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If the end of the month leaves most of us dreadful, the beginning of the new month brings about a pleasant joy as our hard-earned money gets credited to our account. (Oh, the sweet sound of that morning SMS.) And, salary slip is a written or printed document containing the details of your salary.

Salary slips are just as valuable as any other written proof is – investment documents or purchase invoices. However, the importance of a salary slip is often overlooked, and the need to understand how to read and create a salary slip is ignored. In this article, we will be covering the following topics.

• • What is a salary slip?

• • Why are salary slips important?

• • What are the components of a salary slip?
  • Download the sample salary slip template.

What Is A Salary Slip or Pay Slip?

A salary slip can be defined as a document issued by an employer to its employees, containing the detailed breakdown of an employee’s earnings and deductions for a given month. This document can either be printed out and given to the employees or mailed to them. As an employer, you are legally bound to issue salary slips to your employees as proof of salaries paid and necessary deductions made.

Why Are Salary Slips Important?

Salary slips are important for your employees for a variety of reasons. And, it is your responsibility to ensure salary slips are generated and sent to employees every month. Here are 4 major reasons salary slips are important.

1. 1. The salary slip contains the break-up of your employee’s salary which can help them understand their take-home salary, taxes paid to the government and forced savings such as PF and ESI.

1. 1. Your employees will also need their salary slips if they want to avail of a credit card or financial loan. The salary slips help banks and financial institutions assess your employee’s creditworthiness and repayment capability.

1. 1. While you wouldn’t want your employees to leave, the harsh reality is that they eventually will. Providing your employees with a salary slip can help them better negotiate salary with prospective employers.

1. Salary slips also play a critical role in your employee’s background verification when changing jobs or applying for higher studies. Admission cells and recruiters require salary slips to validate the claims made by your employees.
   

What Are The Components Of A Salary Slip?

Any salary slip has two major components: earnings/incomes and deductions.

Earnings/Incomes

The earnings or incomes record the salary being earned and any other allowances, bonuses or gains that form an employee’s income. A few major components of income or earnings are:

• • Basic Salary; forms the most essential component, making up 35-40% of your entire salary. And, it is the basic salary that is used to calculate DA, PF & ESI contributions.

• • Dearness Allowance (DA); was introduced by the government to help employees reduce the impact of inflation and is often 5% of your employee’s basic salary.

• • House Rent Allowance (HRA); is a benefit given to employees residing in rented houses. The percentage of HRA is dependent on the city of an employee. For an employee in a metro city, HRA is 50% of the basic salary and 40% in case, the employee is in a non-metro city.

• • Conveyance Allowance (CA); to cover your employee’s travel expenses from home to work and back.

• • Leave Travel Allowance (LTA); allows your employees to reimburse the amount they spend on travel during vacation. However, it only covers the travel expenses within the country.

• • Medical Allowance (MA); is the reimbursement of medical expenses an employee had to bear during the term of employment.

• • Performance Bonus and Special Allowance; is primarily the final component that is added to the salary structure after all other components have been exhausted.

• Other Allowance; covers reimbursement of other miscellaneous costs that the employee had to bear during the term of the employment like the phone bill.
  

Deductions

Deduction components are those components that are mandatorily deducted from an employee’s salary towards taxes – TDS and PT – and forced savings – PF and ESI. The major components appearing under deductions are:

• • Provident Fund (PF); is calculated at 12% of the basic salary + DA and both, employee and employer must contribute 6% towards PF. PF applies to all organizations with 20+ employees and is a mandatory deduction for employees whose basic + DA + bonus or special allowances are less than INR 15,000.
    
    

• • Employee State Insurance (ESI); contributions are made by the employee – 1.75% of gross salary – and employer – 4.75% of gross salary. ESI is mandatory for all organizations with 20+ employees and is a mandatory deduction for employees whose gross salary is less than INR 21,000.
    
    

• • Professional Tax (PT); is a state tax that salaried employees need to pay and varies from one state to another.

• Tax Deduction at Source (TDS); is the tax deduction by the employer on behalf of the Income Tax Department from the employee’s salary based on the tax slab of the employee.

Download Sample Salary Slip Template  

Just click on the button below to download the salary slip template for your organization. In the template just add your organization’s details, employee details, and a few other details, and all other calculations will be taken care of.

However, there is a simpler way for you to generate your employee payslip, by using payroll software. Payroll software can be of tremendous value to your organization by reducing the time required to process monthly payroll and automatically generating employee payslips.

Moreover, payroll software such as Kredily itself is free of cost for organizations across sectors and can drastically reduce the burden on your payroll team.