Increment letter format for Indian employers

What this letter is

An increment letter records a revision to an employee compensation: the new structure, the effective date, and any arrears owed if the revision is backdated. It is a formal variation of the terms in the appointment letter, so it should be written with the same care and filed with it.

When to issue it

When the revision is decided, and ideally before the first payslip that reflects it. An increase that appears in the bank account before it appears in writing generates avoidable questions about what exactly changed.

Everything in square brackets is yours to replace. Read the section below on what this letter must contain before you send it, because the template is the easy half.

[COMPANY LETTERHEAD]

Date: [DD/MM/YYYY]

[EMPLOYEE NAME]
[EMPLOYEE CODE]
[DESIGNATION], [DEPARTMENT]

Subject: Revision of compensation

Dear [EMPLOYEE NAME],

We are pleased to inform you that in recognition of your performance and contribution, your compensation has been revised with effect from [DD/MM/YYYY].

Your revised compensation structure is as follows:

  Component                     Existing (Rs)      Revised (Rs)
  Basic salary                  [AMOUNT]           [AMOUNT]
  House rent allowance          [AMOUNT]           [AMOUNT]
  [OTHER ALLOWANCE]             [AMOUNT]           [AMOUNT]
  Gross monthly salary          [AMOUNT]           [AMOUNT]
  Annual cost to company        [AMOUNT]           [AMOUNT]

[Where the revision is backdated: Arrears of Rs [AMOUNT] for the period [DD/MM/YYYY] to [DD/MM/YYYY] will be paid along with your salary for the month of [MONTH YYYY].]

[Where applicable: Your designation stands revised to [NEW DESIGNATION] and you will report to [MANAGER NAME, DESIGNATION].]

All other terms and conditions of your appointment letter dated [DD/MM/YYYY] remain unchanged.

We thank you for your contribution and look forward to your continued association with [COMPANY NAME].

For [COMPANY NAME]

[SIGNATURE]
[NAME]
[DESIGNATION]

What it must contain

• The effective date of the revision, stated separately from the date of the letter.
• The old structure and the new structure side by side, item by item.
• The arrears amount and the month it will be paid in, where the revision is backdated.
• Confirmation that all other terms of the appointment letter remain unchanged, or a clear statement of exactly what else has changed.
• The new designation and reporting line, if either has changed.

The law behind it

India has no single statute governing employment letters. The obligations sit across state Shops and Establishments Acts, which differ from each other, and a handful of central acts that apply to some employers and not others. Each note below names its source and who it applies to.

• An increment letter varies the contract of employment. Where it changes anything beyond the amount, such as designation, reporting line or notice period, those changes need the employee acceptance in the same way the original terms did.
• A change to the basic salary changes statutory contributions with it: employee and employer provident fund under the Employees Provident Funds and Miscellaneous Provisions Act 1952, employee state insurance eligibility where the wage threshold is crossed, and the professional tax band in states that read the slab on monthly salary. Revising the gross while leaving the basic untouched to hold contributions down is a pattern that attracts scrutiny.
• If the revision is backdated, the arrears are wages for the period they relate to, and paying them promptly matters for the same reason paying wages promptly matters.

The mistakes that cost money

• Stating only the new CTC. The employee cannot tell what changed, and neither can the next person who reads the file.
• Confusing the letter date with the effective date. If the revision is effective from April and the letter is issued in July, both dates belong in the letter, along with the arrears.
• Forgetting the arrears line entirely on a backdated revision.
• Increasing the gross while holding the basic flat purely to keep provident fund contributions down. It reduces the employee retirement corpus, it is visible in the structure, and it is exactly the sort of thing an inspection asks about.
• Not mentioning that everything else in the appointment letter still applies, which leaves the status of the original terms ambiguous.

Questions people ask

The letters that go with this one

Where the details for this letter come from

Half the fields in this template are ones you already hold somewhere: date of joining, designation, salary structure, leave balance, notice period. Shiftelio keeps them in one employee record alongside attendance and payroll, so the figures you type into this letter are the figures the payslip used.

Every letter format in this library