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Free policy template · Word

Salary Administration Policy

A salary administration policy explains how individual salaries are fixed and moved within grade-wise pay bands — where a new hire is placed, how annual increments, promotion hikes and market corrections are calculated, and who approves exceptions. It keeps pay decisions consistent and defensible across managers.

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[Company Logo][Company Name]

SALARY ADMINISTRATION POLICY

Policy No.:
[Reference Number]
Version:
[Version Number]
Effective Date:
[Date]
Policy Owner:
Human Resources – Compensation

1. Purpose

This policy sets the method for fixing and revising individual salaries at [Company Name] so that pay is consistent within grades, linked to performance and within approved budgets.

2. Scope

It applies to all permanent and fixed-term employees in grades [Grade] to [Grade]. Sales incentives and statutory bonus are covered by separate schemes.

3. Definitions

  • Pay band: the approved annual CTC range for a grade.
  • Midpoint: the mid-value of the band, representing a fully competent employee.
  • Compa-ratio: an employee's CTC divided by the band midpoint.
  • Merit increase: an annual increase based on performance rating.
GradeMinimum CTC (₹)Midpoint (₹)Maximum CTC (₹)
[Grade][Amount][Amount][Amount]
[Grade][Amount][Amount][Amount]
[Grade][Amount][Amount][Amount]
[Grade][Amount][Amount][Amount]

4. Policy

  1. New hires are placed between the band minimum and midpoint. Offers above midpoint need HR Head approval; offers above maximum need [Authorised Signatory] approval.
  2. The standard structure is Basic [Number]% of CTC, HRA [Number]% of Basic, and the balance as special allowance and statutory contributions.
  3. Annual merit increases are effective from [Date] and follow the merit matrix approved for the year.
  4. Employees at or above band maximum receive a one-time payment instead of a base increase.
  5. On promotion, salary is increased by at least [Number]% or to the minimum of the new band, whichever is higher.
  6. Mid-year corrections are made only for documented market or equity gaps and require HR Head approval.
RatingCompa-ratio below 0.90.9 to 1.1Above 1.1
Outstanding[Number]%[Number]%[Number]%
Exceeds[Number]%[Number]%[Number]%
Meets[Number]%[Number]%[Number]%
Below0%0%0%

5. Procedure

  1. HR shares the increment budget and matrix with managers after appraisals close.
  2. Managers propose increases within budget; HR checks band and equity.
  3. Department Heads and HR Head approve; increment letters are issued by [Date].
  4. Payroll applies revised salaries with arrears if any.

6. Responsibilities

  • HR: maintain bands, benchmark annually and audit pay equity.
  • Managers: propose fair, evidence-based increases.
  • Finance: approve budgets and monitor cost.
  • Employees: keep salary information confidential.

7. Non-compliance

Offers or increases made outside this policy without approval will not be processed. Deliberate disclosure of other employees' salary data is a breach of confidentiality.

8. Review & Approval

Pay bands and the merit matrix are reviewed every year; the policy itself every [Number] years.

Prepared by
[HR Name]
Human Resources
Approved by
[Authorised Signatory]
[Designation]
Date: [Date]

What this template includes

  • Grade-wise pay bands with minimum, midpoint and maximum — the backbone of fair pay
  • Offer positioning rules — where new hires sit in the band
  • Merit increment matrix — links rating and position in band to hike percentage
  • Promotion increase rule — minimum hike or move to the new band minimum
  • Salary structure split — Basic, HRA and allowances in standard proportions
  • Exception approval levels — controls above-band offers and counter-offers

When to use it

  • Different managers are offering very different salaries for the same role
  • Building pay bands for each grade for the first time
  • Planning the annual increment cycle and the merit matrix
  • Handling counter-offers and salary exceptions

How to customise this template

  1. 1Fill the pay band table with your grades and annual CTC ranges
  2. 2Set the merit matrix percentages for the current year's budget
  3. 3Decide the Basic as a percentage of CTC, keeping wage-definition rules in mind
  4. 4Insert approval levels for offers above midpoint or band maximum
  5. 5Decide whether employees above band maximum get lump-sum payments instead of increments

HR tips

  • Review bands against market data each year — stale bands cause attrition
  • Check gender and internal equity before finalising increments
  • Under the Labour Codes, wage definitions affect PF and gratuity — do not keep Basic artificially low without advice
  • Document the reason for every exception

Salary structure choices affect PF, gratuity, bonus and tax. Review this template against the Labour Codes' wage definitions, minimum wage rules and with your payroll and legal advisers.

For HR & hiring managers

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Frequently asked questions

What is a pay band?+

A pay band is the salary range — minimum to maximum — set for a grade. All employees in that grade should be paid within the band, positioned according to experience and performance.

How is a merit increment matrix used?+

It sets the increment percentage based on two factors: the employee's performance rating and where their current pay sits in the band. Higher performers lower in the band get bigger hikes.

What percentage of CTC should basic salary be?+

It varies by company, but wage definitions under the Labour Codes mean that very low basic pay may still be counted differently for statutory purposes. Decide the split with your payroll adviser.

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