The salary paid to employees comprises of multiple components and can be categorised into different payment types such as basic salary, allowance, perquisites, etc. Some of these are discussed below –
• Basic Pay
Basic pay is the base income of an employee, comprising 35-50 % of the total salary. It is essentially a fixed amount that is paid prior to any reductions or benefits such as bonus, allowances, or overtime. Basic salary is generally determined based on the designation of the employee and the industry in which he/she works in.
• Variable Pay or Allowances
Variable pay, also known as performance pay, is mainly used by the employers to recognize and reward employee contribution above and beyond their normal job duties, towards factors such as company productivity and profitability. It is based primarily on two factors – the employee’s own performance and the company’s performance.
Variable pay provided and the limits on it differ from company to company based on their policies. Some of the examples of variable pay include –
-House rent allowance
-Leave travel allowance
Perquisites or fringe benefits are the advantages that some employees get as a result of their official position. These are usually non-cash benefits (in addition to the cash salary). Some of the examples of perquisites include rent-free accommodation, provision of a car for personal use, payment of premium on insurance policy etc.
• Bonus or Incentive Pay
A bonus or incentive pay is usually awarded in recognition of an employee’s good performance. It is compensation offered over and above the basic salary, and the amount can either be fixed or variable.