What is salary and why salary It is a matter of fact that one of the main intentions of working is motivation.

I n t o d a y s w o r l d t h e r e a r e m a n y f a c t o r s t h a t a n e m p l o y e e w i l l b e looking into for the work they do. Out of which three are identified as basic requirement that todays employee would be looking into. Knowledge Status Monitory benefits A monitory benefit, Salary is one of the ways of motivati ng t h e employee. This is generally paid once in a month depending on the organizational structure. There are also cases where in salary is paid weekly/bimonthly and also on daily wages There are various laws affecting salary payment to the employees, the labour welfare act, Payment of Salaries and Wages act, the Minimum Wages act etc. Business policy says, Give and take, Give to take. Any employer for the work taken from the employee has to pay some money in return to the employee. There are some rules affecting the payment of salary as told. If we look into few of them, Employee is to be given few components of salary that are Basic, DA, and HRA which comes under the minimum wages act. There are some rules affecting the same and to certain class of people the above components may vary. Classes are basically divided under the minimum wages act as skilled workers/Unskilled Workers and Semi Skilled Workers Minimum wages rate may vary from location to location. E.g. Minimumwages to be paid in a metro city is something more than that of a rural area.

Factors influencing Payroll

Salary calculation methods and structures Calculation methods: Calculation methods can be monthly/Fortnightly/weekly anddaily. Generally now a days people follow payments once a month toreduce statutory compliance. Whereas a few class of employees arepaid either weekly or daily wages. Structures: Salary calculation varies from company to company. Few c o m p a n i e s m a y o p t t o give a component that another company doesnt wish to give. E.g. A company may be giving a component called W ashing allowance w h e r e a s f e w c o m p a n i e s d o e s n t g i v e washing allowance at all. D e r i v i n g a t t h e s a l a r y i s a b i g p r o c e s s . A n example is given below Take a case of a company that gives the following components to its employees.

Basic DA HRA Special allowance Entertainment allowance Washing Allowance Magazine allowance KIT allowance, etc., All the above components can be based on a gross earning o r individual can be derived based on another component. E.g. DA can be 20% of Basic and HRA can be 40% of Basic and DA and t h e r e c a n a l s o b e a c a s e w h e r e i n a n a l l o w a n c e l i k e E n t e r t a i n m e n t allowance is given based on the total salary on a Slab basis. And so on. There are various methods of deriving at the figures. The components can be different for a class of people. For e.g. People in the administration may be getting an allowance that is not given to the production dept. employees and so on. Salary components can also be based on the physical presence of the employee e.g. A component like Ex Head quarters allowance/Petrol allowance is given to the employee only when he is present Above all these there can be deductions like quarters rent, canteen deduction etc. Attendance and Leave Attendance: It is the availability of an employee for the accomplishment of assignment or work given by the employer. Attendance details are maintained in various forms. From traditional h a n d w r i t t e n l e d g e r s t o p u n c h c a r d s y s t e m t o d r o p c a r d s y s t e m t o swipe card systems and biometrics readers. Different attendance monitoring systems of different companies gives different outputs. There are many companies giving these systems. Leave: It is an extension given by the employer to the employee for being available for employee for the accomplishment of assignment. A companys leave structure is dependent on the management decision. But in general there are three to four types of leave eligibility that a company will give to its employees. They are CL Casual Leave SL Sick Leave EL/PL Earned Leave/Paid Leave ML Maternity leave etc There are also some companies that give only one type of leave or a combination of the above said leaves. It varies from company to company as per the management decision. EL or the earned leave is generally encashable i.e., on accumulation of leave to certain extent then salary for the accumulated no. of leaves is encashed to the employee.

Generally the system of encashment goes as follows: 15 days EL is allotted to the employee every year. i.e., every 20day worked one earned leave is granted to the employee. This int u r n c a n b e a c c u m u l a t e d e v e r y y e a r a n d once it reaches 60accumulated leaves anything above 60 is e n c a s h e d t o t h e employee at Basic + DA. Companies that come under Factorys Act has to follow the following method of granting leave. 1. Minimum eligibility for Earned Leave is that he/she should have worked for 240 days. 2. Maternity leave is not to be considered for the eligibility criteria. W hen we speak of Leave we should not forget Holiday that can be b a s e d o n b r a n c h , b e i t a w e e k l y h o l i d a y o r a n a t i o n a l h o l i d a y o r a general holiday. Holiday can be based on the location of the branch also. Like people in Tamil Nadu enjoys three days Sankranthi where as people in Karnataka enjoys only one day for Sankranthi. But Factory act speaks only about the minimum no. of days festival holiday to be d e c l a r e d b u t a r e p a r t i c u l a r o f 5 m i n i m u m N a t i o n a l h o l i d a y s t o b e declared every year and 10 National + General holiday a year OT OT or overtime-extra payment is given to the employee when he works above 8 hours (depending on the companies working hours). This can be based on a fixed rate to each employee or can also be based on a rate derived from salary. Transfers/Increment T h e r e a r e m a n y c h a n c e s o f a n e m p l o y e e b e i n g t r a n s f e r r e d f r o m a dept. to another or from a branch to another for smooth flow of work. This may affect the salary calculation to a large extent. i.e., a person working in a Metro city like Mumbai may be getting a Metro Allowance o f R s . X X o r a b r a n c h l o c a t e d i n t h e H i l l T o p a r e a m a y g e t H i l l T o p Allowance etc. which was not a part of his salary when he was working i n a n o n - m e t r o c i t y o r a n o n H i l l S t a t i o n p l a c e . B u t when he is transferred to a metro or a hill station he is to b e p a i d f o r t h e allowance applicable to the location. As we were speaking in the earlier session about motivation, one of the m a j o r t h i n g s o n e h a s t o l o o k i n t o i s t h e i n c r e m e n t g i v e n t o t h e employee either at regular intervals or irregular intervals. Generally companies give increment once a year unlike software/BPO companies that hikes the salary every now and then.

Standing instructions
There can be various standing instructions given by the employee to the employer. It can be for a bank loan taken or an insurance payment o r a s a l a r y s a v i n g t o b e d o n e b y t h e e m p l o y e e . O r e v e n c o m p a n y management would have given advance to the employee.

Variable payments/deductions
There can be variable payment at any point of time, most of the software / BPO segments are working on Variable pay very much now a day to reduce the liability it has on the employee. Further more there can be many other components like a production incentive or a performance incentive that is paid once in a quarter or o n c e i n a y e a r based on the production or performance of the employee. T h e r e c a n a l s o b e s o m e v a r i a b l e d e d u c t i o n s l i k e t h e Tsunami / Gujarat Relief fund etc.

Statutory compliance E a r n i
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There are also some statutory compliance to be taken care of in salary processing of which few are Bonus and Gratuity

Bonus:
Bonus is a component to be given to the employee by t h e employer within 8 months of closing of book of accounts. A minimum of 8.33% of Basic + DA is to be paid to the employee as per the BonusAct.Bonus has its own rules that can be better explained with an example.Assuming Bonus Gross = Basic + DA When Bonus Gross < 2500 then Bonus = Bonus Gross * 8.33/100 W h e n B o n u s G r o s s i s b e t w e e n 2 5 0 0 a n d 1 0 0 0 0 t h e n B o n u s = 2500 * 8.33/100 When Bonus gross crosses 10000 then Bonus = 0In many cases the above is not considered but a flat amount is given.Though a flat amount is given to be on the safer side of non-liability

companies preferred to pay 8.33 % as per the bonus act and rest of the amount as Ex-gratia or an incentive. Again if an employee has not worke d for more than 30days in the company, the organization need not pay any bonus for the employee and if his Bonus Gross is < Rs. 100 then also Company need not pay Bonus for the employee.

Signature of the Employee is to be taken in C-Form and filed for i n s p e c t i o n b y f a c t o r y i n s p e c t o r i m m e d i a t e l y a f t e r t h e p a y m e n t o f bonus to the employees.

Gratuity:
Gratuity is a lump sum amount given to the employee that is generally1 5 d a y s s a l a r y f o r every year he has worked in the company with respect to the c u r r e n t s a l a r y o f t h e e m p l o y e e a t t h e t i m e o f h i s retirement or exit from the company if he has completed a minimum of 5 years of service in the company.

Deductions:PF Stands for Provident Fund

(Subject to Companys Registration under PF Dept.)Provident fund is a saving by the employee aided by the employer There are two components in Provident Fund 1. Employee Contribution 2. Employer Contribution 12% of PF Gross i.e., Basic + DA of the employee is deducted by the employer and is remitted along with a challan to the dept. every month with an equal contribution to every employee by the employer. Employer contribution goes to two different accounts i.e., Employee pension scheme and employee provident fund account. While whole c o n t r i b u t i o n o f t h e e m p l o y e e w i l l g o t o e m p l o y e e p r o v i d e n t f u n d account. Further this amount can be restricted to a PF Gross of 6500/-as per the wish of the employer and employee. Employer contribution that gets in to two different accounts is divided into 8.33% of PF Gross subject to a maximum of Rs. 6500/- PF Gross g o e s t o E m p l o y e e P e n s i o n s c h e m e a c c o u n t a n d r e s t o f t h e a m o u n t gets debited to Provident fund account. PF dept. is to be kept informed about any new employee joined to the organization in the form of Form 5 every month Similarly PF dept. is to be kept informed about any employee who hasleft the organization in the form of Form 10 every month. There is also a form called Form 12A that details the amount of total contribution against the above said accounts. There are two major forms to be submitted to the Dept. every year, which are Form 3A Form 6A Form 3A is the details of submission against individual employee and his PF contributions along with Employer contributions for the financialyear (March February) where as Form 6A is the summary of Form 3A.F o r m 3 A i s e x p e c t e d b y t h e d e p a r t m e n t i n D B F f o r m a t a s p e r t h e specification by the department.

Above all there are nominal administration charges to all the above accounts that are Account 02, Account 21 and Account 22 is borne bythe employer.

ESI Employee State Insurance

(Subject to Companys Registrationunder PF Dept.)E m p l o y e e s w h o s e s a l a r y d o e s n t cross 15000/- per month are to becovered under ESI that is similar to any o t h e r h e a l t h i n s u r a n c e . A n amount of 1.75% of the gross salary of the employee is to be paid tot h e E S I d e p a r t m e n t e v e r y m o n t h a s p r e m i u m i s p a i d t o a n y o t h e r health insurance. Employer contributes 4.75% of the employees grosssalary every month for the same. All employees who are drawing lessthan 15000/- will be covered under health insurance and ESI benefitscan be availed during the period. Unlike the Financial year of PF ESIhas two periods in a financial year the first one starting from April endsin September and the second half of the financial year st arts in Oct of every year and ends in March of the next calendar year. Employees also enjoy ESI benefits for his dependents in the family. There are two major Forms to be submitted by the employer every half year that are Form 6 and Form 7 which are details of the employeesand the insurance payments for the whole half year. Women workers also can enjoy maternity benefits during the period of pregnancy and delivery. ESI Dept. pays 90% of employees salary up toa max of 10000/- for about 3 months.

PT Profession Tax
Unlike other statutory bodies PT comes under the State Government aswe pay tax for our income we also pay tax for our profession. This taxis based on a slab on your gross salary. This being state government body different states have different slabs and calculation methodologyis different. In Andhra Pradesh the slabs are as followsAmount RangeFrom Amount Range To PT

Every year a Form is submitted by the employer to the PT Departmentin the form of Form 5 and every month details of the deductions areshown to the department in the form of Form 5A.

Ex-gratia
Similar to bonus but paid to employees who are not eligible for bonus.

Arrears
Increase in salary is increment and any salary amount in lieu o f increment or otherwise is arrears.

Leave encashment
Exchange of unused leaves to money is leave encashment.

Salary extrapolation
Approximation of future salary based on current salary. This is used fort a x e s t i m a t i o n ( T D S ) . A p p r o x i m a t i o n i s d o n e u s u a l l y f o r a f i n a n c i a l year. Reports related to salary processing: Attendance register (Muster roll) r e c o r d o f a t t e n d a n c e f o r a period for a set of employees. Pay slip record of salary for a month for a particular employee. Salary sheet record of salary for a month for a set of employees. Service register - r e c o r d o f s e r v i c e p r o c e e d i n g s o f a n e m p l o y e e including all details, date of joining, promotions, increments, bonuses,benefits, perks and more details. PF/ESI register - r e g i s t e r c o n t a i n i n g a l l n e c e s s a r y d e t a i l s o f a n employee registered under PF/ESI. ESI accident report (Form 16) - Records/details of any accidentsoccurred within the company premises during working hours. Leave register - r e g i s t e r o f l e a v e a l l o t m e n t , u s a g e a n d b a l a n c e o f every employee. Advance register - register of payment, receipt, recovery andbalance of advance of all employees.

Work is the deciding factor that affects the salary level. Most of the companies pay attention to the significance of a specific work. There are many methods for evaluating work, but how to use methods such as job description table to analyze and evaluate work should be in a scientific and effective way. The work factors that need to be analyzed are: 1. Skills and abilities: a) The demand of mental labor. b) The complexity level of the work. c) Individual necessary qualifications. d) Making decision skill. e) Management skill. f) Social knowledge necessary for the work. g) Harmonization skill. h) Ability to perform work details. i) The level of Craftsmanship. j) Creativity ability. k) Innate ability. l) Experience. 2 Responsibility to the following matters: a) Money. b) Loyalty. c) Decision making. d) Work management. e) Public relation. f) The quality of work performance. g) Operating assets. h) Information secret. i) Policy making. 3. Effort in working: a) Mental work requirement b) Physical work requirement. c) The pressure of work. d) The level of work detail required. 4. Working conditions: 1. Working environment. 2. Risks.

II/ Based on each employee. 1. Their working productivity in working to meet the rate of progress. 2. Experience. 3. Seniority. 4. Ability to get promotion. 5. Individual preferences. 6. Other factors III/ Company organizational environment: 1. The business policy, strategy of the company. 2. Company culture: for example: some companies emphasize on creativity, they are willing to offer a high salary for creativity work. 3. Company financial status. 4. Company organizational structure: companies with many intermediate department levels normally have many correlative levels of salary. IV/ Labor market: 1. Official laws on wage and salary, labor contract, payment time, wage payment delay, working insurance, and so on. 2. Peoples standard of living in the areas where the offices of the company are. 3. Peoples living and consuming customary 4. The average wage rate in the labor market of similar work.

Reasons for outsourcing

Most outsource payroll companies specialize in helping one of three groups of people: those those who who realize are the payroll to keep is up costing to date too with much to manage; legislation;

struggling

changing

those who have had issues with resourcing time for payroll management and are seeking more efficient solutions. The biggest difference between outsourcing in todays business environment versus outsourcing a decade or two decades ago is that it is seen as a less risky endeavor than it previously was. The fact that outsourcing has become more main-stream means that there is healthy competition amongst suppliers and this in turn results in more choices available for businesses. This competitive environment pushes service providers to provide enough value to retain their business. Typical competencies offered by outsourced payroll service companies would be processing

time sheets on a weekly or monthly basis; managing employee administrations such as tax allowances and leave; and financial company administration such as reporting on costings, returns and deductions. While outsourcing might not be viable for all companies there are some common reasons why companies decide to outsource administration functions such as payroll. Cost reduction is often cited as the main motivator for outsourcing as is saving time because the work is done professionally and requires fewer corrections or tweaks than internally managed payroll often does. Some business executives also see outsourcing their payroll as an easy way to implement new management systems while avoiding the resistance to change factor that is so common with internal departments. Having a mature, specialized partner to manage your payroll without bias is a great way to shed bad habit and to focus on service delivery internally. Sticking to what your company does best allows you to not only drive change internally but also to innovate in the long term. All this depends entirely on the outsourced payroll service that you choose. Starting off with a basic service level agreement as well as setting down some initial Key Performance Indicators. In order to do this effectively the company in question should understand its priorities and rank these criteria. Working on this together with the payroll company will initiate a frank and open negotiation process and should result in a better understanding from both the main company and the payroll company on what the service relationship will entail. Tracking these Key Performance Indicators will allow you to monitor initial improvements as well as to set some sort of expectation for outcomes for example: operations cost reduction, minimizing tax payments or improving employee timekeeping processes.