Salary slip or Payslip format - Validity and its Components

Every month, employers have to provide payslips to the employees as legal proof that they are salaried employees of a certain organisation and they are getting a salary on time. In this post we will discuss about the Salary slip or Payslip format along with different components of the payslip.

We will cover the following:

• What is Payslip?
• Importance of a Payslip
• Components of payslip
• Formulas of Payslip
• Difference between Gross salary and CTC
• Format of Payslip
• FAQs

What is Payslip?

Payslip is a document which an employer provides to the employee as proof of salary. It contains the description of all income earned, exemptions, deductions and taxes cut from your salary. Employers can share the payslip with employees in paper or mail format. Both the type of payslips hold the same importance and validity.

Importance of Payslip

• • It acts as an important legal proof of employment
  • You can avail loans, mortgage or other borrowings with the help of Payslip as it assures that their lending will be repaid.
  • It is an important proof of income which helps you file income tax returns.
  • Having a valid payslip helps you to access to various facilities provided by the government like medical care etc.,
  • It helps in negotiating salary with new employers for better pay

A manual and computerized payslip is a valid proof of document. Modifying an issued payslip is considered a criminal offense. So an employer has to ensure that employees will not be able to modify the payslip. For this purpose, payslips are generally given in PDF format.

Components of Salary Slip or Payslip

1. Income or earning
2. Deductions
3. Leaves (Optional)

Income

All the income, gains are located on the left side of the payslip. Let us take a look at the different types of income below.

Basic Salary

This is the basic and main component of income. The percentage of Basic differs from company to company. It is the basis for the calculation of various other components of the payslip. Basic is fully taxable.

Dearness Allowance (DA)

Dearness Allowance should neither be high nor low. It is paid to reduce the impact of inflation on the employee. In some companies, DA is an optional head of salary.

House Rent  Allowance (HRA)

It is an allowance to pay out the house rent of the employees. Employees can claim exemption on this by submitting rent receipts.

Conveyance Allowance

It is an allowance for an employee to cover his / her expenses of travel from home to work and work to home.

Other Allowances

There can be various other allowances according to the company policies. These can be uniform allowance, special allowance, city conveyance allowance, child education allowance, etc.

Reimbursement

Reimbursement can also be shown as income in the payslip of the employee. Reimbursements for fuel, medical and food coupons will come under this head.

Deductions

All the deductions are located on the right side of the Payslip. Deductions can be statutory or based on company policy.

Provident Fund (PF) – Statutory

It provides retirement benefits or savings to the employee. PF is calculated on (Basic+DA) (Cut-off at Rs. 15,000). Only employee contribution of 12% on (Basic+DA) can be seen in the payslip of the employee.

Employees’ State Insurance (ESI) – Statutory

It provides medical facilities to all eligible employees. The deduction towards ESI compulsory. The cut off is Rs. 21000. The employee contributes 1.75% on gross salary.

Professional Tax (PT) – Statutory

It is a tax collected by the state government from all salaried employees. PT depends on state to state government. It is calculated on the gross earnings of the employee. Gross earnings are the sum of all income.

Tax Deducted at Source (TDS) – Statutory

The amount of tax deducted by the employer on behalf of the Income Tax Department from the salary of the employee.

Formulas of Payslip –

There are some predefined formulas to calculate your gross salary and deductions.

Total package of company (Total CTC)	Gratuity + EPF + Gross income + Others income
Taxable Income	HRA + Basic income + Allowances
Net Income	Total earning – total deduction
Gross income	Basic income + HRA + Medical + special allowances + conveyance + Other allowances

Difference between Gross salary and CTC (Cost to Company)

Gross salary	CTC (Cost to Company)
The Gross amount is the total amount of an employee before the deduction of the taxes.	CTC is the Total Cost to Company. That the company offers to the employee during the time of hiring.
Gross salary includes subtracting income tax, provident fund, and gratuity from CTC.	CTC includes all indirect, and direct benefits, including contribution and savings.
But, gross salary does not include gratuity and PF. After the deduction of all taxes, the employee receives the Net pay.	CTC is a variable amount that impacts on net pay of the employee.

Payslip Format

There are some important content of salary slips that must be mentioned.

• Name of the company
• Company’s logo
• Name of the employee
• Employee’s designation and department
• Employee’s ID number
• Employee’s PAN/Aadhaar number
• Employee’s bank account number
• Employee’s Provident Fund account number
• Number of leaves taken by the employee
• Effective workdays of the employee
• UAN (Universal Account Number)
• Earnings and deductions
• Gross and net pay

Earnings		Deductions
Basic	20000	PF	2880
DA	4000	PT	200
HRA	9600	TDS	4042
CA	800	Other deductions	2000
Other allowances	5600
Total	40000	Total	9122
Gross salary = 40000
Net salary = 30,878

Download the Payslip Format

FAQs

Can I verify the employee’s salary details?

Yes, it is your duty to verify the salary details of the old and new employees with their designations details.

Is it possible to edit the salary slip of an employee?  

Yes, it is possible to edit salary slips in PDF and excel format but only before it is issued to the employees.

Is handwritten payslip legal?

Yes, Handwritten payslip/paper based or electronically generated/issued payslip have the same value.

How can I make a simple payslip?

You can create a payslip in an excel sheet or you can use software. You need to add various content, such as employee details, basic salary, deduction, bank details, earnings, TDS, PT and other details or apply formulas. Based on the formula you can calculate the net balance. Then your payslip will get ready.

 

This ends the post on the format of Payslip. Let us know your opinion by commenting below.

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