How Gross Salary Is Calculated When Employer Statutory Contributions Are Included in CTC

Scenario

The customer wants to understand how Keka derives the Gross Salary from the Monthly CTC when the salary structure includes employer statutory contributions such as Employer PF and Employer ESI.

In this scenario:

• Basic is configured as a percentage of Gross.
• Employer PF is calculated as a percentage of Basic.
• Employer ESI is calculated as a percentage of Gross.
• Gross is derived after accounting for Employer PF and Employer ESI within the CTC.

Clarification

When employer statutory contributions are included in the CTC, the Gross Salary cannot always be calculated by simply subtracting fixed statutory amounts from the CTC.

This is because the components are interdependent. For example, Employer PF depends on Basic, Basic depends on Gross, and Gross is derived after excluding Employer PF and Employer ESI from the CTC.

Keka's payroll engine resolves these component formulas together to derive the Gross Salary.

Example

Let's assume the Monthly CTC is ₹20,833 (Annual CTC: ₹2,50,000) and the salary structure is configured as follows:

Since Employer PF depends on Basic, and Basic depends on Gross, while Gross is calculated after excluding Employer PF and Employer ESI, all these components are interconnected.

Therefore, the Gross Salary is derived by resolving the formulas together.

Backend Calculation Logic

Step 1: Calculate Employer PF as a percentage of Gross

Basic is configured as 50% of Gross.

Employer PF is configured as 12% of Basic.

Therefore:

Employer PF = 12% × 50% × Gross

Employer PF = 6% of Gross

Employer ESI is calculated directly on Gross:

Employer ESI = 3.25% of Gross

Therefore, the total employer statutory contribution considered against Gross is:

Employer PF + Employer ESI = 6% + 3.25% = 9.25% of Gross

Step 2: Derive the Gross Salary Formula

The relationship between CTC and Gross is:

Gross = CTC − Employer PF − Employer ESI

Substituting the calculated percentages:

Gross = CTC − (6% × Gross) − (3.25% × Gross)

Rearranging the formula:

Gross + 9.25% × Gross = CTC

1.0925 × Gross = CTC

Therefore:

Gross = CTC ÷ 1.0925

Step 3: Calculate Gross Salary

Monthly CTC = ₹20,833

Therefore:

Gross = ₹20,833 ÷ 1.0925

Gross = ₹19,069.79

Once the Gross Salary is derived, the dependent components are calculated based on the configured formulas.

The remaining amount after allocating Basic and other applicable fixed components is calculated as Special Allowance, ensuring that the total earnings reconcile with the derived Gross Salary.