Salary Calculation Confusion: Which Method Accurately Reflects Earned Gross Pay?

Dear members,

Correct Method for Salary Calculation (Earned Gross)

What is the correct method for salary calculation (EARNED GROSS) out of these two methods? Suppose the gross salary is ₹3,300/- for the month of January, which has 25 working days, 1 National Holiday (NF), and 5 Sundays (weekly offs).

Case 1: Person is Present for 23 Days

Case 2: Person is Present for 2 Days Only

Method 1 (Traditional):

- For Case 1: (3300/31) * 29 = ₹3,087/-
- For Case 2: (3300/31) * 2 = ₹213/-

Method 2 (As Understood from Payment of Wages Act, Factories Act):

- For Case 1: (3300/25) * 23 + (one day for NF) = ₹3,168/-
- For Case 2: (3300/25) * 2 + (one day for NF) = ₹396/-

Kindly give your valuable inputs.

Regards,

Manish Gupta

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Hi Manish, as I understand, your first method is correct, i.e., Method 1 (TRADITIONAL):

FOR CASE 1: (3300/31) * 29 = 3087/-

FOR CASE 2: (3300/31) * 2 = 213/-

If we consider the second method, then your monthly salary amount will be Rs. 3564, which does not match the actual salary. If someone suggests the second method, ask them if someone is present throughout the month, their salary will be Rs. 3300/-. When they take leave for 2 days, the salary will increase to Rs. 3564/-, and what will be the salary structure.

Regards,
Amiya

Types of Salaries

There are two types of salaries:

1. Daily Wages: Physical working days will be considered except NF&H.
2. Monthly Salary: Need to calculate including Sundays.

Example Calculation

1. Rate per day * physical worked days + NF&H.
2. Fixed gross salary / 30 * physical worked days + Sundays + NF&H + Payable leaves.

Any doubts, kindly revert.

I would like to give some inputs. I think it depends on how the employment agreement is with the employee. If you have hired him/her with the payment term as "Monthly Salary" or "Annual CTC," then I think the first method would work. But if he or she is a laborer or contractor who works on a "Per Day" basis, then I think the second method would work.

I am not sure if this is correct legally. Comments and criticism are welcome!

Regards,
Ketan IT_Group

Dear Amiya,

If someone is present for the full 25 days in January, then his salary will be:
(3300/25) * 25 + NF = 3432/-
And if he takes two unpaid leaves, then (3300/25) * 23 + NF = 3168/-
And if he takes two paid leaves, then (3300/25) * 25 + NF = 3432/-

Dear Mahesh,

Kindly go through section 7 of the Payment of Wages Act, which clearly states that employers are authorized for the deduction of wages only for the actual period of absence. Now, the actual period of absence in my above-mentioned cases is 2 and 23. So, wages should be calculated according to method no. 2!

There is one more thing: The act applies only to persons whose gross wage is <=10,000 per month.

Regards,
Manish Gupta

Compliance with Payment of Wages & Factories Act

Registered companies must comply with the Payment of Wages & Factories Act. In the above case, the first method is correct. The second method seems like cheating the innocent or misleading the staff. Please follow the first method; staff welfare is essential for the company to establish, so that trained workers/staff will stay longer in the industry, and there will be no strain or pain in executing tasks/work.

Thanks,
SRS

Amiya is absolutely right, and I am also suggesting the first (Traditional) method of calculating the wages per month. It also depends on whether the company is paying based on the daily rate or monthly basis. But according to the calculations and all other factors, the first method is surely suitable and easy.

I have a different take on this, and it has been implemented successfully. Usually, a month has 4 weeks (7x4=28) plus 2 working days (or 3 in case of 31 days). Four weeks have 24 working days plus 4 weekly (mandatory) offs. Therefore, 24 working days plus 2 (or 3) days equals 26 (or 27) working days per month. The Gross divided by 26 (in this case, it is 3300/26 = Rs 127 per day). Days without pay will entail a loss of pay calculated on the daily pay, i.e., Rs 127. Also, if an employee joins the organization midway through the month, his wages will be calculated based on this daily amount.

A month, in many organizations and even by the government, is considered 30 days. Many managements see this basic calculation resulting in a small benefit for the employees and, without upsetting the financial budget, increasing the morale of the workforce. As HR professionals, we must propose various solutions (as given in these columns) and get them approved.

Regards,
Rajusiachen

Understanding Paid Leave and Salary Calculation

First, we have to understand the following points. As per the Factory Act, one paid leave is compulsory upon completion of 48 hours of work. This means that Sunday is treated as a paid leave. Paid leave is considered in terms of the number of days in a month. Therefore, when we calculate salary, we consider 30 days for permanent employees and 26 days for temporary workers, as in this case, salary is given based on the number of days worked.

This is my view...

Regards,
Mitesh

Dear All HR Practitioners,

We should work according to laws and not according to the standards set. If the law provides a higher salary, then we should opt for it. The question I asked is whether, according to labor laws, the traditional method is okay or if the lawyer's method is preferable.

Regards,
Manish Gupta

My opinion is that two of the methods are correct. However, the first one is easier than the other. I suggest your organization follow the first method like this:

For January, 2011

Name &emsp;&emsp;&emsp;&emsp;&emsp;&emsp; Working Days &emsp; Off Day &emsp; H.Day &emsp; Leave &emsp; AB &emsp; Total Day &emsp;&emsp;&emsp; Gross Salary
Mr. A &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp; 26 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 4 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 1 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 0 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 0 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 31 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 3300.00
Mr. B &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp; 25 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 4 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 1 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 1 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 0 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 31 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 3300.00
Mr. C &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp; 24 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 4 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 1 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 1 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 1 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; 31 &emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&emsp;&e msp;&emsp; =3300/31*30=3194.00 (P.F also calculated same as above)

With Regards,
Pradip

I agree with the statement of Mahesh. It depends on the type of salary/wage paid. If it is a daily wage, it should be calculated based on the actual working days, excluding NF&H. Whereas in a monthly salary/wage, the salary should be calculated including Sundays and NF&H.

However, in the case of a monthly wage, it also depends on the agreement between the employer and the employee regarding payments of NF&H.

In the case of a daily wage, if the employee works on NF&H, he should either be paid double the wage for that particular day or a single day's wage plus one day off.

Prasanth.

Salary Calculation Methods

1. Gross salary per month = 1 day's wages * Number of working days + NH & F + paid leave.
2. Gross salary per 30.5 days = 1 day's wages * Number of working days + NH & F + paid leave.

Please let me know if you need further assistance or clarification on these calculations.

Regards

I am used to calculating wages based on the number of worked days in the following way:

Daily Salary Calculation

As the daily salary can't vary from one month to another:

(3,300 * 3 months) / 13 weeks in a quarter / 5 days in a week = $152.31 for one day. Multiply this by the number of days worked.

Payment for non-working days depends on agreements, laws, and other factors.

Regards

First, you mention whether the employee worked on a holiday or not. If he worked on holidays, it means Method 2 is correct (because that holiday would entitle him to double wages). If he did not work, it means Method 1 is correct (he availed the holiday).

Thank you.

Query on Salary Calculation for Different Working Days

I have another query as well.

1. If an employee has 27 working days and 4 weekly offs.
2. The second one has 26 working days and 5 weekly offs.

What will be the basic salary for that employee in a month that contains 30 days? Monthly Rate: $6000

Regards,

Salary Calculation Method

I am using the following system to calculate the salary. To arrive at the daily salary: (Monthly Salary x 12) / 365. For example, if the salary is Rs. 7000, the salary per day would be 7000 * 12 = 84000 / 365 = 230.14.

If someone takes 2 days of leave in a month (for example, in June), their salary for that month would be calculated as 30 - 2 = 28 * 230.14 = Rs. 6443.92.

Similarly, if someone takes 2 days of leave in July, their salary for that month would be 31 - 2 = 29 * 230.14 = Rs. 6674.06.

If someone takes 2 days of leave in February 2011, their salary for that month would be calculated as 28 - 2 = 26 * 230.14 = Rs. 5983.64.

Thank you.

Regards,
L J Rajagopalan
Lakshmi Enterprises
[Phone Number Removed For Privacy Reasons].