A salary slip or also referred to as a pay slip, is a document that is issued monthly by an employer to its employees. Explaining it in other words, it is a small piece of paper that is used to record the salaries of the employees. It comprises a detailed breakdown of employee salaries and deductions for a given period. The salary slip is either mailed to the employees or printed hard copies given to the employees.
A company is legally bound to issue the salary slip periodically as proof of salary payment to its employees and deduction. Through this salary slip, the employees can know how much they will receive each month, and also they can use this information to calculate the amount of taxes they need to pay and calculate their net income after taxes deductions. The salary slip is of utmost importance to the employer and employee as it provides accountability and transparency.
Important Information to be included in the salary slip
A salary slip comprises basic information like the company’s name, employee, designation, employee code, etc. Similarly, the salary components are divided into categories like income and deduction. Thus, the information included in the salary slip is as follows:
● Salary: This is the basic remuneration an employer gives its employees every month. It comprises all the types of payment received by an employee from their employer, such as fixed salary, overtime payment, commissions etc. The following detailed information is included in the salary statement earnings/income:
> Basic allowance- As the name suggests, this is the basic component of the salary, constituting 35-50% of the salary. The basic allowance is the first component in a salary slip.
> Dearness Allowance- This allowance is paid to the employee to minimize the impact of inflation. It comprises 30% to 40% of the basic salary pay. Dearness allowance is calculated on the cost of living, which varies from location to location. Dearness allowance is a taxable component on the earning side of the salary slip right after the basic pay component.
> House Rent Allowances (HRA)- As the name implies, HRA is paid to the employees for their house rent, which varies as per the location. It constitutes 40% to 50% of the basic pay.
> Conveyance and medical allowance- The conveyance allowance is paid to the employees to cover their travel costs from work to home and vice versa. Medical allowance is offered to the employees to cover their medical expenses. While the conveyance allowance is non-taxable, the medical allowance falls under taxation if it exceeds Rs 15,000 annually.
> Leave Travel Allowance- This is offered to the employees to cover the cost of traveling of the employee and their immediate family members. However, this offered for up to two journeys undertaken in four calendar years.
> Performance bonus and special allowance- Performance bonus is given to the employees as a mode of encouragement. In contrast, special allowances are given for meeting certain essential requirements. Both these allowances vary from company to company.
> Other Allowances- In certain cases, employees are paid allowances for different purposes that are clubbed under other allowances.
●Deductions: In the deduction section, all the deductions which the employer makes from the salaries paid to the employees, including the taxes, are included. Various deductions are included in this section, such as employees’ provident fund, professional tax, and tax deductible at source. The following components appear under the deduction section in the salary slip:
> Employees provident fund- This is a compulsory contribution by an employee towards a provident fund account held in his name. Generally, an employer pays 12% of the employee’s salary towards the EPF account.
> Tax deductible at source (TDS) – This is deducted by the income tax department on behalf of the employer. It is based on the tax slab as per the employee’s salary.
> Professional tax This amount is deducted from the taxable income and appears on the deduction side of a salary slip.
Salary slip format
● In Word- For creating salary slips in Word, you will either need to open an existing document or create a new one, where you need to enter all the information in the columns and save the file in pdf format.
● In Excel- one of the simplest ways to create a salary slip is by using Excel. For this purpose, you can use any worksheet available in Excel, where you need to enter all your required data in the given columns. The first column will include the employee’s name, and the rest will include the work details.
Useful information about salary slip
Total earnings- Total Deductions
Basic Wage + HRA+ Medical + Special Allowances +conveyance
A minimum of 12% of the employee’s salary
The current employee’s contribution of 0.75% of their salary
4.81% of the basic pay of the employee is deducted as gratuity
PF contributions + Gross Wage + Other benefits offered by an employer
A salary slip is a monthly document comprising a detailed analysis of an employee’s monthly salary breakdown. The salary slip consists of all the essential information related to the employee, such as the company’s name, employee code, designation, etc. A salary slip consists of two major parts: salary and deductions.
The salary part comprises basic pay, dearness allowance, HRA, TDS and information about other allowances. At the same time, the deduction consists of information about all the deductions made from the employee’s salary, such as EPF and taxes. A salary slip can be prepared by using an Excel worksheet or Word file to be mailed to the employee or given hard copies.