How to Handle Backdated Salary Hikes and Absence Adjustments in Payslips?

Hi friends,

If an employee has been given a backdated salary hike, how is the payment made for the salary differential from the back date in the new payslip? Should it come separately as arrears in the payslip, or should it be reflected in the new payslip for each salary component (e.g., BASIC + BASIC (differential), DA + DA (differential), etc.)?

Also, what happens in the case an employee is marked absent for a day when he was earning less than his current salary and he was not paid for that day in the last salary? However, it is rectified thereafter as being present and hence payable to the employee in the next salary. How is this amount paid? Is it paid as adjusted pay?

I look forward to your help.

Best regards,
Nitin

Hi Nitin,

If the salary is increased with retrospective effect, it will be paid in the form of arrears if you and your management are not so particular about statutory remittances like PF, ESI, etc. If particular, then you have to calculate the Basic and other components to make those payments accordingly. It is the effective date that matters for the calculation of any back wages, and in this case, the same principle applies.

Hope you got the required clarification.

Regards, PRADEEP

Hi Pradeep,

Thanks for your prompt response. I understand what you are saying, and we are taking care of the differential basic, DA, etc., for calculating the differential PF/ESI, etc. The only confusion is whether that differential amount will be summed up across all salary components and paid as arrears to the employee in the next payslip or if each component will be incremented by the corresponding differential amount.

To illustrate:

If X has a Basic = 3000 and DA = 1000 in Oct and Nov 2006, and his basic and DA change to 6000 and 2000, respectively, in Dec 2006 with retrospective effect from Oct 2006, then he has to be paid a differential Basic of 6000 and 2000 for the months Oct and Nov 2006 over and above the salary for the month of Dec 2006. Now differential (Basic+DA) = 8000 will be used for PF/ESI, etc., calculations.

The precise question I have is, will the differential amount of 8000 be reflected in the Dec 2006 salary of the employee as below:

Basic = Rs 6000/-

DA = Rs 2000/-

Arrears = Rs 8000/-

or will it be as follows:

Basic = Rs 12000/-

DA = Rs 4000/-

Now, in case the employee took 1 day of unpaid leave in Aug 2006 (note it's Aug and not Oct, and assume he was earning the same amounts in Aug as in Oct) and lost pay for that day in Aug 2006 salary. However, it was found that the employee was actually present and hence has to be paid back the amount he was not paid in Dec 2006 salary. How will his salary look? Will it be

Basic = Rs 6000/- + Basic lost for that day (@Basic = 3000)

DA = Rs 6000/- + DA lost for that day (@DA = 1000)

Arrears = Rs 8000/-

or will it be

Basic = Rs 6000/-

DA = Rs 2000/-

Arrears = Rs 8000/-

+ Basic lost for that day (@Basic = 3000)

+ DA lost for that day (@DA = 1000)

or will it be

Basic = Rs 12000/- + Basic lost for that day (@Basic = 3000)

DA = Rs 4000/- + DA lost for that day (@DA = 1000)

I hope I have been able to clarify my query in more detail.

Cheers,

Nitin

Dear Nitin,

You can make the salary slip of Dec. 06 as follows (As per your illustration):

Basic: 6000

Basic (Arrears): 6000

Basic (Arrears for Lost Day): @3000

DA: 2000

DA (Arrears): 2000

DA (Arrears for Lost Day): @1000

So on.

Hope it is clear to you now.

Regards,

Sree

Dear Nitin,

If an employee is paid backdated hiked salary, the same should be reflected in the arrear column. Otherwise, during the inspection by any statutory body, you will find difficulty in explaining the same. In the second case, also, the balance can be paid as arrears.

Regards,
B. S. Negi

Hi friends,

If an employee has been given a backdated salary hike, how is the payment made for the salary differential from the back date in the new payslip? Should it come separately as arrears in the payslip, or should it be reflected in the new payslip for each salary component (e.g., BASIC + BASIC (differential), DA + DA (differential), etc.)?

Also, what happens in the case an employee is marked absent for a day when he was earning less than his current salary, and he was not paid for that day in the last salary? However, it is rectified thereafter as being present and hence payable to the employee in the next salary. How is this amount paid? Is it paid as adjusted pay?

I look forward to your help.

Best regards,
Nitin

Hi Friends,

What will be the status of ESIC deduction if arrears are due and paid but do not fall within the same contribution period? In that case, should ESIC amount be deducted from the arrear salary? If so, what is the procedure?

Please respond.

Regards,
Suvajit

Dear Nitin,

ESI should be deducted on arrears also as it is also a part of wages.

Regards,
B. S. Negi

Dear Nitin,

If an employee is paid a backdated hiked salary, the same should be reflected in the arrear column. Otherwise, during an inspection by any statutory body, you will find difficulty in explaining the situation. In the second case, the balance can be paid as arrears.

Regards,
B. S. Negi

Hi friends,

If an employee has been given a back-dated salary hike, how is the payment made for the salary differential from the back date in the new payslip? Should it come separately as arrears in the payslip, or should it be reflected in the new payslip for each salary component (e.g., BASIC + BASIC (differential), DA + DA (differential), etc.)?

Also, what happens in the case an employee is marked absent for a day when he was earning less than his current salary and he was not paid for that day in the last salary? However, it is rectified thereafter as being present and hence payable to the employee in the next salary. How is this amount paid? Is it paid as adjusted pay?

I look forward to your help.

Best regards,
Nitin

Sorry to reopen this thread. I was wondering what happens in case you have to deduct pay if the scenario mentioned above were to be reversed, i.e., the employee's new pay is less than what he earned earlier or if he had to lose pay for a day that he was paid earlier despite him being absent. How would it be reflected in his latest salary slip?

Regards, Nitin

Dear Nkitin,

Usually, the salary cannot be reduced. However, if the Dearness Allowance (DA) payable decreases, then the salary can be reduced, but I do not think it should happen otherwise.

Additionally, for days of absence, both the existing salary and the revised salary do not need to be paid based on a no-work-no-pay basis. The dues for Employee State Insurance (ESI), Provident Fund (PF), etc., must be paid separately as arrears.

To ensure your company remains compliant with statutory requirements, please arrange to pay the arrears owed for all statutory obligations, whether the employees like it or not.

For any further clarification, please let me know.

Regards,
Dhinakaran

Dear Dhinakaran,

Thanks for your response. What I basically want to know is if, by mistake, an employee is paid extra in the last payroll, how do we show the reversal of that surplus paid in the next salary slip? Under what salary component should it be reflected? Would that also be called arrears?

Regards,
Nitin

Dear Nitin,

You can treat the extra payment as an advance and show that under deductions head.

Regards,
Ashwini Kumar