How to decode the Pay Slip ?

A salary slip is one of the most confusing pieces of paper you will deal with, especially when you move into a new job. Few of us bother to try and understand the various elements in our pay slips. Which is why a salary that looks great on the surface might actually give you little cash in hand at the end of the month? What do the different parts of a salary slip actually mean, which parts eat into your net salary and which ones are there for decorative value only? This story helps you become salary smart.
Questions 1. Is failing to get into the nitty-gritty of your salary break up when switching employers a potentially costly mistake? Why?

Yes, I would say it is always good to analyse one’s salary before joining a new job. The simple definition of a salary is a form of periodic payment from an employer to an employee, which is specified in an employment contract. From the point of view of running a business, salary can also be viewed as the cost of acquiring human resources for running operations, and is then termed personnel expense or salary expense. But are today’s salaries with its various subplots as simple as it looks? My answer is a big No. Today, a salary incorporates a lot of components and is interlinked with the applicable tax structure and has various intangible benefits attached along with it. Prevention is always better than cure.
2. Could you name some deceptive salary components that, though part of the overall CTC figure, are (mis)used by companies to lure candidates? (Some examples you could elaborate on: annual bonus –which you don't get in full, food or canteen allowance, employee training costs, interest subsidies, PF contributions, etc.)

The term CTC (Cost to Company) is the most deceptive term by itself used very loosely at each firm’s convenience. Now CTC as a term includes everything and anything under the sun and hence it is very difficult to analyse an individual’s salary as the net difference between the CTC and the actual money that gets deposited every month in his salary account is becoming larger by the day. I have mentioned a host of components that form part of CTC that have come across in my professional life below but I am sure to have missed quite a few of them still. When a firm hires an employee and the salary negotiations happen, it needs to be as open, pragmatic and true as it can be with the employee. It is always better to set the expectations of the prospective employee upfront and ensure there is a lot of clarity in the salary front. I personally feel the HR of a firm has a big role to play in salary negotiations and it will help the firm a great deal in the long term.
3. What are some of the 'good components' that you NEED to look out for in a prospective employer's salary offer?

Salary or Fixed pay has continued to evolve/change as times have passed by. Salary or compensation does raise various proverbial questions on the pay like - Does the firm resort to a uniform pay on merit or include components like ESOP’s, profit sharing. Do they get into factor comparison and rank the various jobs like comparison on skills/effort/responsibilities and working conditions. Actually the proactive firms of today need to look at Salary as being part of the Total Rewards System (TRS) which includes the fixed /variable pay with all other fringe benefits like bonuses, perks and benefits etc. attached with it, thus helping the employer link rewards to an employee’s measured performance and some are taking bold steps on this front. This view will ultimately have an over binding impact on greater employee satisfaction and lesser attrition rates.
4. How important is it to understand the FBT or fringe benefit tax deduction concept at the outset and what effect does FBT have on your overall income? That is, out of two individuals with the same CTCs, who pays more tax at the end of the year - the person who pays FBT or the one who doesn't?

The taxation of perquisites or fringe benefits provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax. Any benefits or perks that employees (current or past) get as a result of their employment are to be taxed, but in this case in the hands of the employer. This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans. Although these are to be taxed on the employer, it has an overbearing impact on the employee as the employer may stop providing a lot of these features or benefits to its employees or try to recover these additional benefits/perks provided to the employees as promised in his or her CTC in one way or the other. I think their still needs more clarity from the government on the FBT issue and based on the feedback the govt. is trying its best to bring more clarity on FBT. FBT is still an issue inviting a lot of interesting views and my opinion is that it will have one more major revamp in the coming budget which should make FBT more user friendly to both the corporates and the general employees.

5. Are certain sectors at fault for using lucrative-sounding CTCs to lure candidates? Which ones?

A CTC can incorporate any or all of these depending on various factors.

Basic Salary Commissions/Incentives Bonus Dearness allowance Child Education Allowance (better give as reimbursement to save tax) Child Hostel Allowance (better give as reimbursement to save tax) City Compensatory Allowance Conveyance Allowance House Rent Allowance Leave Travel Allowance ( better give as reimbursement upto a maximum of 15,000/- to save tax) Lunch Allowance Medical reimbursement to a maximium of 15,000/ (otherwise it will go in tax) Newspaper allowance (better give as reimbursement to save tax) Special Allowance Gift voucher Club membership (save tax)
Uniform Maintenance
Professional Enrichment Allowance
Vehicle/Phone Allowance
Entertainment Reimbursement/Dating Allowance etc.

Yes, a lot of the sectors today are at fault in using lucrative sounding CTC and they think it is a sure shot way to employee retention. Most of the flak needs to go to the sunrise sectors of the recent years especially IT sector. Some other sectors are the Airlines (more with talent shortage), even manufacturing, KPO, Retail, Pharmaceutical, Biotech and Healthcare.
Generally a badly made CTC leads to a bad relationship and rocks the foundation of the relationship or trust that is built between the employee and the employer. Unfortunately the market in India today has a lot of over paid and poor skilled employees and it shows. Today to find the right talent is a premium and I personally feel companies do not make enough efforts to get the right talent and resort to such short cuts like making fancy looking CTC packages. I say India needs a tough regulator in the recruiting industry to take it to the next level.