Is Our Salary Slip Practice Correct and How Will Growing Employee Size Affect PF?

Hi, this is Shruti. I am currently helping my husband in his architecture firm. He has 6 employees. Until now, no one's salary actually goes beyond the tax bracket; hence, we have not given them any kind of salary breakup like Basic/Conveyance, etc. We do provide salary slips to them in which their entire per month salary has been shown as Basic salary. I wanted to know if this practice is correct.

Future Considerations for Employee Size and PF Calculation

In the future, if our employee size becomes 20, will this create a problem for PF calculation? Also, if none of the employees come under the tax bracket, is it still advisable to provide them with some kind of salary breakup?

Regards,

I would like to advise you to provide salary slips to your employees. If your employee count reaches 20, then you have to adjust their salary to account for PF and ESI deductions applicable to your firm. PF should be deducted on Basic + DA, and ESI should be deducted on the Gross salary. Now, you decide whether you should provide salary slips or not.

Regards

Thanks, Nirav, for your prompt response. We do provide salary slips to all our employees, but we show the entire amount as a Basic salary. I wanted to know if this practice is correct?

Dear Shruti,

It has been wrong practice to show the entire amount as basic salary. I am providing you with a structure that will help you in making the payslip.

Basic: 40% of gross salary
PF: 12% on Basic
HRA: 50% on Basic
Conveyance: 800
Medical: 1250
City Compensatory Allowance
Children Allowance: 200
Special Allowance

This is for your information.

Salary Breakup Components

Please find below a list of components that you can use for salary breakup:

- Basic
- HRA
- Conveyance Allowance
- CCA
- Medical Reimbursement
- Education Allowance
- Uniform Allowance
- Entertainment Allowance
- Books & Periodicals Allowance
- Special Allowance
- Mobile Reimbursement
- Petrol Reimbursement
- Food Coupon Allowance
- Other

For tax benefits for all employees, you can use maximum reimbursement components so they can provide the bill to the company and receive the maximum tax benefit.

Regards,
Ashish

It's perhaps a question of good ethics by an employer, and even if it is not necessarily a statutory binding, it enhances the goodwill of the employer. So, the question is, how good do you wish to project yourself as an employer? It also enhances employees' confidence in their employment with you if you really wish to retain him/her as a long-term prospect. Otherwise, the normal tendency for any employee at their workplace is "helplessness."

Another thing is that the salary slip would also have the leave/attendance summary of the month and the accumulation of leaves, if any.

I also agree with Nirav's recommendation as well as the breakup he has mentioned. Since the amount of remuneration is not very high, other allowances (fringe benefits) can be done away with. It's good enough for your kind of setup. I'd also recommend that you can have your own salary slip (for the whole or part of your earnings, depending on your discretion). After all, whatever deductions you make or deposit (in PF) comes back to you, and at the same time, you are also hiving off part of your IT burden. Therefore, think of it in the long-term perspective, and you will realize the benefits.

Regards,
PP Bhattacharya

Dear Shruti,

Firstly, simplify the breakup by including only Basic & Other allowances. Currently, keep the basic up to 6500 Max and allocate all other components to allowances.

Secondly, contact your tax consultant to determine which perquisites items can be included in the salary breakup to provide employees with more tax benefits. Although you may not need this currently as all your employees fall below the tax bracket, it can be useful in the future.

Seek proper guidance on PF and PT deductions as they are crucial aspects.

No law dictates the salary breakup; it is the employer's decision to structure it to benefit their employees.

I trust this information is sufficient.

Regards,
Arun J.

Dear Shruti and all contributing members,

With due respect to all, I would like to address the following points:

1. The firm of Ms. Shruti currently employs only 6 persons, and therefore, they are not covered under the EPF Act.

2. The salary paid to employees can be shown as a consolidated amount without any breakdown. A breakdown is not mandatory unless the firm/company is registered under an applicable statute.

3. Payment of Dearness Allowance (DA) becomes applicable when the firm is registered under the relevant Shop & Establishment Act of the State or any other relevant Act. It should be noted that DA is declared twice a year by the government. Therefore, once you start showing DA in the Salary Slip, you become liable to pay the enhanced DA every time the government increases it.

4. Transport Allowance of Rs. 800/- can be provided to give employees the benefit of tax exemption, even if their income is not taxable.

5. Medical Allowance up to a maximum of Rs. 1250/- can also be included.

Thank you.

In continuation of the above reply, which was posted incomplete:

Medical Allowance on Payslip

Medical Allowance up to a maximum of Rs. 1250/- can be shown on the payslip. This is the maximum tax-free amount provided it is reimbursed. However, it is taxable when given along with the salary.

Regards,

Thank you all for your replies; it was a great help. Please see the breakup below that I plan to provide:

Monthly Salary Breakdown

- Basic: 6500
- Conveyance: 800
- Special Allowances: 5200
- Other ad hoc allowances for travel if any

Is this breakup fine?

Regards,
Shruti

Please, can anyone help me with preparing the salary slip? Is there a specific percentage that will be deducted for the allowances?

Hi All, Greetings for the day! Could someone please provide me with information on the salary components, their respective percentages, and any statutory requirements regarding salary slips for employees working in industries in Israel, the UK, or Singapore?