During our course of setting up Payroll structures for most of our customers, we have received lots of questions on What a salary slip looks like, what components it should have and how to give a payslip to the employees. In this blog, we are going to cover basics of Salary Slips.
Salary Slip is the documented proof of employee’s salary and incentives. It includes the breakup of the salary. The payslip is useful in calculating the money earned and how much of tax is to be paid to avoid any penalties.
Why Employer needs to issue Salary Slip?
For an employer, it is a proof during audits if company is paying right amount of tax or not. For an employee, when they apply for the new job, it is the proof of how much salary and incentives employee was drawing in the previous company. Working professionals are always asked to produce Salary Slips when applying for loans in bank.
What information Employer needs to show in Salary Slip?
The following is almost a complete list of components (or fields) which needs to be displayed on payslips before issuing them to an employee. However, based on the type of business and position of employees, employers may choose to skip some of the below components.
- Name of the employee
- Company’s name and logo
- Company’s address
- Mode of payment
- Total payments
- Gross payments
- Net payments
- Incentives and perks
- Compliance deductions (PF, PT, ESI and TDS)
- National insurance number or pin, if any
- PAN details
- Bank account details
- Pension details, if any
- Bonus and overtime payments
- Stock purchase, if any
- Provident Fund pin and other details, etc
- Leave balance details
- Name & Signature of the employer
Definitions of some of the Basic Salary Components
Below components are classified in two categories – (i) Earnings (ii) Deductions
It is the most important component of salary and other components are structured around it. Generally basic salary is 35-50% of the total compensation. (or Cost-to-Company – CTC)
House Rent Allowance:
HRA is the allowance paid to pay the house / room rent. It is approximately 40-50% of basic salary. Percentage of HRA may depend on the location of the stay.
Conveyance allowance is paid towards the travel cost from home to office and back. Conveyance Allowance is exempted from tax. An exemption of upto Rs.19,200 annually or Rs.1600 per month is allowed.
Dearness Allowance is a cost of living adjustment allowance paid to Government employees, Public sector employees (PSU)and pensioners.
Leave Travel Allowance:
It is paid to the employee who is travelling while he or she is on leave. This allowance also includes the expenses of immediate family members also. An employee can claim LTA once in 2 years.
It is paid to employee to cover the medical expenses which incurred during the employment period. Generally it is subjected to reimbursement; hence employees are required to produce proofs of expense while claiming the allowance. Claim amount of upto Rs.15,000 annually is allowed.
Internet and Telephone Allowance:
This component usually comes for Employees working in Service based Industry.
Food allowance is generally given in the form of Food Coupons. Organisations have to partner with 3rd party coupon providers. Most commonly used ones are from Sodexo. Most common amount given is Rs.1100 or Rs.2200. The amount is exempted from tax.
Performance Bonus and Special Allowance:
It is given as a reward to the employee for his performance which could be in terms of achieving goals, following the company guidelines and behaviour on the floor. Based on company to company performance bonuses can be given monthly, quarterly, half yearly or annually.
Miscellaneous Allowance or Reimbursement:
This salary component comes based on the type of role an employee is into; and if company allows reimbursement of expenses done by employees while on some business task. Business Travel Allowance includes reimbursement for travel, food, hotel, fuel and other such expenses. Shift Allowance is to pay the amount for employees working at night shift.
Provident Fund is deposited in government controlled body or employees’ provident fund organization. If employee’s monthly salary is 20. However, there is an option to opt out of this scheme.
This tax is calculated based on the Professional Tax slabs for various Indian States, as defined by Government of India. It is generally a few hundred rupees and is applicable only in some states of the country.
Tax Deducted at Source:
TDS or Income Tax is a direct form of tax which is applied based on the Salary slabs as defined by Government of India. Currently, Govt employees with salary < Rs 3 lakh annually and Private employees with salary < Rs.2.5 lakh are exempted from any tax deductions. Employer has to submit these taxes to the income tax department.
Voluntary Provident Fund:
VPF is an investment option where a salaried employee can set aside more than the normal compulsory deduction of 12% of basic salary as savings fund. An amount of upto Rs.1 lakh annually comes under tax benefits.
This is basically Group Health Insurance, which a company pays on behalf of the employees. Usually it is shown as annual deduction from gross salary of the employee.
We always advice our customers not to indulge in running payroll on excel sheets, as it is most tedious process and takes longer time. Excel based payrolls are prone to errors as well.
FastCollab provides a robust end-to-end Payroll Management System where employers can create salary structures, collect IT declaration of employees, run payroll and issue payslips to each employee online.