New to Payroll? Need Help with Calculating Basics and Understanding PF, HRA, and DA?

Hi, I am new to payroll. Can anyone help me with how to calculate the basic payroll and provide information about the percentages for PF, HRA, and DA?

Salary Components in the Payroll System

In the payroll system, salary has different components like basic, HRA, travel allowance, and other special allowances.

- Basic: 60% of gross for metro cities, whereas 40% for non-metro cities.
- HRA: 50% of basic.
- Travel allowance: Fixed at $800.
- Other special allowance: It is an adjusting figure of all, i.e., (gross - basic - HRA - TA = special allowance).

PF Deduction for Employer

For PF deduction for the employer, it is 13.61%, including administration charges (12% PF + 1.61% admin charges). The ceiling limit is up to $15,000, and the basic should not be less than minimum wages.

Thanks,

Neetu Bisht

For the last financial year, I created three components for salary: Basic, DA, and Vehicle Allowance. Therefore, the PF is deducted on Basic + DA. However, in the future, I want to change this criterion as it leads to a heavy PF deduction. Can we change the components for existing and new employees?

Thanks,
Richa

Salary Bifurcation in Payroll

In payroll, you can bifurcate your gross salary by using the following percentages:

- Basic: 60%
- HRA: 30% (HRA is generally half of the basic)
- Conveyance Allowance: ₹800 (up to ₹800 is non-taxable)
- Special Allowance: You have to adjust the remaining amount.

For example, if your gross salary is ₹10,000, the breakdown would be as follows:

- Basic: ₹6,000
- HRA: ₹3,000
- Conveyance Allowance: ₹800
- Special Allowance: ₹200

I hope this helps you understand the salary bifurcation process. Let me know if you have any questions.

Best regards

Please let me know if we can change the DA amount session-wise or if it remains fixed.

Salary Components Breakdown

In addition to what other respected members have suggested:

- **Basic:** 60% of gross (metro: non-metro)
- **HRA:** 20 to 40% of Basic
- **Transport:** 800
- **Education:** 200 (100 for each child, max. for two children)
- **Medical:** 1250 (provided supported document for tax exemption, max. limit 15000)
- **Uniform:** XXX (for the professionals who used to go out for business meetings)
- **Special:** XXX

Example Calculation

For example, if the gross is 20000 per month and the location is non-metro:
- **Basic:** 8000
- **HRA:** 3200
- **Transport:** 800
- **Medical:** 1250
- **Uniform:** 2250
- **Special:** 4500

Hope this helps.

Most of the members have provided answers to your query. I hope you will benefit from it. Here are some additional insights from my side based on my understanding.

Conventionally, Basic Salary Percentage

Conventionally, you will find basics ranging from 30% to 60% in most private concerns. However, your decision should be guided by the implications of that percentage and your company policies.

Implications

- The higher the basic, the higher the cost to the company in terms of contributions to statutory compliance. Therefore, based on whether your company is welfare-driven or cost-driven, you should intelligently choose the right percentage.
- Secondly, although contributions to EPF/ESIC are for the betterment of employees, the benefits realized are typically long-term (e.g., after retirement or voluntary withdrawal after a period). The choice of the basic amount will impact the contributions from the workers' pockets. For example, a highly-paid employee may not feel a significant impact on their cash in hand due to contributions, whereas a low-paid employee may be more concerned about meeting monthly expenses rather than future benefits. Worker satisfaction is a crucial consideration.

Industry Type and Labor Turnover

Another factor to consider is the type of industry you are in and the prevailing labor turnover. For instance, in a BPO with high labor turnover, opting for a lower basic amount could keep both employees and employers satisfied and potentially address attrition. Conversely, in traditional industries where employees tend to stay long-term, a higher basic amount may be more suitable.

Regards,
Manish