 1936
The Payment of Wages Rules, 1937

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The Payment of Wages (AMENDMENT) Act, 2005 The Minimum Wages Act, 1948
The Minimum Wages (Central) Rules, 1950

The Working Journalist (Fixation of Rates of Wages) Act, 1958

Working Journalist (Conditions of service) and Miscellaneous Provisions Rules, 1957

The Payment of Bonus Act, 1965

The Payment of Bonus Rules, 1975

Laws related to Working Hours, Conditions of Services and Employment 1 The Factories Act, 1948 2 The Dock Workers (Regulation of Employment) Act, 1948 3 The Plantation Labour Act, 1951 4 The Mines Act, 1952 5 The Working Journalists and other Newspaper Employees (Conditions of Service and Misc. Provisions) Act, 1955
The Working Journalists and other Newspaper Employees (Conditions of Service and Misc. Provisions) Rules, 1957

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The Merchant Shipping Act, 1958 The Motor Transport Workers Act, 1961 The Beedi & Cigar Workers (Conditions of Employment) Act, 1966 The Contract Labour (Regulation & Abolition) Act, 1970
The Contract Labour Regulation Rules

The Sales Promotion Employees (Conditions of Service) Act, 1976

The Sales Promotion Employees (Conditions of Service) Rules, 1976

The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

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The Shops and Establishments Act The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
The Cinema Workers and Cinema Theatre (Regulation of Employment) Rules, 1984 The Cine Workers Welfare Fund Act, 1981. Workers

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The Dock Workers (Safety, Health & Welfare) Act, 1986 The Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996 The Dock Workers (Regulation of Employment) (inapplicability to Major Ports) Act, 1997

Laws related to Equality and Empowerment of Women 1 The Maternity Benefit Act, 1961 2 The Equal Remuneration Act, 1976 Laws related to Deprived and Disadvantaged Sections of the Society 1 The Bonded Labour System (Abolition) Act, 1976 2 The Child Labour (Prohibition & Regulation) Act, 1986 3 The Children (Pledging of Labour) Act, 1933 Laws related to Social Security Workmens Compensation Act, 1923 Workmen's Compensation (Amendments) Act,

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The The 2000 The Employees State Insurance Act, 1948 The Employees Provident Fund & Miscellaneous Provisions Act, 1952
The Employees Provident (Amendment) Act, 1996 Fund & Miscellaneous Provisions

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The

Payment

of

Gratuity

Act,

1972

The Payment of Gratuity Rules

The Unorganised Woekers' Social Security Act 2008 The Unorganised Workers' Social Security Rules 2008

Laws related to Labour Welfare 1 2 3 4 5 6 7 8 9

The Mica Mines Labour Welfare Fund Act, 1946 The Limestone & Dolomite Mines Labour Welfare Fund Act, 1972 The Beedi Workers Welfare Fund Act, 1976 The Beedi Workers Welfare Cess Act, 1976
The Beedi Worker's Welfare Cess Act Rules, 1977

The Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Fund Act, 1976 The Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Cess Act, 1976 The Cine Workers Welfare Fund Act, 1981 The Cine Workers Welfare Cess Act, 1981 The Employment of Manual Scavengers and Construction of Dry latrines Prohibition Act, 1993

Laws related to Employment & Training The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
The Employment Exchanges (Compulsory Notification of Vacancies) Rules, 1959

The Apprentices Act, 1961

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The The The The The The The The The

Others Fatal Accidents Act, 1855 War Injuries Ordinance Act, 1943 Weekly Holiday Act, 1942 National and Festival Holidays Act War Injuries (Compensation Insurance) Act, 1943 Personal Injuries (Emergency) Provisions Act, 1962 Personal Injuries (Compensation Insurance) Act, 1963 Coal Mines (Conservation and Development) Act, 1974 Emigration Act, 1983
The Emigration Rules, 1983

The Labour Laws (Exemption from Furnishing Returns and Maintaining Register by Certain Establishments) Act, 1988 The Public Liability Insurance Act, 1991