What are some important payroll terms to know
Basic salary is the base income of an individual. Basic salary is the amount paid to employees before any reductions or increases due to overtime or bonus, allowances (internet usage for those who work from home or communication allowance). Basic salary is a fixed amount paid to employees by their employers in return for the work performed or performance of professional duties by the former. Base salary, therefore, does not include bonuses, benefits or any other compensation from employers. As the name suggests, basic salary is the core of the salary of an employee. It is a fixed part of the compensation structure of an employee and generally depends on her or her designation. If the appointment of an employee is made on a pay scale, the basic salary may increase every year. Else, it remains fixed.
Dearness Allowance is cost of living adjustment allowance which the government pays to the employees of the public sector as well as pensioners of the same. DA component of the salary is applicable to both employees in India .
Dearness Allowance can be basically understood as a component of salary which is some fixed percentage of the basic salary, aimed at hedging the impact of inflation. Since, DA is directly related to the cost of living, the DA component is different for different employees based on their location. This means DA is different for employees in the urban sector, semi-urban sector or the rural sector.
House Rent Allowance
HRA or House Rent Allowance is a salary component paid by employer to employees for meeting the accommodation expense of renting a place for residential purposes. HRA forms an integral component of a person’s salary. HRA is applicable to both salaried as well as self-employed individuals.
HRA for salaried people is accounted for under section 10 (13A) of the Income Tax Act in accordance with rule 2A of Income Tax rules. Similarly, self-employed individuals are not considered for HRA exemption under this section but can claim tax benefits under section 80GG of the Income Tax Act
For all employees earning ₹21,000 or less per month as wages, the employer contributes 4.75 percent and employee contributes 1.75 percent, total share 6.5% percent. State government’s share is 1/8th and that by central government is 7/8th. This fund is managed by the ESI Corporation (ESIC) according to rules and regulations stipulated there in the ESI Act 1948, which oversees the provision of medical and cash benefits to the employees and their family. ESI scheme is a type of social security scheme for employees in the organised sector.
The scheme provides full medical care to the employee registered under the scheme during the period of his incapacity for restoration of his health and working capacity. It provides financial assistance to compensate the loss of his/her wages during the period of his abstention from work due to sickness, maternity, and employment injury. The scheme provides medical care to his/her family members also.
Who administers the ESI Scheme?
The ESI Scheme is administered by a corporate body called the ‘Employees’ State Insurance Corporation’(ESIC) which has members representing Employers, Employees, the Central Government, State Government, Medical Profession and the Parliament. The Director General is the Chief Executive Officer of the Corporation and is also an ex-officio member of the Corporation
Who Has To Obtain ESIC Registration?
Any factory or business establishment having 10 or more than 10 employees, irrespective of salary, have to register with ESIC. Entrepreneurs must make ESI contributions for all employees having a salary of less than Rs.21,000 per month. Employees with less than Rs.21,000 monthly wages get health and sickness benefits through this statutory scheme. In this scheme, employer’s contribution is 4.75% and an employee must contribute 1.75% for ESI. An organization having all the employees monthly wages of over Rs.15,000, then the organization would have to file an NIL return. Following industries are required to obtain coverage under ESIC:
- Factories employing 10 or more persons irrespective of whether you use power in the process of manufacturing or not.
- Shops, hotels, restaurants, cinemas including preview theater, road motor transport undertakings and newspaper establishment employing 10/20 or more persons.
- Private Medical and Educational Institutions employing 10/20 or more persons in certain States.
Documents Required For ESIC Registration
- Registration Certificate or License issued under Shops and Establishment Act or Factories Act, if available.
- Memorandum and Articles of Association or Partnership Deed or Trust Deed, depending upon the constitution of the ownership of the establishment.
- Certificate of commencement of production and/or Registration No. of CST/ST, if available.
- Month wise employment position, salary etc.
- List of Partners or Directors
- PAN Card and Address Proof of the Factory/Firm/Establishment
- Evidence in support of the date of commencement of production /business.
- Copy of bank statement
Basic Procedure Of ESIC Registration
The factory or establishment can apply for registration by submitting as Employer’s Registration Form (Form-01). Then, the organization will get an identification number as the code number. The code number is a 17 digit unique identification number. At the time of registration, the Employee is required to fill in Form – I and submit a family photo in duplicate to the employer. Additionally, employers must submit this document to the ESI Office. The employee is then allotted an insurance number and issued a temporary identity card for availing medical benefits for him/herself and his/her family. Thereafter, a permanent identity card is issued, which can be used by the employee even after transferring jobs.
Companies under ESIC coverage must file the annual return. Additionally, they must show the changes if any during the preceding year. Furthermore, you must submit the return of contributions enclosing copy of all ESI contributions paid once every six months.
Organizations under ESIC Registration must maintain the following records:
- Attendance Register
- Wages Register
- Form-6 Register
- Accident Register
- Inspection Book
- File containing all monthly challans & returns submitted.
What is Provident Funds
Provident Fund is a part of your salary, which is deducted every month and deposited on your behalf. If you work in a private firm then the company pays the same amount as it is deducted from your account and when you leave the firm you can. apply and withdraw the amount saved. It’s actually your personal saving of your earnings. If you are in government service then you will get the lump sum when you retire. As per new rules, it is calculated along with other allowance like conveyance and medical which are common to all the employees.
How to Calculate PF?
- First you have to calculate the Basic Salary which is approximately 50% of the CTC.
- 12% of Employee Share towards PF.
- 67% of Employee Share as Family Pension Funds.
- EPF= Employee (12% of salary + DA) + Employer (12% + DA)
For Example: If the CTC of an employee is Rs 40,000/-. Then the calculations will be as follows:
Under the Act, the EPFO operates three schemes in all viz.
- Employees’ Provident Fund Scheme, 1952
- Employees’ Pension Scheme, 1995 (which replaced the Employees’ Family Pension Scheme, 1971)
- Employees’ Deposit Linked Insurance Scheme, 1976
The various benefits of Employee Provident Fund
Employee Provident Fund is a very important tool of retirement planning. The compounded tax free interest and the maturity ensures a good growth of your money.
- Insurance Benefit: As per EDLI (Employee Deposit Linked Insurance) scheme, in any organization where group insurance scheme is not available to the employees.
- Special Occasions- EPF at help :There are special occasions in your family or some emergency arises. In case of need of funds and no recourse, EPF comes handy as it gives option to withdraw from the corpus but within a certain limit and by meeting some specified conditions.
- Goals- Marriage, Education need for self, child or any sibling- In case you have to arrange funds for any of the above need then from your EPF corpus you can withdraw up to 50% of your contribution.
- Loss of income – If an employee for some reason cannot work any longer, these funds help tide over loss of income.
- Resignation – after 2 months of resignation employees can withdraw accumulated amounts in their PF accounts
- Death – the accumulated amount is passed on to the employee’s nominee providing them financial stability.
- Disability – If employees cannot work any longer, EPF balances can be withdrawn to tide one over.
- Retrenchment or discharge – This where employees are laid off from work. PF savings can bridge the income gap till another job can be found.
see also:payroll accounting in tally