Is a Simple Salary Slip with Only Professional Tax Deduction Acceptable for Small Startups?

I am in a startup company. There is no HR manager to provide advice; I am the only admin, and the HR executive handles the salary attendance part. My query is about our company, which currently comprises 3-5 people. The Chartered Accountant (CA) mentioned that currently, there is only Professional Tax (P.Tax) deduction required, and there is no need for a detailed salary structure such as basic, HRA, etc. Instead, we can directly create a salary slip showing a fixed monthly salary. Is this format acceptable?

Example for the month of August:

Fixed salary: 35000 (Actual monthly package)
Earned salary: 31613 (Amount after deduction of late marks, LOPs/LWPs)

P.Tax deduction: 200
Total deductions: 200
Net salary: 31413

Is this format suitable?

Dear Sayali,

The view of your CA about keeping the consolidated salary structure is correct as long as your organization has fewer than 10 employees. This ensures that labor laws with a threshold number of employees for application purposes, such as the EPF Act, Payment of Gratuity Act, and Payment of Bonus Act, do not apply.

However, it is essential to consider the perspectives of future growth of the organization, employee welfare in the long run, income tax concessions, etc. For example, with a consolidated salary, the entire salary would become taxable. Additionally, if there is a need to develop a componentially structured salary in the future, legal formalities such as employee consultation and consent would become necessary.

Therefore, my suggestion, in the interest of both the employer and the employees, would be to have a salary structure comprising components such as basic pay, dearness allowance, house rent allowance, etc., from the very beginning when the organization is small. Moreover, voluntary participation in social security schemes like EPF, Gratuity Insurance, Profit Sharing, etc., is not legally prohibited. In fact, such provisions in the salary structure would enhance employee morale and attract talented individuals.

Thank you.

Hello Sayali, as Mr. Umakanthan suggested, it's very important to have EPF, insurance, and gratuity implemented from the early stages. This will not only make a goodwill gesture to your employees, but also being compliant in the early stages saves you a lot of fines and headaches that may occur at a later stage.

Please feel free to check the sample salary distribution Excel I am attaching here. It will save you a lot of 'reinventing the wheel' part. I am sure there are some excellent templates on this forum, and it's always a good practice to get it verified with your CA!

Mr. Umakanthan, sir, will you please go through the template once as well.

Regards, Prasanna