Basic salary, and the statutory costs that follow it
The fixed core of a pay structure — and the base for provident fund, gratuity and bonus, which is why its share of CTC is a compliance decision, not a formatting one.
What it is
The fixed core component. PF, gratuity, bonus and often HRA are all computed from it.
The usual share
Indian structures commonly set basic at 40–50% of CTC. The Code on Wages pushes toward at least half.
The trap
Shrinking basic to hold down PF cost. The deemed-wages rule recomputes the base as though it had been higher.
Basic salary is the fixed core of a pay structure. It is the base for PF, gratuity, bonus and often HRA, so its share of CTC quietly determines several statutory costs — which is why regulators watch structures that keep basic artificially small.
How it works in practice
Many Indian structures set basic at 40–50% of CTC. At ₹20,000 basic, PF at 12% is ₹2,400 from the employee and a matching employer share.
What to watch for
Cutting basic to reduce PF cost is common and risky. The Code on Wages pushes toward wages being at least half of total remuneration.
How Klok handles it
Klok flags a payroll run where basic falls below the 50% threshold, so the decision is deliberate rather than accidental.
Basic salary FAQs
Is there a legal minimum for basic salary?
Not as a fixed percentage in older legislation, but the Code on Wages caps excluded allowances at half of total remuneration — which in effect sets a floor for wages, and therefore constrains how small basic can be.
Does raising basic raise our cost?
Yes. A higher basic raises the employer PF share, accelerates gratuity accrual and raises bonus and leave-encashment figures. That is the trade-off in the structure, and it is better decided deliberately than discovered at an inspection.
Can basic differ between employees on the same CTC?
It can, but it invites questions — both from employees comparing payslips and from an inspector looking for structures engineered around a particular person. Consistency by grade is far easier to defend.
Can we set basic very low to reduce PF cost?
It is a widespread practice and an increasingly risky one. The wage definition in the newer framework requires a substantial share of pay to sit in the wage base, which is precisely aimed at this structure. Cost saved now can become arrears later.
Does basic affect anything other than PF?
It drives gratuity, leave encashment, notice pay and often bonus and overtime. Changing basic quietly re-prices several liabilities at once, which is why a restructure should be modelled before it is announced.
Should basic be the same percentage for everyone?
It does not have to be, but wide variation between employees at the same grade invites questions about whether the structure is designed around statutory cost rather than the role.
An employee wants a higher basic. Is that a problem?
It raises their PF and gratuity entitlement and your cost. It is not a problem so long as the structure stays consistent within the grade — an ad-hoc exception is what creates a comparison claim later.
Stop calculating this by hand
Klok computes it from your own attendance and salary data, every month, with the working shown.