New to Payroll Processing: How Do I Calculate Salaries and Handle PF and ESI?

Hello, I am currently working in an IT company as an HR professional, but I am very new to the payroll process. I need help understanding how to process payroll or calculate monthly salaries. I also have a question about whether Employer PF and ESI should be included in the monthly salary calculation or not.

Regards,
Ruchika

Employer Contribution for PF and ESI

Mentioning the employer contribution for PF and ESI is not necessary to show in the payslip as it should not be deducted from the employees' salary. Many concerns are getting confused with the cost to company (CTC) with salary, as the management of many concerns is discussing this CTC with the employee during the final interview. The same should ONLY be discussed or mentioned to the finance department so they can plan for the employees' cost (cost of labor), which includes the contribution of PF, ESI, labor welfare fund, provision of gratuity, and bonus.

Hello, Thanks for the reply and sharing information. I need to ask one more thing when we are making monthly payroll, so the contribution of the Employer toward PF and ESI will be counted as in monthly gross salary or not. What would be the net in-hand salary of the employee. Please help me again. Regards, Ruchika

There is a ton of information about all aspects of payroll already posted here on CiteHR by other members. This is a question that is regularly asked. In addition to payroll, you can also find answers to almost all your HR questions on any subject posted here. Please use the Research Box at the top of every page here on CiteHR.

Calculating PF Contribution from Employee Wages

How can we calculate the PF contribution from the wages/salary of employees if their basic or basic + VDA + FDA is ₹6,500?

Please guide whether it is ₹780 (₹6,500 * 12%) or ₹6,500/26 * (workdays + CL + EL + off days + paid holidays) * 12%.

Regards,
Roshan V.

Employer's Share of PF (along with EDLI & Admin Charges) and ESIC has to be submitted to the competent authority along with the monthly deduction amount on respective heads (PF & ESIC).

PF and ESIC Contributions

This implies you need to deduct PF (Employee's Share) at 12% on basic salary, and you need to contribute 12% as the Employer's share on basic plus 1.61% of basic towards EDLI & Admin Charges. You need to submit the total amount to EPFO.

The same treatment applies to ESIC, for which the rate shall be 1.75% and 4.75% on gross salary as the employee's share and the employer's share, respectively, and submit the same to the ESIC authority.

Remittance Deadlines

For both remittances, you need to generate Challans online (separately for PF & ESIC) and submit the PF contribution latest by the 15th and the ESIC contribution by the 21st of the month for the contribution of the previous wage month. For example, the PF contribution for the month of June should be submitted by the 15th of July and the ESIC by the 21st of July.

Company Policy Considerations

The payroll of a company depends on its policy, which varies from one to another in terms of the breakups. Therefore, consult and refer to your existing company policy.

Regards

Dear Arnab,

Thanks for the reply and for sharing the information.

I need to ask one more thing: when we are making the monthly payroll, should the Employer's contribution toward PF and ESI be counted in the monthly gross salary or not? What would be the net in-hand salary of the employee?

Please help me again.

Regards,
Ruchika

The employer's contribution to PF & ESIC is not a part of the monthly gross salary but is a CTC component. The net salary is calculated as follows:

Net salary = Gross salary (total earnings for the month) - Deductions for the month (employee's share of PF + employee's share of ESIC + Professional Tax + Deduction for damage & loss, if any + recovery of loan and advance, if any).

Regards,
Ruchika