Struggling with Payroll in a Small IT Firm: Can You Help Me Understand the Basics?

Respected Seniors,

Greetings for the day! I am working as an HR Executive in an IT company in Chandigarh. I am the only HR in the company, and I have encountered problems in the payroll process.

Understanding Payroll Concepts

Please help me with a detailed practical concept of payroll—what it is, its rules, components, and more. How should salaries be prepared, including PF, ESI, deductions, and all related aspects?

I would be extremely grateful for your kindness and assistance in this matter.

Regards,

Components of Salary:

a. Earnings

1. Basic: 30 to 40% of gross
2. HRA: 50% of basic for metro cities and 40% of basic for other cities
3. Conveyance: Till 800 per month, not taxable
4. Medical Allowance: Till 1250 per month, not taxable
5. You can also include education allowance, CCA, or DA.

b. Deductions

1. If basic <= 6500, it is compulsory. If basic > 6500, it's not compulsory under some circumstances.
- PF: Employer 13.61% of basic, Employee 12% of basic (from employer's contribution, 8.33% goes to pension scheme, remaining goes to PF scheme)
2. ESIC applicable if gross < 15000
- ESIC: Employer 4.75% of gross, Employee 1.75% of gross
3. Gratuity: 15/26 of basic
4. Bonus: 8.33% of basic
5. Professional tax slab varies from state to state
6. TDS:

I. Tax Rates for Individuals
- Up to 2,00,000 - Nil
- 2,00,000 to 5,00,000 - 10% of the amount exceeding 2,00,000
- 5,00,000 to 10,00,000 - Rs. 30,000 + 20% of the amount exceeding 5,00,000
- 10,00,000 & above - Rs. 130,000 + 30% of the amount exceeding 10,00,000

II. Tax Rates for Resident Women Below 60 Years
- Up to 2,00,000 - Nil
- 2,00,000 to 5,00,000 - 10% of the amount exceeding 2,00,000
- 5,00,000 to 10,00,000 - Rs. 30,000 + 20% of the amount exceeding 5,00,000
- 10,00,000 & above - Rs. 130,000 + 30% of the amount exceeding 10,00,000

III. Tax Rates for Individual Residents Aged 60 Years and Above & Below 80 Years (Senior Citizen)
- Up to 2,50,000 - Nil
- 2,50,000 to 5,00,000 - 10% of the amount exceeding 2,50,000
- 5,00,000 to 10,00,000 - Rs. 25,000 + 20% of the amount exceeding 5,00,000
- 10,00,000 & above - Rs. 125,000 + 30% of the amount exceeding 10,00,000

IV. Tax Rates for Individual Residents Aged 80 Years and Above (Very Senior Citizen)
- Up to 5,00,000 - Nil
- 5,00,000 to 10,00,000 - 20% of the amount exceeding 5,00,000
- 10,00,000 & above - Rs. 100,000 + 30% of the amount exceeding 10,00,000

Consider the following components for the salary breakdown:

- GROSS = 12500
- BASIC = 5200
- HRA = 2600
- EDUCATION ALLOWANCE = 200
- CONVEYANCE ALLOWANCE = 800
- MEDICAL REIMBURSEMENT = 1250
- CITY COMPENSATORY ALLOWANCE = 2950

Other details include:
- PF (EMPLOYER) = 708
- ESIC (EMPLOYER) = 618
- GRATUITY = 250
- BONUS = 433
- COST TO COMPANY (CTC) = 15008
- PF (EMPLOYEE) = 624
- ESI (EMPLOYEE) = 228
- PROFESSION TAX = 200 as per state slab
- TAKE HOME SALARY (Rs.) = 11949

Kindly review the provided breakdown and let me know if you need any further details.

The salary breakup is amazing and explained in detail. I was searching for this information for a long time. Thanks for the wonderful knowledge.

Regards,
Yedol

Hi dear, I am Humera, a new employee in the organization as an HR personnel. I have no prior experience in any job, so kindly advise me on HR work, such as how to make a payroll, how to conduct appraisals, handle taxes, etc.

Thank you.