Your basic salary is the fixed pay you’re entitled to receive from the employer. To calculate this minimum amount, you must strip away all the additions from your gross pay figures.
If you’re still unsure about this calculation, browse through this article that covers this basic salary calculation in great detail.
Basic salary is a fixed amount paid to employees for their service to the company. This base amount doesn’t include any bonuses or commissions, instead forms the basis to calculate most of the other salary components.
An employee’s basic salary is determined and fixed at the appointment time. It may be revised yearly if the individual is appointed on a pay scale. Payable basic salary also varies as per the employee's designation, industry and experience.
As such, there is no set formula to compute the basic salary amount. The formula used for calculation varies from one company to the next. Most companies fix the basic salary at 40% of the gross pay figure or 50% of an employee's CTC.
Furthermore, since basic salary is the amount payable without any allowance additions, you can also compute it from the gross pay. Deducting allowances from the gross pay amount will give you the basic salary figure.
Thus, there are three possible basic salary calculation formulas:
Case 1: Manish works for an IT firm as a software engineer for a gross pay of ₹1,20,000. His company uses the first formula to compute the base pay figure. Thus, his base pay will be ₹48,000 or 40% of the gross pay figure.
Case 2: Sonal works for a media house as an executive assistant with a CTC of ₹85,000. As per her employment contract, her basic salary is 50% of her CTC. Thus, her base pay will be ₹42,500.
Case 3: Piyush works at a publishing company and earns a gross pay of ₹60,000. Out of this, he receives ₹10,000 as HRA, ₹8,000 as a special allowance, ₹12,000 as medical allowance and ₹6,000 as conveyance allowance. We can deduct these allowances from his gross pay to calculate his basic salary.
Your basic salary calculations will be affected by the following factors:
Companies fix basic salaries as per their employees' designations. Basic pay for high-level designations which require a specialised skill set or prudent decision-making might be higer. Generally, an experienced employee with proper qualifications will receive a higher base pay than a novice.
Since basic salaries are computed using the economic conditions prevalent in the city or country, the location of your company can also affect such calculations.
Basic salary calculations will vary as per the industry in question. Most employers use an industry average to set basic salary figures. And so, basic salary figures of one sector will differ from those of other sectors.
Corporate policies and set salary brackets will determine your basic salary. Every company considers its size and profitability when setting these salary limits.
Your Previous Basic Salary
Basic salary details are outlined right at the onset of the interviewing process. Negotiating for a higher base pay can help if you are shortlisted for a position. You can leverage your previous salary figures to negotiate a better basic salary at your current job.
As mentioned earlier, basic salary is just one of the components of your salary structure. Allowances and deductions are other important components of your monthly salary.
However, you can compute your gross and net salaries if you know your basic salary and all these component values. Here’s an overview to show you how:
The following components are added to an employee’s basic salary calculations to reach gross salary figures:
(Note: Some of these components are derived as percentages of the basic salary figure)
Now you know that basic salary is the minimum pay you’re set to receive from your employer. Since several components of your salary are calculated on the base pay, you should spend some time correctly negotiating your basic salary.
Base salary is paid as a part of the in-hand salary in India. It is the fixed salary due to an employee for the services the individual provides. It is also the basis of allowance calculations, which are included in the employee's net salary.
Base salary is just a part of your in-hand salary. Your in-hand salary also includes HRA, DA, medical allowance, conveyance allowance, special allowance and other bonuses and rewards.
