What is fixed pay and variable pay in salary …

  • What is the fixed pay and variable pay in salary structure?

    In the private corporate world,

    Fixed pay will be paid every month, if

    • you do not take any loss of pay leave and
    • worked on all the working days (excluding declared holidays) or
      • applied leave as per company policy
        • within the leave limit and approved by the company.

    Variable pay may not be paid every month, but may get paid quarterly / half-yearly / annually. The pay out formula will be explained in the company’s policy, which could be linked to

    1. Your individual performance and billing % for the payout period (subject to above a threshold limit – 80% utilised / billed) and
    2. Your division performance (revenue and or profit) and also
    3. Your overall company’s performance (revenue and or profit).

    A2A. Fixed pay is your actual monthly salary which includes Basic and bundle of all allowances minus tax paid. Variable pay is the percentage component of your fixed salary that you will not get monthly, but quarterly or yearly.

    So suppose you have an offer wherein the package offered is 9 LPA such that fixed pay is 7.5 LPA and 20% variable. Then your monthly salary will be = (7.5/12) -PF – Tax. And the 20% variable which amounts to 1.5 lakhs will be paid to you either quarterly or yearly.

    The variable payout depends on the company, for example, most service based industries have 10–15% variable and it will be paid to you quarterly based on your performance rating. Not all employees get 100% of their variable component. Whereas Big 4 firms like Deloitte, KPMG have 15–20% variable which is paid in full. And at times for high performers, its paid even more than that, but only in exceptional cases.

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    Fixed pay is what is defined and fixed and you will get the same salary which was stated in the letter of salary structure. Your package = Fixed Pay(X% of total package) + Variable pay(100-X% of total package). So Variable pay is the part of your salary package . you will get your fixed pay at the end of every month but you will get your variable pay once in a quarter/half year/year(may differ from company to company). Let’s take a company is paying variable pay each quarter. So at the end of every quarter, company announces some percentage which would be given to you as part of variable pay.

    Let’s assume your total package is Rs.1000/- per month . Out of which you are getting Rs.700 as fixed pay and Rs.300 as variable pay. So you will always get Rs.700 at the end of the month. Now lets suppose your company announces the percentage of variable pay be 80%, so you will get (80% of your variable pay 300 which is equal to Rs.240/-), so at the end of the quarter you will get 240*3 = Rs.720/-.

    Similarly, calculation can be done for half yearly or yearly variable pay.

    Fixed pay is guaranteed and it will be paid to you every month by salary. This includes:

    1. Basic Pay
    2. DA (Dearness allowance)
    3. HRA (house rent allowance)
    4. Conveyance Allowance etc.

    Variable Pay mainly includes Performance Bonus that is not guaranteed and will be paid at the end of the year provided your performance is good and the Unit you worked makes a profit.

    Sometimes, the Dearness Allowance is also not fixed and linked to price index. So, DA keeps fluctuating every quarter i.e. it may go up or come down but payment of DA is assured; only the sum slightly varies.

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    A fixed pay salary is given to you at the end of each month. fixed pay is not based on your performance but it is based on the minimum amount paid to his employee.

    when variable pay is based on your performance and makes a profit.

    for example,

    assume that your total salary per month is 10000. out of this 80% is fixed and 20% variable so 80% of the 10000 i.e 8000 rupees is fixed and the organization have to pay a fixed salary in any situation.

    and 20% of 10000 i.e 2000 is variable as it based on your performance. if your performance makes a profit for the company than the company gives otherwise not.

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    • Fixed Pay:
      • Guaranteed Payable to Employee.
      • This may include (Basic, DA, HRA, Special Allowances, EPF etc)
      • Usually payable on monthly basis
      • It would be always 100% payable in lieu of employee service.
    • Variable Pay:
      • Not Guaranteed Payable to Employee.
      • This may link/depends on company performance, individual performance or company financials.
      • Also may be also bind with company policy like retention bonus payable for each complete service year etc. Means if you leave company before completing one year retention bonus would be zero.
      • Variable pay may vary from 0% to 100%.
      • Generally payable on quarterly, half yearly or yearly basis.

    Fixed pays are

    Basic, DA, HRA, Conveyance allowance, special allowance, adhoc allowance, medical reimbursement, LTA, etc. (some of these can be annual payments also)

    Variables pays are

    DA (if linked to CPI points), incentives, OT, shift allowances, travel allowances, etc.

    There is no fixed rule that a particular component is a fixed pay. Generally Basic & DA are the fixed components and depending on company’s policy, other components get added as fixed pays.

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    Fix pay is which you will get monthly where as variable pay you will get Quarterly, half yearly or yearly.

    Fix includes your HRA, BASIC, PF, Transportation, LTA, Other allowances.

    Usually in every organization variable component is 10%, 15%, 20% or your total package.

    So before joining just ask to HR how they provides the variable pay. Because it depends on Your performance, Your Team Performance, Your Group Performance, Your Company Performance. 🙂

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    Fixed Pay is what you get by Industry norms and Labour Laws. Variable pay includes the negotiable portion and includes performance linked or profit linked remuneration.

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    Fixed pay is predefined and fixed and you will get the same salary which has been mentioned in the offer letter. You will get fixed pay at the end of every month whereas variable pay, as the name suggests is variable. You will get variable pay once in a quarter or half-yearly which may differ from an organization to an organization.

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    Fixed pay is the gross in-hand salary and variable pay is based on performance

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