Salary - Meaning & Definition

Published in Human Resources Terms by MBA Skool Team

What is Salary?

Salary is defined as the decided monetary amount that an employer offers an employee in lieu of the services offered by the employee. This amount of money is revised on periodic intervals on the basis of the employee’s performance. Salaries are generally defined as a fixed package which is offered to employees as the annual compensation. It is divided by 12 to ascertain the amount to be paid every month to the employee on the basis of employee productivity.

Each employee is entitled to a fixed amount of salary in the exchange of his time and services as a part of their compensation and benefits. However, often the assigned work cannot be completed within the fixed number of hours allotted each day, hence the employee has to devote more time without deriving extra benefits out of the same. In addition, employees are also entitled to leaves, benefits and perks. All these comprise of the total salary structure of an employee.

Difference between Salary & Wage

Generally, salaries are associated with office-going white collar workers. Such people are skilled, educated and employed with a firm of repute in the society. Often, people use the term salary and wage interchangeably. However, there exist several differences between the two terms.

Wage is the term used for the hourly payment given to workers in return for their services in a day. It is offered to semi-skilled or unskilled labour and is fixed in nature, whereas salary is variable. Also, a worker is given extra wage for extra work done by him by doing overtime, however this concept does not apply in case of a salaried individual.

Salary Breakup

Salary structure is the detailed break-up of the various components of monthly salary that is offered as compensation to an employee. The essential components of salary include:

• Basic pay: This is approximately 40% of the Cost-To-Company (CTC) and it is taxable.

• HRA: House Rent Allowance is another major component of the salary which varies from 40-50% of basic salary.

• Leave Travel Allowance: This is a non-taxable component which entitles a fixed amount to the employee for spending on vacations.

• Gratuity: This is a fixed amount which is paid to the employee once his term with an organisation ends due to retirement or resignation.

• Other components include Medical allowance, special allowances, bonus, performance pay, Provident Fund (PF), Employee Stock Options (ESOPs) and food/ travel allowance.

Hence, this concludes the definition of Salary along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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