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What a wonderfully concise view of Indian compensation, Jacque. I've had several clients with operations there, and it's always difficult to explain Indian methodology, especially the CTC. This article is a "keeper" for my files.'

Btw, two small considerations; I thought that the Dearness Allowance (DA) was restricted to certain groups and not in as much use anymore. Also, several components can be highly negotiable and dependent on an individual's own circumstances - especially the Special Allowance, which acts as a sort of "wallpaper" to cover over cracks in the employment package.

Well done.

Great Information Jacque,

Having worked in Indian Compensation system for a few years, I do agree that it involves a lot of factors and that can create a lot of confusion for someone who has not dealt with that system yet.

Great details. And there is one more benefit that employee gets apart from the Provident Fund is his Gratuity. Anyone who works with the same company for more than five years is eligible to receive gratuity amount asper the Payment of Gratuity Act, 1971.

The amount will be calculated as follows:

Gratuity = Monthly Salary x 15 days x No. of yrs. of service
Max. Gratuity payable under the Act is Rs. 3,50,000/- (w.e.f. 24-9-1997)

Only the basic pay and dearness allowance is considered while accounting for the last drawn monthly salary. For computation of gratuity, your service period will be rounded off to a year. So if the actual figure is 14 years and 7 months, it will be considered as 15 years. The gratuity received under the Act is tax-free to the extent that it does not exceed 15 days’ salary for every completed year of service. This is subject to a maximum of Rs 3.5 lakh. This tax-free ceiling applies to the aggregate of gratuity received from one or more employers in the same year or during different years.

Applies to:
1. Every factory, mine, oil-field, plantation, port and railway company;
2. Shops or establishment with ten or more persons employed on any day in the preceding 12 months;
3. Such Shops or establishment with ten or more persons employed on any day in the preceding 12 months as identified by Central Government by notification;
Applies to the whole of India except to Jammu & Kashmir in so far as to plantations or ports.

A attached for more information.

Nisha Raghavan-Your HR Buddy!!

Thank you both for your comments.

Nisha you are correct and that was gratuity was one I missed.

Chuck --- yes Indians are quite the negotiators! It is difficult to keep up-to-date on all the components as with tax laws changing some components are changing as well. I was told almost 10 years ago that we would see comp packages drastically changing due to big changes in tax law. Well it seems that instead of of changing the laws all at one time, they are have been changing gradually. Does that sound familiar???

Rightly pointed it out Jacque,

I have done a study after reading your comment. I found quiet a bit changes! And these are the few latest amendments in the Indian labor laws:

1) As per Employee State Insurance Act the wage ceiling has been increased from Rs.10,000/- to Rs.15,000/- with effect from 01.05.2010

2) Maximum amount payable has been increased from Rs.3,50,000/ to Rs.10,00,000/- as per The Payment of Gratuity Act 1972 effective from 24.05.2010

3) Enhancement in minimum compensation payable from Rs.80,000 to Rs.1,20,000 (in case of death) and from Rs.90,000 to Rs.1,40,000 (in case of permanent disability) and funeral expenses from Rs.2,500 to Rs.5,000. As per The workmen's Compensation Act (effective from 18.01.2010)

4) The Maternity Benefit Act, 1961 amended to enhance the medical bonus from Rs. 250/- to Rs. 2,500/-and also empowering the Central Government to increase it from time to time before every three years, by way of notification in the Official Gazette, subject to a maximum of Rs. 20,000/-.

5) The Payment of Bonus Act, 1965 amended to enhance the eligibility limit from Rs. 3,500/- per month to Rs. 10,000/- and calculation ceiling from Rs. 2,500 to Rs. 3,500/- per month while making employees employed through contractors on building operations eligible for payment of bonus under the Act.

As you said we need to keep up-to-date on all the components. And I must say before taking any final take on any laws its better to have a recheck again:)

Nisha Raghavan-Your HR Buddy!!

Thank you Nisha. Difficult to be an "expert" from one day to the next! Thank you for the additional information.

http://www.worldatwork.org/waw/community/discussions/discuss.jsp?did=23432&tid=23432&frm=sr contains another but older and broader list of pay elements found in India. Some, of course, may be out of date.

The most frequently encountered issue I've experienced has been the traditional expatriate Indian focus on net versus gross compensation for comparative purposes. Mutual misunderstandings typically complicate that topic.

Hi Jim --- not sure what you mean by expatriate focus as this article applies to locals.

Your talk about gross vs net pay ---- there are some countries where you don't say "pay" in an employment contract. "Pay" means gross to Westerners but in certain countries it means "net". Tends to happen when taxes are high --- employees are most interested in the amount of pay in their pocket.

All --- here is a statement in Jim's World at Work reference above.
" Central Board of Direct Taxes has a plan in place to do away with the multitude of benefits to each of these allowances/benefits."

The date of that article was 2010. I've been hearing the same thing for 10 years!
Things work slow in India! I'm not sure they will switch to a "normal" compensation structure if tax laws do change. Some things die a slow death.

Due to special considerations in Indian tax law, those working on H-1B visas or other temporary contact assignments in the US tend to inquire about the net pay amount instead of the gross figure the American employers cite as their base. Pay in India to local nationals (as covered in my references) is subject to choices and options about their compensation that are completely foreign (sic) to Americans. Thus, they raise questions that puzzle Yanks when they come over here to work.

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