What is Payroll?

The term Payroll has several different meanings:

a) The distribution of paychecks (physical or electronic) to employees each payday.

b)The financial records for employee wages/salaries, withholding, deductions, bonuses, pay for time not worked (holidays, vacations, sick time, etc.) and other items on employee paychecks. 

c) It can also mean the record of total earnings of all employees for a company in a fiscal.

The term ‘Payroll’ encompasses every employee of a company who receives a regular wage or other compensation. Some employees may be paid a steady salary while others are paid for hours worked or the number of items produced. All of these different payment methods are calculated by a payroll specialist and the appropriate paychecks are issued. Companies often use objective measuring tools such as timecards or timesheets completed by supervisors to determine the total amount of payroll due each pay period.


(A) Employee Master Data Base : An Employee Master Data Base which contains all the details of the employees Like

(a) Employee Code
(b) Employee Name
(C) Gender
(d) Location
(e) Designation
(f) Department
(g) Date of Birth
(h) Date of Joining
(i) PAN No
(j) Bank Name
(k) Bank Account No
(l) Department
(m) Salary Breakup

(B) New Joinees : New Joinees Salary is calculated from the Date of Joining.

(C) Salary Revision : Any Salary Revision is done on the basis of performance or Appraisals. Arrears to calculate if the Salary Revision is effect from Retrospective date.

(D) Loss of Pay :  If any employee exceeds his leave eligibility, he will go for Loss of Pay. The same has to be deducted from the Fixed earnings as well as the statutory deductions.

(E) Variable Earnings / Deductions: The Variable Earnings & Deductions

Sl NoEarningsDeductions
1Performance PayMobile Deductions
2IncentiveCanteen Deduction
3Over TimeTransport Deductions
4BonusOther Deductions
5Shift AllowanceStaff Advance & Loans
6Attendance Allowance 
7Leave Encashment 
8Medical Reimbursement 
9Leave Travel Allowance 
10Mobile Reimbursement 
11Other Earnings

(F)Statutory Deductions: The Statutory Deductions are

(i) Provident Fund: Both Employee & Employer Should Contribute 12% on Basic Salary. If an employee want to contribute more on PF that will go to the Voluntary Provident Fund (VPF). In VPF an employee can contribute up to the 100% of his (Basic Pay + DA). From Employer’s contribution of 12%, 8.33% is for Pension & 3.67% is for Employer’s PF Contribution.

(ii) ESI : ESI will be eligible for members who is getting less than or equal to Rs.21000/- Gross Salary (Fixed Components). The Employee Contribution is calculated on 0.75% on Earned Gross. The Employer Contribution is calculated on 3.25% on Earned Gross. If there is any salary revision i.e. beyond Rs.21,000/- on Gross Salary the ESI to be deduct until the ESI Cycle period gets over.

ESI  Cycle Period
1st Half YearApril to September
2nd Half YearOctober to March

(iii) Professional Tax: Professional Tax differs from State to State. Professional Tax will be deduct monthly or Half Yearly.

(iv) Labour Welfare Fund: Labour welfare fund will be calculated according to the slab rates, it varies from state to state.

(G) Hold Salary: If the Employees Resigned or Salary is on Hold for specific reasons the salary to process separately and the same to kept in Hold. The same to paid along with the Full & Final Settlement. This process is helps to pay the statutory payment like PF , ESI etc.

(H) Head Count: The Head count to tallying by last month payroll processing and Add the New Joinees & Deduct the Resignees / Employees Left during the month. The Head count to Tally with the salary processed details.

Head Count Summary
Last Month Salary Processed50
New Joinees / Additions10
Resignees / Employees Left5
Total Active Employees55

(I) Bank Advice / Bank upload : Finally prepare the Bank Advice / Bank Upload for crediting the Salary in the respective Individuals accounts.