While issuing appt. letter ( as per company policy) you need to work out the salary structure with various components like Basic, HRA, Conveyance, City Compensatory Allowance, Special Allowance, Medical Allowance, Gratuity, P.F. Employers' contribution and ESI Employers' contribution etc.
There are two components in payroll processing. One is monthly benifits and yearly benifits.
Again company to company it varies as per company's policy, whether all components of monthly pay attracts deduction based on number of days employee present during the month or only certain components are paid based on number of days present and other components are paid fully irrespective of number of days present.
As you know, P.F. is deducted on Basic and DA ( if such components is there) @ 12% and ESI is deducted @ 1.75% on the gross pay which includes all monthly components.
Further Professional Tax as per the respective state slab we need to deduct.
Then only his / her monthly net salary is arrived at.
Of course, there are other deductions such as Labour Welfare Fund, TDS etc.
This subject very vast one and I am trying to make it simple. In case you have any more doubt do revert back to me at .
From India, Madras
This is shubha ,i wish to make my career in core hr activites ,so please help me sending some material pertaining to that .Also i would like to know is there any difference in such job profile with respective to the type of comapany say for example:A software firm and a manufacturng firm.
Please do respond me if possible.
This is a great sheet for calculating salary. Though there is a small confusion. I am working in a software company and we calculate salary as follows:
Basic + HRA + Conveyance Allowance + Dress Allowance + Performance Allowance
HRA = 50% of Basic
Conveyance = Rs. 800 p.m. (fixed)
Performance Allowance = 30% of Basic.
PLease suggest if this calculation is fine.
From United States, Cambridge
Payroll has many components - a payroll is a pay out made to an employee in cash and the same gets reflected in his pay slip.
CTC is a term used in Management accounting and MIS reporting. Cost To company varies from company to company and depends on their HR practices and accounting policy.
For the benefit of so many young and new HR executives starting their careers, the reality and practicality of payroll and CTC needs to be well documented and the the knowledge transferred. Unfortunately, I do not find any resource on net that clearly differentiates the two and explains the practical way to implement payroll in an organization.
I am willing to contribute a series of 7 articles if the moderator permits which can be used as basic guide to understanding and practice of employee compensation and employee benefits.
This will be My IP therefore am bit doubtful about how people use this knowledge. If the site owners agree for a copyright agreement and attribute the IP of this content to me I can share the same on this portal.
I shall be elated when you could forward the 7 reports on "basic guide to understanding and practice of employee compensation and employee benefits" to the forum or to my mail-id:
Presently concentrating on drafting of HR Policy for the engineering manufacturing company.
From India, Bangalore
I shall do so during the christmmas holidays as I am on leave from 21st to 4th jan and I can finalise my book and post some of the excerpts of the book as articles for the community.
Be patient and bear with me...
I shall definitely post by the month end.
i just came across the thread about the complete abc of payroll information
being shared within the community
kindly do send me a copy of the same to "firstname.lastname@example.org"
it would be of great help as i ve taken the new responsibilty with an SME company
thanks n regards
From India, Madras
Human Resource is the most vital resource for any organization. It is responsible for each and every decision taken, each and every work done and each and every result. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. The lucrative compensation will also serve the need for attracting and retaining the best employees.
Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.
Components of Compensation System
Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analyzing the job work and responsibilities. Components of a compensation system are as follows:
Types of Compensation
Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. If the compensation offered is effectively managed, it contributes to high organizational productivity.
Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.
Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.
Need of Compensation Management
- A good compensation package is important to motivate the employees to increase the organizational productivity.
- Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals.
- Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose.
- The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards.
Strategic compensation is determining and providing the compensation packages to the employees that are aligned with the business goals and objectives. In today’s competitive scenario organizations have to take special measures regarding compensation of the employees so that the organizations retain the valuable employees. The compensation systems have changed from traditional ones to strategic compensation systems.
Evolution Of Compensation
Today’s compensation systems have come from a long way. With the changing organizational structures workers’ need and compensation systems have also been changing. From the bureaucratic organizations to the participative organizations, employees have started asking for their rights and appropriate compensations. The higher education standards and higher skills required for the jobs have made the organizations provide competitive compensations to their employees.
Compensation strategy is derived from the business strategy. The business goals and objectives are aligned with the HR strategies. Then the compensation committee or the concerned authority formulates the compensation strategy. It depends on both internal and external factors as well as the life cycle of an organization.
Evolution of Strategic Compensation
Traditional Compensation Systems
In the traditional organizational structures, employees were expected to work hard and obey the bosses’ orders. In return they were provided with job security, salary increments and promotions annually. The salary was determined on the basis of the job work and the years of experience the employee is holding. Some of the organizations provided for retirement benefits such as, pension plans, for the employees. It was assumed that humans work for money, there was no space for other psychological and social needs of workers.
Change in Compensation Systems
With the behavioral science theories and evolution of labour and trade unions, employees started asking for their rights. Maslow brought in the need hierarchy for the rights of the employees. He stated that employees do not work only for money but there are other needs too which they want to satisfy from there job, i.e. social needs, psychological needs, safety needs, self-actualization, etc. Now the employees were being treated as human resource.
Their performance was being measured and appraised based on the organizational and individual performance. Competition among employees existed. Employees were expected to work hard to have the job security. The compensation system was designed on the basis of job work and related proficiency of the employee.
Today’s Modern Compensation Systems
Today the compensation systems are designed aligned to the business goals and strategies. The employees are expected to work and take their own decisions. Authority is being delegated. Employees feel secured and valued in the organization. Organizations offer monetary and non-monetary benefits to attract and retain the best talents in the competitive environment. Some of the benefits are special allowances like mobile, company’s vehicle; House rent allowances; statutory leaves, etc.
Payroll Management Process
Calculation of gross salaries and deductible amounts is a tedious task which involves risk. Some of the organizations use the traditional manual method of payroll processing and some go for the advanced payroll processing software. An organization opts for any of the following payroll processing methods available
Manual payroll system is the traditional payroll system which involves pen and ink, adding machine, spreadsheet, etc instead of computers, software and other computerized aids. The process was very popular when there were no computerized means for payroll processing.
Now-a-days it is only few small scale organizations in the remote areas that use the manual payroll. Sometimes the construction industry and manufacturing industry also use the manual payroll systems for the contractual labour, as theses contracts are on daily/weekly basis.
There is full control in the hands of owner. But the process is tedious, time consuming and risky as it is more prone to errors.
Accountant is a professional having a degree/diploma course in finance/accountancy. He/she is responsible for all the activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted standards.
The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of others. The financial control regarding salary goes in the hand of accountant.
In today’s computerized environment, payroll system has also developed itself into automated software that performs every action needed by the payroll process. It helps in calculating the payable amounts and deductions very easily. It also helps in generating the pay slips in lesser time. Automated calculations result in no errors. Data is validated automatically by the software.
It needs professionals to make use of the software for its efficient working.
Payroll outsourcing involves a third party (an outsourcing company) in the calculations of salaries and deductions. The outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the organization. If there is more number of employees (say more than 900-1000) in the organization, payroll outsourcing would be very much beneficial.
The data is provided to the consultants/outsourcing firms. The various payroll functions undertaken by the outsourcing organizations are as follows:
<ul>Analysis of Payroll records, payroll taxes
Medical claim processing
Employee Insurance & Provident fund processing
From India, Calcutta
this below article are found in articledatabase.com, it may help to you.
No matter what industry it is that you are in, it helps to know how the services offered by a payroll bureau will benefit your company. By law, those who are not self-employed should calculate the taxes and insurance costs of their employees along with their salaries.
But if you're no expert in payroll legislation and you do not have the technical know-how in using the latest payroll software, what's a more practical option? You can either hire an employee whose sole task is to process the company payroll ?or you can simply hire the services of an outside payroll bureau.
To make a decision between the two, compare the costs associated with each option and take your pick from there.
A Look at the Tasks Performed by a Payroll Bureau
So what exactly can a payroll bureau do for your company? The primary function of a payroll bureau is to process the payroll for your company. Payroll is actually a tedious process which involves the following tasks:
- Calculating the basic pay of each individual employee based on the hours that they work.
- Calculating the taxes, national insurance costs, P60's, P45's and similar aspects which affect the net pay of each individual employee.
- A payroll bureau also keeps up with the latest legislations or changes in the laws concerning payroll. This way, you can rest assured that employees get the wages that they deserve and everything is in perfect legal order.
- Some payroll bureaus print out the pay slips of employees which they can use as a reference for the correct calculation of their wages.
- It is up to the payroll bureau to make sure that the employee's salaries are directly deposited to their accounts or the checks are sent out on a timely manner.
- The management of payroll bureaus also handles disputes in case calculation errors are made.
What to Look for in a Payroll Bureau
When looking for the services of a payroll bureau, take a look at the length of experience that they have in the business. Ask whether they regularly update the payroll services that they have.
Finally, make sure that the costs of the services that they offer are reasonable. There are a lot of payroll bureaus out there ?so you can make a comparison of the rates that they offer, as well as the quality of service that they provide.
All in all, the services offered by payroll bureaus are definitely useful for small-scale to medium scale entrepreneurs ?so look for the company that will suit your business needs to a tee.
From India, Madras
I work for a MNC (Software) with about 150 employees.
I wish to know about the variable pay OR the Incentive paid. We are planning to design a Incentive scheme soon. Can anyone share the practices followed at similar organisiations please
what’s the % of variable pay to the total compensation?
How frequent is the incentive paid?
How is the budget determined?
How is the individual incentive amount determined? What’s the measurement matrix?
How about incentive calculation for management team (and support team )?
Requesting teh members of CiteHR to help me.
Awaiting your reply.
Thanks and Regards
From India, Pune
Also tell the component of ctc with minimum LIMIT% in UTTARPRADESH& Also for other states...If possible send me a good format...
I shall be honestly very greatful to all the members......
From India, Calcutta
From India, New Delhi