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All-in-one HR platform · v2.0
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All-in-one HR platform · v2.0
14-day free trial · No credit cardhello@HrMagix.com
A salary revision cycle has a reputation for being stressful, and the stress almost always comes from the same place: decisions being made out of order. Managers promise increases before the budget is set, letters go out before approvals are final, and payroll learns the effective date after the month has closed.
This guide runs in the order the work should run. It does not recommend increment percentages, which are your decision and depend on your finances and market, but it sets out how to make the decisions so that the outcome is fair, affordable and correctly paid.
01
Agree the total increment budget with leadership before anyone discusses individuals. Express it as a cost to the company, including the knock-on effect on employer contributions and anything linked to basic pay, not just as a percentage of the salary bill.
Fix the effective date at the same time. If letters will be issued after the effective date, arrears are certain, and payroll needs to plan for them.
Watch for itAn increase to basic pay can move other figures with it: provident fund, gratuity provision, leave encashment and, near the threshold, ESI eligibility. Model the full cost, not just the gross.
02
Guidelines turn a budget into decisions that are consistent across teams. The most common approach links the increase to performance rating and to where the person sits in their pay band, so a strong performer low in the band gets more than one already near the top.
Separate the ordinary increment from promotions and market corrections. Each needs its own budget line, otherwise promotions consume the pool meant for everyone else.
03
Give managers a sheet or screen with each team member's current pay, band, rating and the guideline range, and ask for a recommendation with a reason where it falls outside the range.
Before approval, check the totals against budget by department, and look for patterns: one manager giving everyone the same figure, systematic differences between groups doing similar work, or someone left out because they were on long leave.
04
Agree who approves at each level and get final sign-off before anything is communicated. Once a manager has told someone their increase, reversing it is costly in trust.
Revision letters should state the new structure component by component, the effective date and any change in designation or grade. Have managers deliver the conversation and HR deliver the letter, so the employee hears the context and gets the record.
05
Load the revised structures with the correct effective date. If the effective date is in a past month, the difference between the old and new salary for those months is due as arrears, along with the matching change in statutory contributions.
Pay arrears as a separately identified line, not folded into the month's salary. That keeps the payslip explainable and keeps the arrear months traceable. Arrears also change the income for tax purposes in the year they are paid, so the tax projection for the rest of the year needs to reflect them.
06
Keep the final approved list, the guidelines and the budget reconciliation together. Next year's cycle starts from this year's outcome, and questions about fairness are answered from the record, not from memory.
Avoid running a payroll system migration in the same month as a revision cycle. When figures disagree you want to know which change caused it.
Every guide ends here rather than in a summary. If a line below is not true yet, that is the next thing to do.
Set the budget and effective date, write guidelines, collect manager recommendations, check and approve them, issue letters, then update payroll and pay any arrears from the effective date.
For each month from the effective date to the month the revision is processed, the difference between the new and old salary is due, with statutory contributions recomputed where they apply. Pay it as a separately labelled line.
Arrears are part of salary income in the year they are paid, so the tax projection for the year must include them. Relief for arrears relating to earlier years may be available under the Income Tax Act; check the current rules.
Better as a separate line. Otherwise promotions reduce what is available for everyone else's increment without anyone deciding that they should.
The checklist above is generic by necessity. Bring your own structures, states and rota and we will tell you which lines are already true and which are not.
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