COMPENSATION,

PAYROLL AND PF

E-BOOK

NEXTGEN HR – HR & PAYROLL EXPERTS

 Why Compensation Payroll
Specialists are in-demand
What does a Compensation & Benefits Manager/Specialist do?
Designing fair and attractive bonus programs. Implementing appealing
rewards. Tailoring benefit programs based on staff needs. Evaluating how
1 effective the benefit packages are in terms of employee satisfaction. Ensuring
compensation plans comply with the relevant statutory legislations. Tracks
Compensation and Benefits benchmarking data. Know-how of Compensation,
Benefits, Payroll and Statutory Compliances is very much essential.

What does a Payroll Manager/Specialist do?

A Payroll Specialist calculates employees' compensation, ensures timely
payments and updates internal payroll databases. The ultimate goal is helping
the payroll process of a company run smoothly, efficiently and accurately.
2 Know-how of Compensation, Benefits, Payroll Systems, Calculations, Excel,
Payroll soft wares (SAP/Tally/Excel, etc.) are essential.

Why Payroll is the most important and critical part of HR?

In most organizations, payroll is considered as important part of the Human
Resource Management department because they deal directly with the
people being recruited and are also responsible for deciding the salary, bonus,
3 and incentives of all employees. In few companies, Payroll department reports
to Finance department. However for most HR Generalist and Executives,
minimum know-how of Compensation, Benefits and Payroll is essential. In
other small companies, HR Generalist will take care of entire compensation
and payroll management.

Why Compensation Payroll Specialists are in-demand?

Compensation and Payroll are specializations which requires deep knowledge,
unlike other functions of HR which can be handled with some knowledge.
4 Many companies continue to grow and are consequently hiring more
employees. This results in an increasing demand for Payroll Specialists.
Changing Labour Laws and Compliances, makes it even more important to
have dedicated payroll specialists to stay compliant with laws.
 NEXTGEN HR
TOP HR SKILLS
 What is Payroll?

Intro to Payroll Components

Compensation is total of Cash and Non-cash payments that employees gets in exchange for the work
they do for a business
Payroll is the system employer uses to process and manage salary payments to all employees
Salary Components includes Earning & Deduction Heads
Earnings heads Ex: Basic, HRA, Conveyance, LTA, Medical Reimbursement, Other Allowance, Etc.
Deduction Heads: Statutory Deduction & Non Statutory Deductions

Payroll Head Categorisation

Earning Heads: 4 categories
1. Master Heads - Basic, HRA, Conveyance, Other Allowances
2. One Time Payment - Bonus, Gratuity, Leave Encashment, Night Shift Allowance, OT hours,Gratuity, etc
3. Reimbursements - Books & Periodicals Reimbursement, LTA, Telephone Reimbursement, etc.

Deduction Heads: 3 categories

1. Statutory Deductions are those which are mandatory as per Law.
Ex: PF, ESIC, Professional Tax, Income Tax, Labor Welfare Fund, etc.

2. Non Statutory Deductions : Master / One Time - Loan, Salary Advance, Notice Pay Recovery, Canteen
Deduction, Telephone Deduction, etc
3. Third Party Deduction - LIC, Loan etc which are paid from salary to third party
FUNCTIONS OF PAYROLL DEPT
PRE DISBURSEMENT FUNCTIONS
• GATHER DATA & PREPARE INPUT: NEW JOINERS, EXIT, ONE
TIME PAYMENTS, ADJUSTMENTS, ETC.

SALARY DISBURSEMENT FUNCTIONS

• PREPARE JV & SEND TO FINANCE DEPT
• JV ENTERED IN ERP SW & BANK FILE PREPARED

POST DISBURSEMENT FUNCTIONS

• DISTRIBUTE PAYSLIPS, REIMBURSEMENT SLIPS,
DISTRIBUTION THROUGH INTRANET / EMAIL

POST DISBURSEMENT FUNCTIONS

•FILING RETURNS: •ANSWERING EMPLOYEE

•MAKING PAYMENTS & QUERIES
SUBMITTING REPORTS

1 2

4 3
•GENERATING MIS: FOR •ANSWERING
FUTURE PLANNING AND GOVERNMENT QUERIES: IN
FOR REPORTING FORM OF REPORTS/
RETURNS FILING
 TYPES OF COMPENSATION STRUCTURES

3 STRUCTURES :-
❑ FIXED CTC STRUCTURES
❑ FLEXIBLE CTC STRUCTURE
❑ CONSOLIDATED PAY / GROSS PAY

Fixed CTC Structure and Flexible CTC Structure:

These structures are used commonly in most
organizations. Management can decide on type of
structure they would like to adopt and which salary
components to be given. Consolidated Pay/ Gross Pay is
not a well-defined method of payment.

CTC : Total Cost of Company on Employee

CTC = Direct Benefits + Indirect Benefits + Savings / Pension

Contributions

Gross Salary : Gross is the Basic + All

Allowances/Reimbursements payable to an employee for a
month, before deducting employee side
contributions/deductions like Employee PF, Income Tax, Etc.

Net Salary : Gross Salary – Total of all Employee side

Deductions/Contributions
 Fully Taxable Allowances
Basic
D.A.
V.D.A.

Partly taxable Allowances

Allowances/Reimbursements
HRA
Meal Voucher
Telephone & Internet
Reimbursement
Child Education Allowance
Hostel Fees
Petrol Reimbursment
Driver Allowance
Superannuation Fund
NPS Employer Contribution
Purchase of Laptop/Mobile/
Computer
Performance Development
Allowance
Books & Periodicals
Leave Travel Allowance
Exemption Limit
Actual HRA or Rent paid - 10% of B+DA
or 40% of B+DA for Non metro & 50%
of B+DA for Metro
Rs. 100 per day.Rs.2200 per month or
Rs. 2400 per month
Actuals / As per Invoice
Rs. 100 per child Max.2 children
Rs. 300 per child Max. 2 children
2400 if vehicle above 1600 cc
Max 900 pm
Max upto 15% of B+DA
10% of B+DA
No Limit / As per Invoice
No Limit / As per Invoice
No Limit / As per Invoice
Actuals / As per Reimbursement.
Amount limited to CTC component

Reimbursements are those components which

require bill submission in order to get Income Tax

“
exemption; However, the maximum limit of
reimbursement as well as IT Exemption is limited
to the Master (fixed) amount set by your employer
in your CTC.
 Present Income Tax Slab (2021-22)
OLD
REGIME

NEW
REGIME

Income Tax is calculated on the Annual Taxable Income of the employee and
then deducted on monthly basis from the salary and remitted to IT department
by employer.

Amount deducted from salary is called TDS : Tax Deduction at Source

Annual Taxable Income Calculation : Total Income for the year (-) All
exemptions / deductions from all eligible sections

Knowledge of Income Tax sections and which components of salary helps

employees save their taxes is essential to structure the Compensation
Packages for employees.

Perquisites or Perks are non-cash elements such as Company Leased

Accommodation, Furniture, Employer to Employee Loan at concession rates,
Car and Fuel, etc. These are indirect benefits for employee, which can be given
to avoid taxes, but yes, there are limits and conditions for these perquisites as
well. When it crosses defined limits, the excess benefits are taxable in the
hands of employee.
TOP HR SKILLS COURSE
For complete guide on Compensation, Payroll and
Provident Fund along with Employee On-boarding
Techniques, Salary Negotiation Techniques,
Individual SWOT Analysis, HR Career Roadmap,
etc. go through the complete course “Top HR
Skills and Compensation, Payroll and PF”
NEXTGEN HR
WWW.NEXTGENHR.CO.IN
HTTPS://NEXTGENHR.PROCTUR.COM