5.1 Basic pay is the amount of the employee’s regular salary and is the core of any compensation system. Basic salary is of immense importance in any compensation package as most of the monthly allowances, as well as terminal benefits are computed and paid as the percentage of basic salary.www.wrtbuzz.comMonthly Allowances5.2 Monthly allowances are additional compensation paid to the employees, in addition to basic salary, to cover normal personal expenses. Monthly allowances usually include house rent allowance, utility allowance and conveyance allowance. Monthly allowances, in most cases, represent a break-up of gross pay for the purpose of taking advantage of relief under the relevant income tax laws.www.wrtbuzz.com5.3 Some elements of monthly compensation may not result in any direct cash receipt for the employee. These may include rent-free accommodation, reimbursement of residence telephone and utility bills etc. Although if the accommodation is provided by the employer, it is adjusted against house rent entitlement but usually its monetized value is far more than house rent allowance. Market practices indicate that organizations, across the board, usually have provision for three types of monthly allowances which are:www.wrtbuzz.com• House Rent Allowance @ 45% of basic salary• Utility allowance upto @ 10% of basic salary• Conveyance Allowance @ 10% of basic salary.Cash compensation and non-cash benefits5.4 Cash components include salary, bonuses, leave fare assistance etc. Whereas, non-cash components include company car, accommodation, medical benefits and group insurance etc. The general trend in the market since past few years is a shift towards cash benefits instead of non-cash benefits.www.wrtbuzz.comAnnual Compensation and incentive schemes5.5 In addition to the monthly salary, few benefits are also provided to the employees on an annual basis, such as leave fare assistance and bonuses. Market practices indicate that the amount of leave fare assistance is generally equivalent to one gross or basic salary of the employee. As far as annual bonuses are concerned, generally it depends upon overall corporate performance. http://www.wrtbuzz.comThe bonus represents an additional source of income to meet employee’s occasional expenses, such as Eid festivals, etc. Moreover, it also provides a source of capital accumulation. With the passage of time there has been an increasing trend towards performance based compensation, which includes both increases in productivity and cost-saving bonuses.www.wrtbuzz.com
Original source article: HR.COM