Payroll Accounting Software

An Employee's salary, from "Basic salary" To "Take home salary", the whole process is explained below with its formula & calculations.

The Employer also has to contribute to the government, the employers contribution is as follows:

1. Skill Base: There are four types categories in Skill Base like Unskilled, Semi Skilled, Skilled & Highly Skilled.

2. Date of Joining: You have to enter the employee's Date of Joining the company.

3. Basic Salary: Basic Salary is given according to employee's Skill Base, from which category it belongs to. The salary of the employee is already categorized according to the Zone he belongs.

4. Dearness Allowance (DA): Dearness Allowance will be calculated according to the Skill Base & Zone he belongs to.

5. No. Of Days Present: You have to enter the No. of days present in that month. The salary will be calculated according to the employee's present days of that month.

6. Earned Salary: Earned Salary is calculated according to the Basic Salary, Dearness Allowance provided & No. of days present in that month.
Formula = (the Basic Salary + D.A + No. of days present)
i.e. Sum of the Basic salary, D.A & No. of days present

7. House Rental Allowance (H.R.A): The Company decides its H.R.A given to the employee.
Formula = ("total earned salary" *Company's H.R.A percentage)
i.e. The H.R.A provided by the company is multiplied by employee's total earned salary of that month.

8. Special Allowance: The Company decides its Special Allowance given to the employee.
Formula = ("special allowance"/no. of days present) *no. of days of the month.
i.e. The Special allowance provided by the company is divided by the employee's no. of days present, then multiplied by no. of days of that month.

9. Meal allowance: The Company decides its Meal Allowance given to the employee.
Formula = ("meal allowance"/no. of days present) *no. of days of the month.
i.e. The Meal allowance provided by the company is divided by the employee's no. of days present, then multiplied by no. of days of that month.

10. Conveyance: The Company decides its Conveyance given to the employee.
Formula = ("conveyance "/no. of days present) *no. of days of the month.
i.e. The Conveyance provided by the company is divided by the employee's no. of days present, then multiplied by no. of days of that month.

11. Over Time (O.T) : Over Time means time spend more than the regular official hours of the company. The company decides its O.T ratio on the additional working hrs given to the employee.
Formula = ("Total salary"/no. of days of the month) = 1 day salary.(1 day salary"/ 8 - working hrs)= 1 hr salary. Therefore: O.T = O.T working hrs * 1 hr salary * O.T ratio of the company.
i.e. The Total earned salary of the employee is divided by the no. of days of the month which calculates as 1 day salary. Then 1-day salary is divided by 8 (official working hrs), which calculates as 1 hr salary, which helps you to calculate the total overtime hours of the employee. Therefore the total O.T of the employee is multiplied by 1 hr salary and then multiplied by over time ratio of the company.

12. Incentive: The Company decides its Incentives given to the employee. Therefore it has no formula, you can directly enter the figure.

13. Other Allowance: The Company decides its Other Allowance given to the employee. Therefore it has no formula, you can directly enter the figure.

14. City Allowance: The Company decides its City Allowance given to the employee. Therefore it has no formula, you can directly enter the figure.

15. Leave Encashment: Leave Encashment is provided to those employees who do not want leaves, of the monthly Sundays, even though there were total 21 yearly holidays.
Formula =(((total earned salary /26-working days)/12-months)*21-yearly holidays
i.e. The total earned salary of the employee is divided by 26 (working days), then divided with 12(months), then multiplied by 21(yearly holidays)

16. Bonus: Bonus of the employee depends upon employee's salary. According to the government's rule if the employee's salary is more than Rs 2500/ then the bonus- will be calculated on Rs 2500/, the remaining amount will get transferred to exgratia account. And if the salary is less than Rs 2500/ then, it will be calculated on the earned salary of the employee
Formula =(If (the total earned salary is >2500,2500*8.33%))
i.e. If the employee's total earned salary is more than Rs 2500, then Rs 2500 is multiplied by 8.33 percentage, the rest gets transferred to exgratia account.

17. Exgratia: According to the government's rule, if the total earned salary of the employee is more than Rs 2500/ than remaining amount is transferred to Exgratia account, then that remaining amount is calculated with 8.33%.
Formula = (The total earned salary - Bonus) *8.33 %
i.e. The total earned salary of the employee minus the bonus amount, then multiplied by 8.33%( government rule).

18. Gratuity: The government gives Gratuity, if the employee has not taken continuous holidays up to 5 years.
Formula =(Total earned salary /26-working days)/12 months)*15
i.e. The total earned salary is divided by 26 (working days), then divided by 12 (months), then multiplied by 15 (government rule).

19. Washing Allowance: The Company decides its Washing Allowance given to the employee. Therefore it has no formula, you can directly enter the figure.

20. Gross salary: Gross Salary means, the addition of all the allowances provided to the Total earned salary.
Formula = (the total earned salary + all the allowances)
i.e. Addition of H.R.A, Special. Allowance, Meal Allowance, Conveyance, O.T., Incentives. Other Allowance, City Allowance, Leave Encashment, Bonus, Exgratia, Gratuity, & Washing Allowance to the Total Earned Salary.

21. Provident Fund: According to the government rule, employees Provident Fund is calculated to the employees total earned salary* 12%.
Formula = (the total earned salary * 12%)
i.e. The employee's total earned salary multiplied by 12 %(government rule)

22. Employee's State Insurance Corporation (E.S.I.C): E.S.I.C means insurance covered by the company to the employee. If addition, to the total earned salary, with all the other allowances like meal allowance, special allowance conveyance, incentive, over time, other allowance up to city allowance is more than Rs 7000/-, then E.S.I.C is not given to the employee.( If it is greater then 7500 it should take 0 & in salary slip should show exempted.
Formula= If (the total earned salary + all the allowances up to city allowance >7500,0))*1.75%
i.e. The total earned salary plus all the other allowances up to city allowance is more than 7500 then employee gets 0(nothing)

23. Professional Tax (P.T): According to the government rule, employees P.T is calculated to the employees site slab. Every state has different slab, Sum of Gross Salary of 12 months, divided by 12 will give Average Monthly Gross Salary which You have to compare with that sites- states slab
E.g. In Maharashtra the site slab is calculated like this:
P.T. Slab 0 To 2000 - Rs. 0
(2001 to 2500) - Rs.30
(2500 to 3500) - Rs.60
(3500 to 5000) - Rs.120
(5000 to 10000) - Rs.175
( 7501 and above )-Rs.200

Formula = IF (gross salary >10000,200,)
IF (gross salary >5000,175,)
IF (gross salary >3500,120,)
IF (gross salary >2500,60,)
IF (gross salary >2000,30,)
IF (gross salary <2000,0)

i.e. If gross salary is more than Rs 10,000/- then Rs 200/- is provided
If gross salary is more than Rs 5,000/- then Rs 175/- is provided
If gross salary is more than Rs 3,500/- then Rs 120/- is provided
If gross salary is more than Rs 2,500/- then Rs 60/- is provided
If gross salary is more than Rs 2,000/- then Rs 30/- is provided
If gross salary is less than Rs 2,000/- then 0 (nothing) is provided

24. T.D.S: According to the government rule, employees T.D.S is calculated to the employees total gross salary* 2.5 %
Formula = (the total gross salary * 2.5%)
i.e. The employee's total gross salary multiplied by 2.5 %(government rule)

25. Labour Welfare Fund: According to the government, Labour Welfare fund is provided Rs 2 if the gross salary is more than Rs 3000 else it is Rs 1 to the employee.
Formula = If (Gross salary>3000,2, 1)
i.e. If gross salary of the employee is more than Rs 3000, then he gets Rs 2 else he gets Rs 1(in Maharashtra).

26. Loans: Loans are calculated & deducted at the time of the employee's "Total Deduction", if the employee has taken any loan from the company. Therefore there is no formula, the amount taken, as the loan, will itself be deducted from the "Total Deduction".

27. Life Insurance Corporation (L.I.C): The employee has to pay the premiums of the Insurance taken. The premiums will be deducted every month as per the Insurance Policy taken at the time of the employee's "Total Deduction".

28. Advance: Advance are calculated & deducted at the time of the employee's "Total Deduction", if the employee has taken any "Advance" from the company. Therefore there is no formula, the amount taken, as the Advance, will itself be deducted from the "Total Deduction".

29. Total Deduction: Total deduction salary means, Sum of all the taxes applied after the gross salary calculated. These are the total taxes applied on the employee's salary, which are to be deducted from the employee's gross salary.
Formula = Sum (of all the total taxes)
i.e. Sum of all the Taxes like, Provident fund, E.S.I.C, Professional Tax, T.D.S, & Labour Welfare Fund, Loans, L.I.C, Family Pension.

30. Take Home Salary: Take home salary means, the salary calculated after deduction of all the taxes from the gross salary. An employee's Basic Salary is calculated on its skill base & Zone, then on calculation of no. of days present & DA to the basic salary the Total Earned Salary is calculated, then on addition of all the allowances to the total earned salary you can calculate its Gross Salary, then on deducting of all the taxes the employees Take Home Salary is calculated
Formula =(gross salary - total deduction)
i.e. The deduction of all the taxes to the employee's gross salary.
The above given formulas, on deductions to the Gross salary, are the Employee's contribution to the government.

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