What is Basic Salary?
Basic salary is the normal remuneration an employee gets from the employer. It is usually specified in the employment contract. It is the reward for the work done and usually disbursed on a periodic basis, e.g., weekly, or monthly. This salary variable does not cover any other perks, benefits, or performance-related bonuses.
If the basic pay of a software developer is 35, 000 per month, they will get as a fixed amount. Other payments, such as bonuses for meeting specific targets, overtime payment, or allowances for expenses like travel or meals, are not included in the basics.
How Basic salary is calculated?
Basic = Gross Salary – (Allowances + Bonuses + Other Benefits).
Points to remember :
Fixed Value: Basic pay is a fixed value and it does not vary without the consent of both the employer and employee.
Pre-Deductions: This figure is usually calculated prior to any deductions for tax, insurance, or retirement plans.
Does Not Include Other Benefits: The basic pay does not include benefits such as medical insurance, travel allowance, or performance bonuses.
Other Payments: In some cases, Bonuses or incentives are even determined as a percentage of basics.
Basic Salary Components
Allowances: These are further payments or perks given to workers to meet definite needs or expenditure and typical allowance types are:
Rent Allowance: Monetary allowance for accommodation or rent.
Transport Allowance: Allowance for transportation expenses.
Food Allowance: An allowance for food at working hours.
Medical Allowance: An allowance for medical expenditures.
Children Education Allowance: Financial support for the education of employee’s children.
Bonuses: Infrequent, performance-linked payments, usually credited towards the end of a year or upon achieving certain goals. They include:
Performance Bonus: According to individual or team performance.
Year-end Bonus: Usually, a fixed amount given at the end of the year.
Overtime Pay: Special payment for overtime hours worked beyond the regular work schedule.
Provident Fund (PF): A pension savings fund for which the employer and employee pay a percentage of the basic wage.
Gratuity: A one-time payment to workers at the time of completion of a specified duration of service, generally as an old-age facility.
Insurance: Some companies provide life, health, or disability insurance as part of the salary package.
How is Basic Pay associated with attendance and leave?
Paid and Unpaid Leave
Paid Leave: Most businesses offer paid leave for certain purposes (occasional leave, sick leave, annual leave). When an employee goes on paid leave, they get their complete basic salary and their salary isn’t affected by the absence.
Unpaid Leave: If an employee avails of unpaid leave (emergency cases), their basic salary is reduced based on the number of days they were absent.
Attendance
Deductions of Salary for Absences: Companies often have policies where deductions are made for each day of absence beyond the paid leave allowance. For example, an employee has 12 days of paid leave but exceeds that, they will lose part of their salary based on their daily basic rate.
Attendance Bonuses: Certain organizations provide bonuses or monetary incentives for the best or perfect attendance.