Just like every other year the work-force will have new entrants this year too. The first salary is sacred and sentimental to many and marks the beginning of adult life. Graduates and Post Graduates from many educational institutions get placed in companies across India through the campus recruitment process which, for most parents and students is the ‘be all and end all’ of their education. For many it’s the placement or job guarantee offered seems to be the very purpose of education.
Perspectives and opinions aside, most graduates entering the job market today have little or no experience in the actual ‘job – hunting process’- a hard but rewarding experience, which the graduate has to go through if not for the campus recruitment process. The candidate most often does not get to negotiate the first pay as the campus recruitment process is not cut out for this. Most of the time, it is just a dictum. “This is your job role, this is your level and therefore this is your pay.” At the entry-level, let’s not expect anything more, because most of us would be happy with a job, and any job for that matter.
Decoding the numbers on the Salary Slip
Let’s cut to the chase and look at the numbers you get on paper. For most graduates it is a five figure package. For graduates from the topmost institutes like the IITs, it is a six figure. These numbers play a very important role. Understand your salary and perks. What is inclusive, exclusive and the difference between your Gross and Net Salary. Let’s roll over a few key components of the compensation and few hard hitting facts which can help you figure out if the company has hired you for what you are really worth. True fact – numbers on your pay-slip do talk about your worth as a resource.
What are the components of the First Salary?
Base Salary: It is the core part of the salary and many other components are based on the this. It also determines your net take home and any further increments are calculated as a percentage of your base pay. It is often referred to as a fixed component. Most importantly, if this is your first salary note that the base salary will be the same for your peers who are at the same grade or level. It means the base salary of your team lead must be definitely higher than yours. If not, he is already leader material and is next in line for promotion.
Perks/Perquisites : If the company provides you with a rent free accommodation, a driver, domestic help, subsidy on loan interest, Employee stock options , reimbursement of medical bills, telephone bills, hospital bills, or if the company pays your health insurance, then it becomes a perk. A perk can vary depending upon the company policy and the grade you are at. One more important tip, perks are taxable although they cannot be taxed directly. Well, if you are enjoying a perk as part of your first salary, well then you work for a good company. Figure out with the HR department regarding your taxable perks.
Employee Provident Fund: Now comes the most important component of them all. Employee Provident fund which is 12% of basic and has two sides: the employee’s contribution and the employer’s contribution. The employer contributes 50% of the total EPF. Your contribution is deducted from your total salary every month. PF contributions are deposited into your PF account which most of the time is the saving that you use for a retired life.
Gross Vs Net Salary: All of the above are part of your gross salary and be 100% not to see the total amount as a credit in your bank account. Your Net is your Gross Salary less deductions on PF/ non – cash perks (perks which are not in the form of cash) and income tax according to the tax bracket your salary falls in. Some companies include all perks as part of the gross salary. So don’t be surprised when there is a noticeable difference in your take home salary that is credited into your bank account every month. The HR will definitely offer their explanation and a valid one at that.
What to watch out?
Variable Component: If your salary has a variable component, it is based on your performance and your company’s performance. Pay attention to those details on your offer letter or appointment order, it will tell you a great deal of what you can expect from the company as incentive or as bonus. Keep in mind, a company that puts variable components on paper measures what you can deliver. So it goes without saying that talent and potential can only get you this far. Performance is what will get you to the place you want to go.
One pay structure for the whole year: Keep in mind that this is your gross and net salary for the whole year. There will be no more negotiations. It doesn’t matter how many hours you work or how better you are than your peers. So keep your spends within your earnings.
The biggest worry for a newbie on the job when it comes to salary, is what he receives in hand. Most don’t like to see those figures after they have tuned their mind to thinking about round figures they were promised at the time of the offer. But these are perceptions you will have to deal with. Still not clear on what’s happening with the numbers on your pay-slip? Talk to a financial advisor and a good one at that.
This article has been contributed by Right Horizons