An employee salary slip is a document that an employee receives from their employer every month. It indicates everything from the gross salary to the net take-home pay and deductions. After an employer provides your pay, the salary slip gets sent out each month.
Salary slip: Format
Salary slips vary from company to company but they usually include the following information:
- Name of company, address, logo, month and year of salary slip
- Name, designation, and department of each employee
- Aadhaar and PAN numbers of employees
- UAN (Universal Account Number) and EPF account number
- Total number of workdays and leaves
- A list of earnings (income) and deductions
- Net pay in words and numbers
Salary Slip: Who obtains it?
A company shares the salary slip with full-time employees. It is not given to part-time, or contractual workers. An employee gets their salary slip after working at a company for a month. But if, for some reason, an employee resigns from the company, they are not eligible to receive the salary slip that month.
Salary Slip: Components
Components of a salary slip can be explained in two parts:
Incomes
Basic Salary
Usually accounting for 35% to 40% of total salary, it is the most important component of compensation. Based on it, a variety of other pay slip components are determined. A basic salary comprises the first component of a pay slip.
Dearness Allowance
This allowance is aimed to minimise the impact of inflation on employees. Employees usually receive 30-40% of their basic pay as this allowance. The cost of living affects the amount of salary, which differs from location to location. For tax purposes, DA is considered to pay, so it is taxable. The earnings section appears after the basic pay on the pay slip.
Government employees and employees of public sector companies are the only ones eligible for DA. Employees of private companies do not receive this component.
House Rent Allowance (HRA)
HRAs are reimbursements to employees for house rent paid. The HRA is calculated based on the location of the rented house and is usually about 40% to 50% of the basic salary. Employees are not always fully exempt from paying taxes on the HRA they receive. Employees can claim the following tax exemptions:
- Employer-paid HRA received by the employee
- Subtract 10% from the actual rent paid
- 50% of the basic salary for those living in metro areas and 40% for those living outside of them.
Leave Travel Allowance
Employees and their immediate families are provided with an allowance for travel costs while on leave. As part of the employer’s Leave Travel Allowance (LTA), actual travel costs are exempt from income tax. To qualify for the deduction, proof of travel must be provided. However, the LTA exemption is valid only for up to two journeys during a calendar year.
Conveyance and Medical Allowance
An allowance for travelling from home to work and from work to home is known as a conveyance allowance. Up to an amount of Rs 1,600 per month (Rs 19,200 annually), an employer’s conveyance allowance is tax-exempt. Employees receive medical allowances to cover their medical expenses. If the amount exceeds Rs 15,000 per year, it becomes taxable.
The Rs 19,200 conveyance allowance and Rs 15,000 medical reimbursement per year were replaced in the Budget 2018. As of FY 2019-20, employees will no longer receive transportation and medical allowances. Instead, they will receive a standard deduction of Rs 50,000.
Performance Bonus and Special Allowance
Employees are often rewarded for their performance with bonuses. Certain expenses may be covered by special allowances. The type of allowance varies from one company to another and is taxable.
Other Allowances
The employer may also pay various other allowances to employees for a variety of reasons. These allowances may be classified under a separate heading or combined under the heading ‘Other Allowances’.
Deductions
Employees Provident Fund (EPF)
Employees are required to contribute to a PF account in their names with certain exceptions. Employers contribute 12% of employee salaries to the employee’s EPF account. According to section 80C of the Income Tax Act, an employee’s contribution to the EPF is tax-exempt. Employees’ EPF/retirement funds are also contributed to by the employer.
Professional Tax
Only a few states in India levy this tax, which is based on the employee’s tax slab. The professional tax laws and regulations in every state are unique to that state. The deduction is shown on the deductions side of the payslip.
Tax Deductible at Source (TDS)
In addition to considering the employee’s tax slab, the employer deducts TDS on behalf of the income tax department from the employee’s salary.
Salary slip: Importance
Although every salaried person receives salary slips periodically, most do not know their importance.
- As a legal document, the payslip serves as proof of employment. Financial difficulties can arise at times, or people may need additional funds to purchase a home or car. If that is the case, an individual can obtain a loan from any bank or financial institution. An applicant’s salary slip serves as proof of employment and income when applying for a loan.
- There is a name for both the employee and the employer on salary slips. There is also an address for the employee on the payslip. Additionally, the date by which the salary is due appears on the salary slips. Additionally, the salary slip includes deductions, gross salary, and net salary.
- Payslips contain deductions. In addition to helping calculate taxes to be paid, they also help estimate tax refunds.
- Loans and credit cards are dependent upon the individual’s financial situation, and their salary is an indication.
- Furthermore, salary slips from your previous employer can be used to negotiate better salaries and benefits with a new employer.
Difference Between Cost to Company (CTC) and Gross Salary
An employee’s salary is the periodic payment he receives from his employer as compensation for his work. When seeking a job, an employee will always consider the CTC, or Cost to Company, and gross pay. There are some components that are included in the gross salary but not in CTC.
Gross salary is the amount an employee receives as a salary, before any deductions, whereas the cost to the company is the amount an employer will spend on an employee in a particular year.
In terms of cost to the Company, it includes salary, reimbursements, contributions, and tax benefits. In addition to the basic salary, there is a dearness allowance, house rent allowance, and other allowances. Bonuses, reimbursements for transportation, telephone, and medical bills, incentives, and other benefits are included in the reimbursement. Employer contributions include contributions to PF, gratuity, superannuation, and medical insurance.
In addition, to leave encashment, non-cash concessions, and stock option plans, the CTC also includes leaving encashment. Even though these are included in the CTC, they may vary from company to company.
The gross salary is the amount that an employer has committed to pay an employee each month. Gross salaries do not include contributions to the PF and gratuities, among other things. Certain components of gross salaries are different for individual employees, while others are the same.
A gross salary includes basic pay, dearness allowance, house rent allowance, city compensation allowance, and other emoluments.
Employers are willing to spend a certain amount on employees as part of the cost to the company. Employer contributions are added to the Cost to Company, but not to the gross salary.
What is the best way to get my salary slip online?
Every month, the employer sends the employee a salary slip via email. The salary slip can be downloaded or printed. Your salary slip can be viewed online on the company payroll software or the employee’s internal portal.
Is it a good idea to save my salary slips and keep them in a safe place?
Certainly. When taking loans from banks, preparing your income tax returns, changing jobs, etc., the salary slip is important. Therefore, you should download your salary slips and keep them in a secure place. Salary slips from the past three months are sufficient for many purposes, such as bank loans, change of employment, or proof of employment. For tax-related purposes, however, you must have salary slips for at least 22 months from the end of the tax year they pertain to.
