Salary Components
Salary Components are the building blocks of employee compensation. They define individual elements that make up an employee’s salary, including earnings (additions), deductions (subtractions), and employer contributions.
What you can do here:
- Create and manage salary components
- Define calculation methods (fixed, percentage, formula)
- Set tax and statutory properties
- Configure GL codes for accounting integration
Why Use Salary Components?
Salary components provide a structured way to:
- Break Down Compensation: Separate salary into meaningful parts (basic, allowances, bonuses)
- Handle Compliance: Mark components as statutory for government-mandated contributions
- Tax Calculations: Identify which components are taxable vs tax-exempt
- Accounting Integration: Map components to GL codes for seamless financial reporting
- Payslip Clarity: Show employees exactly how their pay is calculated
Salary components are used in salary structures, which define how employee compensation packages are assembled. Create your components first, then combine them into structures.
Component Types
There are three types of salary components, each serving a different purpose:
| Type | Description | Effect on Pay | Examples |
|---|---|---|---|
| Earning | Additions to employee salary | Increases take-home pay | Basic Salary, HRA, Allowances, Bonuses |
| Deduction | Subtractions from employee salary | Decreases take-home pay | Tax, PF Employee, Loan Repayment |
| Employer Contribution | Employer-paid benefits (not deducted from employee) | No effect on take-home pay | PF Employer Share, Gratuity, Insurance |
Earnings
Earnings are components that add to an employee’s salary:
- Basic Salary (foundation of compensation)
- House Rent Allowance (HRA)
- Dearness Allowance (DA)
- Conveyance Allowance
- Medical Allowance
- Performance Bonuses
- Overtime Pay
Deductions
Deductions are components that subtract from an employee’s gross pay:
- Income Tax (TDS)
- Provident Fund (Employee Share)
- Professional Tax
- Loan Repayments
- Salary Advances Recovery
- Insurance Premiums
Employer Contributions
Employer contributions are amounts the company pays on behalf of the employee:
- Provident Fund (Employer Share)
- Gratuity Fund
- Health Insurance (Company-Paid)
- Pension Contributions
Employer contributions don’t reduce the employee’s take-home pay but are still part of the total compensation cost (CTC - Cost to Company).
Summary Cards
| Card | Description |
|---|---|
| Earnings | Total number of earning components configured |
| Deductions | Total number of deduction components configured |
| Employer Contributions | Total number of employer contribution components |
Component Properties
| Column | Description |
|---|---|
| Component | Name and code of the salary component |
| Type | Earning, Deduction, or Employer Contribution |
| Calculation | How the amount is calculated (Fixed, Percentage, Formula) |
| GL Code | General ledger account for accounting |
| Properties | Tags showing component characteristics (Taxable, Statutory, Recurring) |
| Status | Active or Inactive |
Creating a Salary Component
- Click Add Component
- Enter the component code and name
- Select the component type
- Choose the calculation method
- Set properties (taxable, recurring, etc.)
- Add GL code if needed
- Click Create Component
Basic Fields
| Field | Description | Required |
|---|---|---|
| Code | Unique identifier (e.g., BASIC, HRA, PF_EMP) | Yes |
| Name | Display name (e.g., Basic Salary, House Rent Allowance) | Yes |
| Description | Optional explanation of the component | No |
Type and Calculation
| Field | Options | Description |
|---|---|---|
| Component Type | Earning, Deduction, Employer | Determines if component adds or subtracts from pay |
| Calculation Type | Fixed Amount, Percentage, Custom Formula | How the component value is computed |
Calculation Types
| Type | Description | Use Case |
|---|---|---|
| Fixed Amount | A specific amount set per employee | Basic Salary, flat allowances |
| Percentage | Calculated as percentage of another component | HRA (% of Basic), PF (% of Basic) |
| Custom Formula | Complex calculation using variables and logic | Performance bonuses, tiered deductions |
Properties
| Property | Description | Default |
|---|---|---|
| Statutory | Government-mandated component (PF, ESI, Tax) | Off |
| Taxable | Subject to income tax calculations | On |
| Recurring | Included in every pay period automatically | On |
| Include in Gross | Added to gross salary calculation | On |
Be careful when setting the Statutory flag. Statutory components are typically regulated by law and may have specific calculation rules and limits.
Payslip Settings
| Setting | Description |
|---|---|
| Show on Payslip | Whether to display this component on employee payslips |
| Display Order | Order in which component appears on payslip (lower numbers first) |
Accounting Integration
| Field | Description |
|---|---|
| GL Code | General ledger account code for your accounting system (e.g., 5001, SAL-EXP) |
GL codes help integrate payroll with your accounting software. Consult your finance team for the correct account codes.
Common Salary Components
Standard Earnings
| Component | Code | Taxable | Recurring | Description |
|---|---|---|---|---|
| Basic Salary | BASIC | Yes | Yes | Foundation of all compensation |
| House Rent Allowance | HRA | Partially | Yes | Tax benefit for rent expenses |
| Dearness Allowance | DA | Yes | Yes | Cost of living adjustment |
| Conveyance Allowance | CONV | No (up to limit) | Yes | Travel to work |
| Special Allowance | SPECIAL | Yes | Yes | Flexible component |
Standard Deductions
| Component | Code | Statutory | Description |
|---|---|---|---|
| Provident Fund (Employee) | PF_EMP | Yes | Employee’s PF contribution |
| Professional Tax | PT | Yes | State-level tax |
| Income Tax (TDS) | TDS | Yes | Tax deducted at source |
| Loan Recovery | LOAN | No | Salary advance repayment |
Employer Contributions
| Component | Code | Statutory | Description |
|---|---|---|---|
| Provident Fund (Employer) | PF_ER | Yes | Company’s PF contribution |
| Gratuity | GRATUITY | Yes | Long-term benefit |
| ESI (Employer) | ESI_ER | Yes | Employee State Insurance |
Filtering Components
Use the filter dropdown to view specific component types:
- All Types: Shows all components
- Earnings: Shows only earning components
- Deductions: Shows only deduction components
- Employer: Shows only employer contributions
Best Practices
- Use standard codes: Follow industry conventions (BASIC, HRA, PF) for clarity
- Group related components: Use similar prefixes for related items (PF_EMP, PF_ER)
- Document special formulas: Add descriptions explaining complex calculation logic
- Set correct tax flags: Verify taxability with your finance team
- Keep GL codes consistent: Align with your chart of accounts
- Review regularly: Audit components when tax laws or company policies change
Create a “Test” component to verify calculations before creating production components. You can deactivate it later.