Basic Salary
Also called: basic pay
What is Basic Salary?
Basic salary is the core fixed component of pay, before allowances. Provident fund, gratuity, HRA limits, bonus and overtime are all calculated from it, which makes it the most consequential number in a salary structure.
Why Basic Salary matters
Setting basic pay low reduces employer contributions in the short term and reduces the employee's retirement savings and gratuity in the long term. Wage regulations also limit how far it can be minimised.
Basic Salary formula
PF contribution = Basic salary (plus DA where applicable) × 12%
Gratuity is also computed on basic plus DA.
How Basic Salary works in practice
Keep basic as a consistent share of gross across roles, and review it against current wage rules. Ad-hoc structures per employee become impossible to administer as headcount grows.
Frequently asked questions
Commonly around 40–50%, with wage regulations placing limits on how low it can go.