Salary Slip Format

Salary slip also known as a pay slip is provided to employees to record their monthly pay and allowances. It is a document that makes the employees aware of their incomes and deductions as it would differ from employee to employee. In this article, we look at a salary slip in detail along with salary slip format.

Importance of Salary Slip

The salary slips act as evidence of employment.
It proves that the organization has permanently recruited an employee.
This is handy in negotiating with new employers for a better pay.
Salary slips aid to apply for loans in banks.
It is an authentic proof of income and used to file income tax returns.
It serves as a proof for PF and insurance deductions.

All employees must receive payslips on a monthly basis as it is the proof of his employment in an organization and is required for various compliances filing like income tax filing and PF return filing. If an employee has not received it, he/she could speak with their payroll team to have it sent automatically post payroll processing.

Computerised and Manual Salary Slip

Manual salary slips are outdated now as most of us work in paperless offices and the pdf file of a salary slip is received on the date of the salary. Issuing manual salary slip might be time-consuming and might consume a lot of paper. Computerised payroll consumes substantially lesser time. Computerized payslip or the E-payslip could be printed or used at the employee's convenience. Lesser cost is incurred as it is automated. It secures the data, thereby maintaining its confidentiality. Manual papers are generally issued to provide the original salary slip with the company's seal and signature of the authorized official.

Validity of a Salary Slip

Manual payslip and the e-payslip are lawful and valid proof documents. It had to be noted that an issued and authorized payslip must not be manipulated or modified as it might be a criminal offense to edit a pay slip.

Components of a Salary Slip

Organizing salaries and processing payroll is an inevitable responsibility for every HR and payroll team. While creating the ideal salary structure, we must keep in mind that the payslip should be tax efficient, reduce employer's liability and must be compliant with the minimum wages and PF Laws. The components are sub-divided into 2 sides which are as follows.

Income or earnings
Deductions

We look into the various components of a salary slip in the paragraphs below:

Income

The payslip is divided into 2 sides, we record all types of incomes or gains or allowances on the left hand-side of the payslip. Let's examine the possible incomes recorded on a payslip of an employee.

Basic Salary + Dearness Allowance

This is the prime and main component of a salary structure. It is the biggest component comprising around 40% to 45% of the total salary. This is the basis for calculation of various other components such as PF, gratuity, ESI etc. This component are completely taxable. Just as basic salary, dearness allowance too would affect the salary components. It is to be noted that both basic salary and dearness allowance must neither be high nor be low. If high, it would affect the tax liability of an employee. If low, it would be non-compliance of the state's minimum wages rules.

House Rent Allowance

The House Rent Allowance, as the name suggests, is an allowance to pay out the house rent of employees, which could be claimed in the year end. The employee could get an exemption from income tax for HRA. HRA would be calculated usually at 50% of the Income Tax. Know more about House Rent Allowance.

Conveyance Allowance

This has been mainly added for an employee to cover his expenses from home to work and return, it is also exempt from income tax to a certain amount. The maximum amount that is tax deductible under this component is Rs. 1,600 a year to Rs. 19,200 a year.

Leave Travel Allowance

Leave travel allowance (LTA) reimburses employees for their travel during their leave, provided it is within the confines of the country. This component is mostly used by employers due to its tax emoluments. An employee could claim tax benefits for the fare expenses paid for his/her family when they take a holiday. However, there are restrictions to what you can claim as tax benefits:

Only the travel fare expenses can be claimed.
Stay and food on your trip aren’t covered.
Travel must be within India.
Immediate family that are mainly dependant on the employee are only covered under LTA.

Medical Allowance

Medical allowance is a reimbursement for medical expenses made by employees. This amount is tax deductible up to Rs. 15,000 a year or Rs. 1,250 every month. In order to claim tax benefits under this component, employees must submit proof of their medical expenses. In case the Rs. 1,250 isn’t claimed in one month, then this amount is carried forward to the next month. This means that a progressive amount of Rs. 15,000 could be claimed at the end of the year. This is also the suggested quota that establishments generally assign to this section of the salary set-up.

Child Education Allowance

This payment is made towards tuition fees of employees’ children and is tax deductible for the amount of about Rs. 100 every month for a maximum of two children. Hence, this sum is generally fixed up to Rs. 2,400 annually.

Special Allowance

Special allowance is the component generally used by companies as the residue of Cost to Company (CTC) when the rest of the components have been paid out. This component is fully taxable and is also considered for the computation of Provident Fund

Deductions

Deductions are facets of the salary structure wherein portions of CTC are deducted from the take-home salary of employees. We record all types of deductions on the right hand-side of the payslip. Let's examine the possible deductions recorded on a payslip of an employee.

Provident Fund

Provident Fund (PF) is calculated at 12% of Basic + Dearness Allowance + Special Allowance. The employer and the employee both must make an equal contribution of 6% each. This is applicable to establishments which have 20 + employees on their employment. If an employee’s Basic + DA + Special Allowance is less than Rs. 15,000 then it is compulsory for Provident Fund to be deducted. Other employees earning over Rs.15,000 can opt out by filling form 11 (In case this is the first employment and UAN has not been generated) or can choose to have PF deducted fixing the threshold at Rs. 15,000. For employees having UAN, the monthly minimum contribution would be Rs.1800.

Employees State Insurance

Deductions towards ESI are compulsory for employees whose gross salary does not exceed Rs. 21,000. It is only applicable in establishments where there are 20 or more employees within the Rs.21,000 gross salary bracket. Employees have to make a contribution of 1.75% of the gross salary and employers have to make a contribution of 4.75% of the gross salary.

Professional Tax

Professional tax is the tax imposed by Governments on salaried employees. The states that has a levy of professional tax are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of professional tax that is deducted differs from state to state, whereever it is applicable