Dear Cite HR Family, Newly joined as hr they asked me to bifurcate the CTC (Cost to Company) of a new employee. I request that you please share the knowledge on payrolls.
How to do payrolls & how to calculate CTC & bifurcate? Send me the calculation of the template of payslips.
We need a KT on payrolls.
Please help me out on this.
Thank you in Advance,
C.Lakshmi Narayana.
From India, Hyderabad
1How to do payrolls & how to calculate CTC & bifurcate? Send me the calculation of the template of payslips.
We need a KT on payrolls.
Please help me out on this.
Thank you in Advance,
C.Lakshmi Narayana.
From India, Hyderabad
What is "KT" on payroll?
If you are asked to prepare a salary structure from a given cost to company, the basic principle to be followed is the statutory minimum wages fixed by the government for your industry. Any payroll administration should start from notified minimum wages. So long as you are paying higher than the minimum wages, any bifurcation would legally stand, but for deciding the contributions and payments that the employer should make in respect of each employee as per various statute should be based on the notified wages only. If not, the employer will be in trouble in future when there is a requirement of calculation of any compensation, payment of gratuity etc.
There is no compulsion that the total salary should be bifurcated into small components like Basic salary, Dearness allowance, House Rent Allowance, conveyance allowance, education allowance etc. At the same time, there exists illegible rather 'accepted' practices of bifurcating the salary so that the employer's liability could be reduced. This is on the presumption that Basic salary only would be considered for payment of bonus, leave encashment, PF, gratuity or various compensations. Accordingly, many firms, even those who have listed their shares in the share markets and are ranked much high in the market, have the least amount put under the head Basic salary and the higher amount on HRA. HRA is excluded component of salary under various Acts, and that is why HRA is given that much of importance by payroll administrators. But HRA is actually a compensatory allowance and it is an exempted allowance in the hands of only those employees who are residing in leased/ rented houses for employment purposes. For income tax purpose, even though we collect rent receipts or lease deed from the individual employees, we often do not relate it to their HRA as a component of salary. Therefore, it will be the gross/ total salary that will be considered for deducting a day of absence without leave (LOP) and not the basic pay. In the similar way, there may be paid conveyance allowance to all employees but without considering the actual cost of travel by the employees. There can be special allowance paid to all employees without knowing what special skill the employee possesses and puts in apart from the general skills required for a particular work. There are court verdicts which show that (special) allowances which are paid universalary to all the employees should be treated as part of basic wages only.
Therefore, pay structuring should be done very carefully and after studying the law in force and identifying the future risks. The safest is to maintain a balance between the statutory salary and the market salary and bifurcate the market salary/ offered salary in such a way that the basic pay should never be less than statutory salary of basic and DA. Over and above paid shall be treated as allowances. But there is no guarantee that these allowances will not be treated as part of salary for calculation of gratuity etc. As observed by the Supreme Court in Roofs and Bridges case, allowance paid to all the employees across the company will be part of basic pay only.
From India, Kannur
If you are asked to prepare a salary structure from a given cost to company, the basic principle to be followed is the statutory minimum wages fixed by the government for your industry. Any payroll administration should start from notified minimum wages. So long as you are paying higher than the minimum wages, any bifurcation would legally stand, but for deciding the contributions and payments that the employer should make in respect of each employee as per various statute should be based on the notified wages only. If not, the employer will be in trouble in future when there is a requirement of calculation of any compensation, payment of gratuity etc.
There is no compulsion that the total salary should be bifurcated into small components like Basic salary, Dearness allowance, House Rent Allowance, conveyance allowance, education allowance etc. At the same time, there exists illegible rather 'accepted' practices of bifurcating the salary so that the employer's liability could be reduced. This is on the presumption that Basic salary only would be considered for payment of bonus, leave encashment, PF, gratuity or various compensations. Accordingly, many firms, even those who have listed their shares in the share markets and are ranked much high in the market, have the least amount put under the head Basic salary and the higher amount on HRA. HRA is excluded component of salary under various Acts, and that is why HRA is given that much of importance by payroll administrators. But HRA is actually a compensatory allowance and it is an exempted allowance in the hands of only those employees who are residing in leased/ rented houses for employment purposes. For income tax purpose, even though we collect rent receipts or lease deed from the individual employees, we often do not relate it to their HRA as a component of salary. Therefore, it will be the gross/ total salary that will be considered for deducting a day of absence without leave (LOP) and not the basic pay. In the similar way, there may be paid conveyance allowance to all employees but without considering the actual cost of travel by the employees. There can be special allowance paid to all employees without knowing what special skill the employee possesses and puts in apart from the general skills required for a particular work. There are court verdicts which show that (special) allowances which are paid universalary to all the employees should be treated as part of basic wages only.
Therefore, pay structuring should be done very carefully and after studying the law in force and identifying the future risks. The safest is to maintain a balance between the statutory salary and the market salary and bifurcate the market salary/ offered salary in such a way that the basic pay should never be less than statutory salary of basic and DA. Over and above paid shall be treated as allowances. But there is no guarantee that these allowances will not be treated as part of salary for calculation of gratuity etc. As observed by the Supreme Court in Roofs and Bridges case, allowance paid to all the employees across the company will be part of basic pay only.
From India, Kannur
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