Payroll is one of the most critical components of Human Resource Management (HRM). It refers to the process of calculating and distributing wages and salaries to employees for their work during a specific period. A Payroll Master is a comprehensive system or database that stores all the necessary employee-related information required for salary calculation.
Once you have set up the Payroll Master, you can use it to generate employee pay slips, calculate salaries, deductions, and taxes. You can also use it to generate reports related to employee payroll, such as the Payroll Statement, Attendance Report, and Salary Register.
Objectives of Payroll Master
- Maintain accurate employee salary records.
- Automate monthly salary calculations.
- Comply with statutory laws (PF, ESI, TDS, etc.).
- Generate payslips, reports, and salary registers.
- Avoid errors and delays in salary disbursement.
Employee Details
- Employee ID
- Name
- Department
- Designation
- Date of Joining
- Bank Details
- PAN and Aadhaar Number
Salary Structure
- Basic Salary
- House Rent Allowance (HRA)
- Dearness Allowance (DA)
- Conveyance Allowance
- Medical Allowance
- Special Allowance
Deductions
- Provident Fund (PF)
- Employees’ State Insurance (ESI)
- Tax Deducted at Source (TDS)
- Professional Tax (if applicable)
- Loan/Advance Repayments
- Absence/Loss of Pay (LOP)
Gross and Net Salary
- Gross Salary = Total Earnings before deductions
- Total Deductions = Sum of all deductions
- Net Salary (Take-Home Pay) = Gross Salary – Deductions
Salary Calculation Formulae
- Basic Salary = 40% to 50% of Gross Salary
- HRA = 40% (Non-Metro) or 50% (Metro) of Basic Salary
- Employee Contribution = 12% of Basic Salary
- Employer Contribution = 12% of Basic Salary (split into 8.33% to Pension + 3.67% to PF)
- Employee Contribution = 0.75% of Gross Salary
- Employer Contribution = 3.25% of Gross Salary (only if Gross Salary ≤ ₹21,000)
- Calculated as per Income Tax Slabs
Employee Salary Calculation
Employee Details:
- Name: Ankit Sharma
- Department: Marketing
- Designation: Marketing Executive
- Gross Monthly Salary: ₹40,000
- Basic Salary: ₹16,000 (40% of Gross)
- HRA: ₹8,000 (50% of Basic)
- Conveyance Allowance: ₹2,000
- Medical Allowance: ₹1,250
- Special Allowance: ₹12,750
Earnings:
| Component | Amount (₹) |
|---|---|
| Basic Salary | 16,000 |
| HRA | 8,000 |
| Conveyance Allowance | 2,000 |
| Medical Allowance | 1,250 |
| Special Allowance | 12,750 |
| Gross Salary | 40,000 |
Deductions:
| Component | Amount (₹) |
|---|---|
| PF (Employee) | 1,920 (12% of Basic) |
| ESI (Employee) | 300 (0.75% of Gross) |
| TDS | 1,500 (Example) |
| Total Deductions | 3,720 |
Net Salary:
Net Salary = Gross – Deductions = ₹40,000 – ₹3,720 = ₹36,280
Example
A company with 5 employees needs to process salary for May 2025. Each has different salary structures and deductions.
| Name | Gross Salary | Basic | HRA | Convey. | PF (12%) | TDS | Net Salary |
|---|---|---|---|---|---|---|---|
| Ankit | ₹40,000 | ₹16,000 | ₹8,000 | ₹2,000 | ₹1,920 | ₹1,500 | ₹36,280 |
| Priya | ₹35,000 | ₹14,000 | ₹7,000 | ₹2,000 | ₹1,680 | ₹1,200 | ₹31,620 |
| Rahul | ₹30,000 | ₹12,000 | ₹6,000 | ₹2,000 | ₹1,440 | ₹1,000 | ₹27,560 |
| Sneha | ₹25,000 | ₹10,000 | ₹5,000 | ₹2,000 | ₹1,200 | ₹800 | ₹23,000 |
| Karan | ₹20,000 | ₹8,000 | ₹4,000 | ₹2,000 | ₹960 | ₹500 | ₹18,540 |
This case demonstrates how Payroll Master automates salary processing, reduces errors, and generates reports efficiently.