Payroll Practice Example in tally ERP 9

What do mean by Payroll : The total wages not including benefits , paid by business during each forecast year.The term  refers to a series of accounting transaction involved in the process of paying employees for the service rendered after taking all the statutory and non statutory deduction into account, in conformance with the term of employment .company policy  and the law of the land ie payment of payroll taxes insurance premiums,employee benefit and other deductions .An efficient payroll system facilitates an error free accurate and timely employee payment while ensuring that the employment is well with in the valid work permit.

Salient features

• It is fully integrated with accounts to give you the benefits of simplified payroll processing and accounting.
• It has user defined classification and sub classification for comprehensive reporting this may be related tot he employees employee groups pay components departments etc.
• It provides the facility to create user defined earning and deducting pay heads.
• It allows flexible and user definable of  masters.
• It supports user defined production units ie attendance production time based remuneration.
• It provides a flexible processing period.
• It provides comprehensive cost centre as well as employee wise costing reports.
• It ensure an accurate and timely salary processing employee statutory deduction and employer statutory contribution with the help of predefined process.
• It facilitates an accurate computation and deduction of esi,epf professional tax gratuity etc.
• It helps in generation of statutory forms and challans for EPF and ESI as prescribed.

Mr Aviansh Started business with the name with Aviansh Tech Industries on 1 april 2015.Which will produce Generator and has three functional area to perform his business smoothly.

1. Administration
2. Production
3. Sales

Now Mr Avinash has hires personnel for these department and wants to automates the payroll process to ensure the smooth running of operations.Mr Aviansh wants to calculate the salaries of employees on the basis of attendance.

Now to start the company

• Go to gateway of tally > Company info > Create company
• fill the details of company and press YES
• Press F11>Features >Accounting Features F1
• Set maintain payroll to YES
• Set more than one payroll cost category to YES allow you to maintain more than one cost category

Example :

consider a company having more than one branch under the common head office The head office maintain the payroll for all the branches here tally provides cost category creation for all the branches with there name and now under this cost category you can defined employee name and details and maintain payroll separately.

• go to gateway of Tally>F12>payroll configuration
• Now Avinash Started business with cash Rs 15,00,000 and paid into bank Rs 500000.
• Now following Ledger need to be prepared and Voucher entry need to pass into Accounting Vouchers.
• Capital A/c (under Capital Account)
• SBI bank (Under bank account)
• Now Gateway of tally > accounting Voucher > F6 receipt
• Credit : Capital A/c 15,00,000
• Debit : SBI Bank A/c 500,00
• Debit : Cash A/c 10,00,000

After starting the business Avinash employed following staff in his organization :

Pay Head	Amit	Manish
Basic Pay	Rs 10,000 per month	Rs 8000 per month
HRA	40% on Basic pay	40% on Basic pay
Conveyance allowance	Rs 800 flat per month	Rs 1000 flat per month
Variable pay	As per performance evaluation	As per law ie 1.75% on total earning before any deduction
ESI/Payable( employee contribution )	As per law ie 1.75% on total earning before deduction	As per law ie 1.75% on total earning before deduction
EPF (employee contribution)	As per law ie 12% on basis pay	As per law ie 12% on basic pay
	AS per law ie 12% on basic pay	As per law ie 12% on basic pay
ESI (employer contribution)	As per law ie 4.75% on basic HRA ,conveyance and variable	As per law ie 4.75% on basic HRA ,conveyance and variable
EPF (employer FPF contribution	As per law ie 8.33% on basic pay or ts 541 whichever is less	As per law ie 8.33% on basic pay or ts 541 whichever is less
EPF(employer contribution)	As per law ie 3.67% on the basis of FPF contribution by the employer	As per law ie 3.67% on the basis of FPF contribution by the employer
Gratuity	As per law	As per law
Professional tax	As per law	As per law

create group :

Employee cost under indirect Expenses :

Note the creation of this group helps in quickly ascertaining the total cost incurred toward employees as salaries :

Got to gateway of tally > Accounts Info > group > create to view the group creation.

screen .

Ensure that the group creation screen display as shown.

Similarly create employee contribution under indirect expenses

Attendance is used to record attendance and production data.

Based on the component (pay head) structure you can define multiple attendance /production types.

examples :numbers of days present number of days absent and numbers of hours contributed .The variable data is entered in the attendance voucher for the payroll period.

The attendance production type may be attendance leave with pay .Leave without pay if salary is to be paid based on number of days attendance ) paid leave ,absent The production type can be based on Piece production overtime hours and so on.

Create attendance /production type:

Absent under primary

Go to gateway of tally > payroll info > attendance production type > create

1. name :absent
2. under : primary
3. attendance type : leave without pay
4. period type : days display automatically

note : Tally display period type as days because attendance usually accounted for on the basis of the lowest period.

attendance / production type screen display as

Pay head in payroll :

Salary component constituting pay structures are called pay heads.

• Go to gateway of tally > payroll info > pay head > create
• name : Basic pay
• Pay Head type : earning from employees
• under : Employees cost
• appears in Payslip : YES
• Name to appears in pay slip : Basic
• Use of gratuity: yes
• Calculation type : on attendance
• attendance /leave with pay not attendance: not applicable
• leave without pay : absent
• calculate period : months
• Per day calcuation basics :user defined
• month of : 30 days
• rounding methods : normal rounding
• limit : 1

Create pay head for house rent allowance :

1. Name : Conveyance allowance
2. Pay head type :earning for employees
3. Under : employee cost
4. Appears in payslip : yes
5. Name to appears in payslip :  Conveyance
6. Use for gratuity : No
7. Calculation type : Flat rate
8. Calculation period : Month
9. Rounding method normal rounding
10. Limit : 1

Create pay head House rent Allowance

1. Name : House Rent Allowance
2. Pay head Type : earning for employee
3. Under : Employee Cost
4. Appears in Payslip : YES
5. Name to appear in payslip :HRA
6. Use of gratuity : No
7. Calculation Type : As computer Value
8. Calculation period : Month
9. Rounding method normal rounding
10. Limit : 1

Complete on specified formula

ensure that the compute on specific formula screen display as shown:

Create Pay Head Variable Pay

1. Name : Variable Pay
2. Pay head Type : earning for employee
3. Under : Employee cost
4. Appears in Pay slip : YEs
5. Name to appear in Pay slip : incentive
6. use for Gratuity : No
7. Calculation Type : as under defined value
   variable payhead in payroll tally
   
   
   Create Pay Head ESI Payable (Employee contribution)

1. Name : ESI Payable (Employee contribution)
2. Pay Head Type : Employee statutory deductions
3. Under Current liabilities
4. Appear in payslip : Yes
5. Name to appear in payslip : ESI
6. Calculation Type : as Computed Value
7. Rounding Method : Normal rounding
8. Limit :1
9. Compute: on current earning Total
10. Effective form : 1 april:16
11. From amount : skip field
12. Amount upto : 7500
13. slap type : percentage
14. value basis : 1.75%
15. From amount : Skip field
16. Amount upto : skip field

Create head ESI payable (employee contribution)

1. Name :ESI payable (employee contribution)
2. Pay head Type :Employees statutory deductions
3. Under Current Liabilities
4. Appears in Payslip : Yes
5. Name appear in payslip :ESI
6. Calculation Type : As computed Value
7. Rounding method : normal
8. Limit :1
9. Compute: on current earning total
10. Effective form : 1 april 2016
11. form amount : skip field
12. amount upto : 7500
13. slap type percentage
14. value basis : 1.75%
15. from amount : skip field
16. Amount upto : skip field
17. Slab form percentage
18. value basis : 0

The completed pay head creation screen display as shown

pay head employee contribution esi payable

Create Pay Head EPF payable Employee Contribution

1. Name : EPF payable (employee Contribution)
2. Pay head Type : Employee statutory Deductions
3. Under : Current Liabilities
4. Appears In payslip : yes
5. Name appear in pay slip : EPF
6. calculation type : as computed value
7. rounding method : normal
8. limit :1
9. computed : on specified formula
10. Effective from : 1 april 2006
11. skip : from amount and amount upto field
12. slap type : percentage
13. value basis 12%
14. the completed pay head creation screen display as shown

Create pay head ESI

1. Name : ESI employer contribution
2. Pay head Type : Employer statutory contribution
3. under : Employer contribution
4. Appears in pay slip :No
5. Calculation type : As Computed Value
6. Rounding Method : Normal Rounding
7. Limit :1
8. COmpute .On specific formula
9. Effective Form : 1 april 2016
10. From amount : skip field
11. Amount upto : 7500
12. Slap type : Percentage
13. Value basis : 4.75%
14. from Amoutn upto : skip
15. Slap type : percentage
16. Value basis : 0

Pay Head EPF (Employer FPF Contribution)

• Name: EPF (Employer FPF Contribution)
• Pay Head Type: Employer’s Statutory Contributions
• Under: Employer Contribution
• Appears in Payslip: No
• Calculation Type: As Computed Value
• Rounding Method: Normal Rounding
• Limit: 1
• Compute: On Specified Formula
• In the Compute: On Specified Formula screen, select Basic Pay as Pay Head
• Effective From: 1-Apr-2006
• From Amount: Skip Field
• Amount Up to: 6500
• Slab Type: Percentage
• Value Basis: 8.33%
• From Amount: Skip Field
• Amount Up to: Skip Field
• Slab Type: Value
• Value Basis: 541

• Press Y or Enter to accept.

Pay Head  EPF (Employer Contribution)

• Name: EPF (Employer Contribution)
• Pay Head Type: Employer’s Statutory Contributions
• Under: Employer Contribution
• Appears in Payslip: No
• Calculation Type: As Computed Value
• Rounding Method: Normal Rounding
• Limit: 1
• Computer
• : On Specified Formula

Ensure that the Compute : On Specified Formula screen displays as shown.

• Effective From: 1-Apr- 2006
• Amount Up to: Skip Field
• Slab Type: Percentage
• Value Basis: 100%

The completed Pay Head Creation screen displays as shown.

• Press Y or Enter to accept.

Pay Head Professional Tax

• Name: Professional Tax
• Pay Head Type: Deductions From Employees
• Under: Current Liabilities
• Appears in Payslip: Yes
• Name to appear in Payslip: PT
• Calculation Type: As Computed Value
• Rounding Method: Normal Rounding
• Limit: 1
• Compute: On Current Earnings Total
• Effective From : 1-Apr-2006

Ensure that the Slab Rates are as shown in the following table.

Effective From	From Amount	Amount Up to	Value basis
1-4-2006		3,000.00	0
	3,000.00	5,000.00	30
	5,000.00	8,000.00	60
	8,000.00	10,000.00	100
	10,000.00	15,000.00	150
	15,000.00		200

Note: Professional Tax is levied by individual State Governments and varies from

state to state. The slab rates provide here are only illustrative.

Ensure that the completed Pay Head  Creation screen displays as shown.

• Press Y or Enter to accept.

What are some important payroll terms to know

Basic Salary

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

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

ESI

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:

1. Attendance Register
2. Wages Register
3. Form-6 Register
4. Accident Register
5. Inspection Book
6. 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:

40,000*12/100=Rs 4,800

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