UNDERSTANDING COMPENSATION & STATUTORY COMPLIANCE

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

1. Payroll is one of the most important and sensitive function of Human Resource Management
2. It is Important because it deals with the Employee Data and helps with Employee MIS & Reports to
enable Management Decision Making
3. It is Sensitive because it handles Employee’s Salary , Benefits , Perquisites and Investment which
are confidential in nature and the employees need to be paid correct salary and on time.
4. Payroll is the sum total of all financial records of salary of an employee which is processed to be
paid for the services rendered by the employee for specified period of time.
5. Payroll is a customized , automated process which configures employee details on behalf of the
employer as per the statutory requirements as laid down by the Labour Laws of Central & State
Government
6. It is multifaceted because it is linked with attendance and leaves of employees , it supports various
grades and salary structure , it takes into consideration employee investments , allowances ,
loans and advances , it takes into cognizance of the statutory compliances and keeps
management abreast with MIS and reports
7. It takes care of the TOTAL EMPLOYEE LIFE CYCLE MANAGEMENT – Right from joining to Exit.

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

PAYROLL MANAGEMENT SYSTEM

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

1. ATTENDANCE AND ABSENT DATA IS LINKED
2. EMPLOYEE FUNCTION DETAILS UPLOADS ALL EMPLOYEE MASTER WHICH INCLUDES
EMPLOYEE PERSONAL DETAILS, EXPERIENCES & QUALIFICATION, PREVIOUS SALARY
DETAILS, PRESENT SALARY STRUCTURE , GRADE
3. SALARY MANAGER FUNCTION UPLOADS ALL FORMULAS AND ENTITTLEMENT WITH
REGARD TO COMPANY POLICY ON BASIC, LEAVES, OT,BONUS,INCENTIVES , VARIABLES,
PF,ESI, GRATUITY , TDS etc .
4. LEAVE MANAGER FUNCTION CONTAINS ALL POLICIES AND RULES WITH REGARD TO
VARIOUS LEAVES LIKE EL,CL,SL, MATERNITY LEAVE
5. LOAN MANAGER FUNCTION CONTAINS ALL POLICIES AND RULES WITH REGARD TO
VARIOUS LOANS & ADVANCES, INTERESTS AND ELIGIBILITY
6. MONTHLY PROCESS FUNCTION IS ACTUALLY THE SALARY PROCESSING AND
GENERATING DEPT , GENERATING DATA WHICH NEEDS TO BE DOWNLOADED IN
SOFTWARE SPECIFIC FORMATS, PASSING OF JOURNAL ENTRIES FOR SALARY
ACCOUNTNG PURPOSE , PROCESSING OF PAY SLIPS , VARIOUS MIS, STATUTORY
FORMATS

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

Basic Pay
It is the Only Fixed Monthly Salary Component paid to employees by the employer
in return for the work performed or performance of professional duties by the
employee.
It does not include any other allowances , bonuses etc nor it is subject to any
deductions
❑ Basic pay can be designed in many ways
It can be a fixed percentage based on employee grades
❑ It can be designed based on percentage norms prevalent from industry to
industry
❑ It can also be decided based on percentage norms based on Metros/Non
metros

Basic Salary is 100% taxable

Bonus, PF,ESI, Gratuity are calculated on Basic Salary

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 Allowances

The employers offer various kinds of additional benefits in monetary terms to

their employees over and above the basic salary, which are known as salary
allowances.
These salary allowances are given to meet the expenditure of particular nature.
According to Income Tax Act, allowances are added to the salary of an
individual and taxed under the head Income from Salaries.
The salary allowances can be bifurcated into two broad categories,
Taxable and Partly taxable allowances.
Taxable – DA,OT, Entertainment allowances ,CCA etc
Partly Non taxable- HRA, LTA etc

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 BENEFITS & PERQUISITIES

❑The Benefits consist of Short Term Incentive and Long

term Incentive.
❑ Retirement Benefit also includes PF, Medical Insurance
etc
❑ Perquisites are normally Special privileges offered to
certain key individuals in senior positions to supplement
their Lifestyle ”. For Example- Club membership , Air
travel, Rent Free accommodation etc

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 INCOME TAX ON SALARIED INCOME

Section 15 of the Income Tax Act states that salary can be taxed on due or
receipt basis, whichever is earlier.
However as per provision of Income Tax , all investments made by employees
under various section of Income Tax Act ,80C,80EE,80TTA,80CCC,
80CCD,80D,80DDetc are deducted from the Gross Taxable income as per
exemptions/rebate limit given.
After such deductions of exemptions/rebate ,the balance salaried income is
then taxed as per slab rates prescribed by the Income Tax Act.
This Tax as calculated with Government Cess is then deposited with the
Government .

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

LEAVE ENTITTLEMENT

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 LEAVE ENTITTLEMENT

Leaves can be broadly divided based on its minimum applicability to establishments covered under the Factories Act and
the Shops and Establishments Act. Leave is calculated for the calendar year January to December

Any excess of Leave Entitlement over and above the prescribed limit of Factories Act and the Shops and Establishments
Act depends on company policy and varies from company to company

Primarily there are 6 types of leaves with wages granted by the companies in India

❑ Earned Leave /Privilege Leave

❑ Casual Leave
❑ Short Leave
❑ Sick Leave
❑ Compensatory Off
❑ Maternity Leave
❑ National Holidays
.

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

❑ Earned Leave /Privilege Leave are granted for motivating employees to take a vacation. As per Factories Act it is
allowed 18 days a year and as per Act/Shops & Establishment Act it is allowed 15days a year. However company can
given extra Earned /Privilege leaves over and above the 18/15 days , which they normally do.
❑ Casual Leave – For sudden unforeseen circumstances employees are granted casual leave . However employees needs
to give prior intimation and it the leave needs to be approved by the employer . The quantum of Casual Leave is fixed
by the organization in accordance with the relevant State Shops & Establishment Act or any other law applicable in
that state .
❑ Short Leave - This leave is given for 2 hours in a day and 4 times a month , for any urgent work .4 short leaves are equal
to one casual leave
❑ Sick Leave – This leave is granted to employees for sickness More than 3 days of sick leave requires the employee to
furnish a Doctor’s certificate . The quantum of Sick Leave is fixed by the organization in accordance with the relevant
State Shops & Establishment Act or any other law applicable in that state
❑ Compensatory Off – This leave depends on company policy . Any employee who works on his/her off day may be given
a Compensatory off
❑ Maternity Leave – As per the new Amendment to the Maternity Benefits Act 1961, Employees are given 26 weeks of
Maternity Leave - 8 weeks before child birth and 18 weeks after
❑ National Holidays – Employees are given 3 days of National /Public Holidays as per Factories Act/Shops &
Establishment Act . Republic Day, Independence Day, Mahatma Gandhi’s Birthday. However it is upto the company if
they want to give more National /Public Holidays in addition to the three holiday mentioned which they normally do
and it varies as per company policy

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

1. ATTENDANCE AND ABSENT DATA IS LINKED
2. EMPLOYEE FUNCTION DETAILS UPLOADS ALL EMPLOYEE MASTER WHICH INCLUDES
EMPLOYEE PERSONAL DETAILS, EXPERIENCES & QUALIFICATION, PREVIOUS SALARY
DETAILS, PRESENT SALARY STRUCTURE , GRADE
3. SALARY MANAGER FUNCTION UPLOADS ALL FORMULAS AND ENTITTLEMENT WITH
REGARD TO COMPANY POLICY ON BASIC, LEAVES, OT,BONUS,INCENTIVES , VARIABLES,
PF,ESI, GRATUITY , TDS etc .
4. LEAVE MANAGER FUNCTION CONTAINS ALL POLICIES AND RULES WITH REGARD TO
VARIOUS LEAVES LIKE EL,CL,SL, MATERNITY LEAVE
5. LOAN MANAGER FUNCTION CONTAINS ALL POLICIES AND RULES WITH REGARD TO
VARIOUS LOANS & ADVANCES, INTERESTS AND ELIGIBILITY
6. MONTHLY PROCESS FUNCTION IS ACTUALLY THE SALARY PROCESSING AND
GENERATING DEPT , GENERATING DATA WHICH NEEDS TO BE DOWNLOADED IN
SOFTWARE SPECIFIC FORMATS, PASSING OF JOURNAL ENTRIES FOR SALARY
ACCOUNTNG PURPOSE , PROCESSING OF PAY SLIPS , VARIOUS MIS, STATUTORY
FORMATS

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 Understanding Compensation
❑ Basic Salary

❑ HRA- Section 80GG.

❑ The deduction available is the least of the following amounts:

❑ a. Actual HRA received;
❑ b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
❑ c. Actual rent paid less 10% of basic salary + DA
❑ PF-For the PF deduction, the maximum limit of salary of the employee is Rs 15,000 per month. This
means that even if the employee's salary is above Rs 15,000, the employer is liable to contribute only on
Rs 15,000 that is Rs 1,800. The statutory compliance for PF contribution has some less known facts
associated with
❑ 12% of the employee’s salary goes towards the EPF.
❑ Whereas the employer’s contribution is divided as below:
❑ 3.67% goes towards contribution for EPF
❑ 8.33% goes towards contribution for EPS
❑ 0.50% goes towards contribution for EDLI
❑ 12% of the employee’s salary goes towards the EPF.

❑ ESI
❑ Employer 3.25% Employee 0.75%

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

❑ The Maharashtra Labour Welfare Fund Act, 1953
The employees contribution is Rs. 6.00 for an employee who earns Rs. 3000/- while it is
Rs.12 for those who earn more than 3000. Whereas the company contributes is three times
what the employee contributes, that is – Rs.18 and Rs. 36 for employees who draw Rs.
3000 and more than Rs. 3000 respectively.

❑ Payment of Bonus Act

The amendments have increased the wage threshold for determining
applicability of the Act from INR 10,000 to INR 21,000 per month. Additionally,
the wage ceiling for calculation of bonus has been increased from INR 3500 to
INR 7000 per month.
Previously the maximum bonus payable was 20% of INR 3500 per month. The
minimum bonus payment was also capped at 8.33% of INR 3500 per month or INR
100, whichever is higher. The calculation ceiling of INR 3500 has now been doubled
to INR 7000 per month "or the minimum wage whichever is higher

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 Leave Encashment

Amount equal to salary for the leave earned (where leave earned should not exceed 30 days
for every year of service)
1. Actual journey is a must to claim the exemption
2. Only domestic travel is considered for exemption i.e., travel within India
3. Leave
➢ Block year comprises of 4 years each.
➢ The very first 4-year block commenced from 1986.
➢ List of block years are 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-
13 and so on.
➢ The block applicable for the current period is calendar year 2018-21. The previous block
was calendar year 2014-17.

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

➢Conveyance Allowance: Conveyance allowance is
non-taxable up to Rs 1600/- per month-19200 pa
➢ Medical Reimbursement: Medical reimbursement non-
taxable up to 15000 per annum.
➢ Conveyance allowance of 19200 pa and Medical
reimbursement of 15000 pa. has been merged and
Rs50000 is allowed as Standard deduction
➢ Children Education Allowance: It is exempted from tax up
to Rs 100 per month per child for two children.

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

Up to Rs. 7,500
Nil
Rs 7,501-Rs 10,000 - Rs. 175
Above Rs. 10,000 - 2,500 p.a.

The payment is accepted in the following method:

Rs. 200 per month except for the month of February.
Rs. 300 for the month of February.

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

• User Name
• Passwords

• Payroll software opens

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

Click employee – Window Opens for Employee Master – Format
If no of employees are more – go to Utility. Window opens There will be
an option of format which has to be uploaded after filling in the details .
If only one employee then you can manually do it
IT WILL SAVE IN FORMATS WHICH ARE SOFTWARE
FRIENDLY Prof. Tapash Dey,-Panel Faculty-TISS-SVE
Salary Manager click and upload in the specific Format
all the formulas.,
salary details, Basic ,OT Formulas,, Bonus, Incentive, Variables, Basic
ESI.PF, PT & TDS, Gratuity , IT rules
IT WILL SAVE IN FORMATS WHICH ARE SOFTWARE
FRIENDLY Prof. Tapash Dey,-Panel Faculty-TISS-SVE
Leave Manager
Click- Window Opens – specific Format
Leave Rules ,PL,CL,ML , Maternity Leaves
IT WILL SAVE IN FORMATS WHICH ARE SOFTWARE
FRIENDLY
Prof. Tapash Dey,-Panel Faculty-TISS-SVE
Loan Manager
Click- Window Opens
All Loans & Advances Details are to be given
Eligibility
Types of Loans and Interest Percent – automatically Calculates
IT WILL SAVE IN FORMATS WHICH ARE SOFTWARE
Prof. Tapash Dey,-Panel Faculty-TISS-SVE
FRIENDLY
 Click window opens –
Salary Process –
Empcd,
Leave,Incentive ,OT

Start Process Click – Upload Option , File Select (salary Sept Salary)-ok-
,salary generate click – the final save – download in Excel format
Prof. Tapash Dey,-Panel Faculty-TISS-SVE
How to Process the salary ?

❑ Click on Monthly Process – Generate Pay slip

❑ Add Month
❑ Add Total Days of month for calculating salary
❑ Add period of Salary ( Eg. 1.07.2018 to 31.07.2018 )
❑ Click on Save option
❑ Select Grade of Employee ( Eg. Staff, Worker )
❑ Click On start Processing
❑ Upload the excel file where mentioned total present days, Weekly off and leave of
employees
❑ Click on Process the data
❑ Click on option generator the pay slip after processing data of salary

❑ IT WILL SAVE IN FORMATS WHICH ARE SOFTWARE FRIENDLY

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

Other than Salary Process ?

❑ PF,ESI,P Tax Challan Automatically generated when uploaded with details

❑ One has to give print command
❑ Employee email for pay slip , tax etc
❑ Bank statement , open ,format save – empcd , name etc
❑ TDS calculation , investments made by employees
❑ Calculate salary & Tax
❑ F&F ,
❑ Pending/Recovery update

❑ IT WILL SAVE IN FORMATS WHICH ARE SOFTWARE FRIENDLY

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 SALARY NEGOTIATION - EMPLOYER TO
EMPLOYEE

❑ It is understood that candidate is not over qualified or under qualified

❑ It is understood Candidate is the best fit
❑ If it is advertised then salary range must have been given
❑ If it s thru Head Hunters then salary range must have been given
❑ Discussion of salary, benefits and working conditions during interview process
❑ Whether the skill factor is niche or not
❑ how badly your organization needs this employee and how much difficulty you have in
finding his or her skill set.
❑ Market value of such skill or expertise
❑ Internal equity
❑ How much to offer ( refer compensation policy)

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

❑ Preparing Offer letters

❑ Induction and Joining Formalities

❑ Background Screening

❑ Reference Check

❑PROFORMA

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

 Statutory Compliance
➢ Payment of Gratuity (Amendment) Act, 2018
❑ The formula is as follows:
(15 X last drawn salary X tenure of working) divided by 26 )
❑ The ceiling has been raised from 10L to Rs. 20 Lakhs.
❑ An employee rendering service of 4 year 10months 11days is considered to have completed 5 years continuous service under sec.4(2)
❑ 15 days salary based on the salary last drawn for every completed year of service or part thereof in excess of 6 months.
❑ For simplicity sake, this is calculated as last drawn salary x number of years in employment x 15/26 (where last drawn salary is Basic
salary and DA and
❑ number of years in service is rounded off to the nearest full year)
❑ Rs 20,00,000
❑ Gratuity actually received

Provident Fund
12% of the employee’s salary goes towards the EPF.
Whereas the employer’s contribution is divided as below:
3.67% goes towards contribution for EPF
8.33% goes towards contribution for EPS
0.50% goes towards contribution for EDLI
12% of the employee’s salary goes towards the EPF.

ESI-Companies with strength of more than 20 employees whose monthly gross salary falls under Rs
21,000 must be registered under the ESIC Act
Previously
Employer 3.25 Employee 0.75

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

➢ PAYMENT OF WAGES ACT
➢ wages" means all remuneration (whether by way of salary, allowances, or otherwise) expressed in terms
of money or capable of being so expressed which would, if the terms of employment, express or
implied, were" fulfilled, be payable to a person employed in respect of his employment or of work done
in such employment,
Time of payment of wages- (1) The wages of every person employed upon or in-
(a) any railway, factory or 27[industrial or other establishment] upon or in which less than one thousand
persons are employed, shall be paid before expiry of the seventh day,
(b) any other railway, factory or 27[industrial or other establishment], shall be paid before the expiry of the
tenth day, after the last day of the wage-period in respect of which the wages are payable
:
(2) Where the employment of any person is terminated by or on behalf of the employer, the wages, earned
by him shall be paid before the expiry of the second working day from the day on which his employment is
terminated

➢ Maternity Act
26 weeks

➢ Minimum Wages Act – As per State Government notice – very 6 months

➢ Bonus Act
The amendments have increased the wage threshold for determining applicability of the Act from INR
10,000 to INR 21,000 per month. Additionally, the wage ceiling for calculation of bonus has been
increased from INR 3500 to INR 7000 per month.
Previously the maximum bonus payable was 20% of INR 3500 per month. The minimum bonus payment
was also capped at 8.33% of INR 3500 per month or INR 100, whichever is higher. The calculation ceiling of
INR 3500 has now been doubled to INR 7000 per month "or the minimum wage whichever is higher
Prof. Tapash Dey,-Panel Faculty-TISS-SVE
 ➢ Contract Staffing /Contract Labour /(Regulation & Abolition )
Central Rukes 1971

•Rule – 21:- Every Application for Labour License shall be accompanied by

an undertaking in Form No. IV-A by the contractor.
•Rule – 23:- On Receipt of an application in all respect, the licensing officer
shall issue a license within 7 working days, from the date of receipt.
•Rule – 24:- Security Deposit for each workman has enhanced to Rs. 500
(previously it was Rs 100 per workmen)
•Rule – 26 (1):- For taking Registration under this act for Principle Employer
fees will be Rs 5000/- Per Annam (Previously there was slabs )
•Rule – 26 (2):- For taking Labour License or Renewing Labour License fees
will be Rs 5000/- Per Annam (Previously there was slabs )
•Rule – 27:- Validity of License will be 1 year from the date of issue
(previously it was till 31stDecember for each year irrespective of date of
issue)
•Rule – 29:- Renewal of License shall be applying 60 days before the license
expire.
•Rule – 29:- If License is not issued (New or Renewed) within the said 7
working days, it shall be deemed to have been granted and copy of
acknowledgment of application and copy of payment fess shall be treated as
license
Prof. Tapash Dey,-Panel Faculty-TISS-SVE
Prof. Tapash Dey,-Panel Faculty-TISS-SVE
Government of Maharashtra vide its notification on 5
January 2017 has announced that the CLRA Act will now be
applicable to (i) every establishment in the State of
Maharashtra in which 50 (fifty) or more workmen are
employed or were employed on any day in the preceding 12
(twelve) months; (ii) every contractor in the State of
Maharashtra who employs or who employed on any day in
the preceding 12 (twelve) months 50 (fifty) or more
workmen (Amendment).
Prior to the Amendment, the limit for applicability of the
CLRA Act in the State of Maharashtra was limited to 20
(twenty) or more workmen

Prof. Tapash Dey,-Panel Faculty-TISS-SVE

Prof. Tapash Dey,-Panel Faculty-TISS-SVE
Prof. Tapash Dey,-Panel Faculty-TISS-SVE