The complete process of calculating, distributing, and recording employee compensation including salary, deductions, taxes, and statutory contributions.
Payroll encompasses: salary calculation (basic + DA + HRA + allowances), statutory deductions (PF, ESI, Professional Tax, TDS under Section 192), voluntary deductions (insurance, loan EMI, advance recovery), overtime and bonus computation, leave encashment, reimbursements, and net pay disbursement. In India, payroll compliance involves: EPF (Employees' Provident Fund — 12% employer + 12% employee on basic + DA), ESI (Employee State Insurance — 3.25% employer + 0.75% employee on gross up to ₹21,000), Professional Tax (state-specific, max ₹2,500/year), TDS on salary (per income tax slab), Labour Welfare Fund (state-specific), gratuity provisioning (4.81% of basic), and bonus under the Payment of Bonus Act (8.33%–20% of salary). All these must be deposited with respective authorities within prescribed deadlines to avoid penalties.
Employee: CTC ₹8,40,000/year. Monthly: Basic ₹35,000, HRA ₹14,000, Special Allowance ₹21,000 = Gross ₹70,000. Deductions: PF (12% of ₹35,000) ₹4,200, ESI (0.75% of ₹70,000) ₹525, Prof Tax ₹200, TDS ₹3,500 = Total deductions ₹8,425. Net pay: ₹61,575. Employer cost: ₹70,000 + PF ₹4,200 + ESI ₹2,275 + Gratuity ₹1,683 = ₹78,158/month.
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PF: 15th of following month. ESI: 15th of following month. TDS: 7th of following month (30 April for March). Professional Tax: varies by state (usually monthly or quarterly). Annual returns: PF (Form 3A — April 30), TDS (Form 24Q — quarterly), ESI (half-yearly). Non-compliance attracts penalties and interest.
CTC (Cost to Company) includes everything the employer spends: gross salary + employer PF + employer ESI + gratuity + insurance + other benefits. Gross Salary is what appears on the payslip before deductions. Net Salary (take-home) is gross minus all deductions (PF, ESI, tax, etc.). CTC > Gross > Net.
The total salary earned by an employee before any deductions such as income tax, provident fund, professional tax, or other statutory deductions.
The actual amount of money an employee receives in hand after all deductions including income tax (TDS), provident fund, professional tax, and insurance premiums.
The total annual expenditure a company incurs for an employee, including salary, allowances, bonuses, and employer contributions to PF, ESI, and gratuity.
A government-managed retirement savings scheme where both the employee and employer contribute a percentage of the employee's basic salary every month.
A system of collecting income tax at the source of income, where the payer deducts a percentage of tax before making payment to the payee.
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