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Revising the Compensation Structure
Human Resources » Compensation & Benefits

Chrm Message From: sinhaparna Total Posts: 35 Join Date: 01/02/2007
Rank: Executive Post Date: 03/09/2007 01:14:36 Points: 175 Location: United States

Dear colleagues,

We are planning to revise our salary structure so that employees can get  maximum tax benefit. 

Our current structure is as follows: 

Basic Salary : given every moth 
HRA : given every month 
Medical reimbursements: given quarterly
Educational exp. Reimbursement: given quarterly
LTA: given annually 
Medical insurance: given annually 
Performance incentive: given annually
Gratuity: As per govt.  rules 
Need your opinion on restructuring the package in a way so that the  employee can get maximum tax benefit. Note: Ours is a software development company and almost all the employees are interested in what they get every month.  Look forward to your valuable suggestions and feedback. 

Thanx and rgds

Aparna Sinha

Chrm Message From: shantanuji Total Posts: 23 Join Date: 01/02/2007  
Rank: Executive Post Date: 03/09/2007 01:18:10 Points: 115 Location: United States

Hi Aparna,

 I have the following to recommend: 

You can also use the "Cafeteria Approach" or Flexi-allowances. Here you assign a total / 
consolidated allowances kitty to an individual (which cd be x% of the  total cost or basic). 
This kitty is flexible in the hands of the employee to assign under heads  that he/ she feels will  be the likely heads of expense and provides proof of expense to avail the  reimbursement (and tax exemption benefit). Each head will need to be assigned an upper limit (can  be the same as that  governed by the IT lax) e.g. Medical upto Rs 15,000; Prof Devpt upto Rs  25,000 etc. 
What is interesting will be the fact that the employees will have the  freedom to structure their  compensation as per their needs. Typically, younger employees will like to  maximize on the cash in  hand (and not take any reimbursements) while those with young children may  want to maximize on the  medical reimbursements and those wanting to travel may want to maximize on  LTA. With a flexible  structure you are able to address the varying needs of the employees. 
Administration of this approach can be a concern but some discipline can go a long way: 
1. Employees give their annual plan in the first week of April. The plan  can vary each financial year. 
2. No changes in the plan during the financial year (unless there is a change in salary for an  employee, say mid-year increment/ promotion) 
3. In case an employee does not submit a plan, the entire amount can be  paid as a taxable  allowance.  
And you have fantastic flexible product for your employees ! 
All the best!


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