Salary Slip or Payslip – Definition, Importance, Components and Format

What is a Salary Slip or Pay Slip?

As discussed above, an employee salary slip is a legal document employers issue for their employees every month. It consists of the salary breakup of the employee including gross salary, in-hand pay, deductions, and more.

1. Who is Entitled to a Salary Slip:

Salary slips can only be availed by salaried employees. You can get your salary slip from your employer every month. In the case of small firms, the salary slip may not be offered every month. In that case, you can seek a salary certificate. Unlike earlier, these days, most organizations provide digital copies of pay slips, which are easy to procure and store for your future purposes.

2. What Does a Payroll Number Mean:

A payroll number is a unique code printed on a salary slip. The payroll number helps establishments identify employees at the time paying salaries. Moreover, this code remains even when the employee leaves the company. Generally, payroll numbers are used by the administrative branch of an organization and have nothing to do with the employee.

Importance of Salary Slip

Salary slips are very important and serve as proof of your employment. It is vital to preserve your salary slips as they may be required at the time of negotiating your salary for a new job. It also helps in procuring loans, subsidies, planning income tax, and more. Hence, it is important to have an in-depth understanding of each component of your monthly pay slip. We will examine that in the next segment. Let’s first take a look at the importance of salary slips.

1. Serves as proof of employment:

Your salary slip is your legal proof of employment. It is asked in many instances, like applying for visas, new jobs, pursuing executive university programs, etc., as proof of your designation and last drawn salary. It is also used to check your background as it is a legally valid document.

2. Supports in planning income tax:

Employee salary slip has a monthly breakup and contains components like basic pay, HRA, medical, TA, DA, etc. All these components have different significance in terms of tax. Hence, you must know these components well to save tax.

3. Helps in getting loans:

When planning to avail of a loan, your financier might ask for your employee pay slip for the last couple of months to determine if you meet their requirement to offer a loan. This is also required when applying for credit cards, etc.

4. For new employment opportunities:

A payment slip is required while seeking a new job, as you have to submit your salary slips to negotiate your salary at the new organization.

5. Salary slips offer access to welfare schemes:

When it comes to government-sponsored welfare schemes and subsidies, you may show your salary pay slip as proof of your income to avail of such schemes.

Salary Slip Format

The payment slip format of different employers in India might differ as per their organizational requirements. All employers may not have the standard pay slip format. But almost all salary slips do contain certain mandatory information. As per the company type and their compliance agreement, most salary slips have the following information:

• Month and year of the Salary Slip
• Name of your organization, company logo, and address
• Employee name, code, designation, department
• PAN, Aadhaar, and bank details of employee
• UAN and EPF Account Numbers
• Total days at work
• Total leave balance
• Income and total deduction classification
• Gross pay and net pay written in words and numbers

Components of a Salary Slip

Below are the components of a salary slip that are included in the Income (Earnings) of your salary statement:

1. Basic Salary:

This amount consists of 40-50% of your total salary and is essential for determining other components.

2. Dearness Allowance (DA):

It is mostly a part of the salaries of employees working for the government or certain private companies. It is estimated as a percentage of your basic salary.

3. House Rent Allowance (HRA):

This amount is paid as per the location of the job and can be 40 – 50% of your basic salary.

4. Conveyance Allowance:

This includes your commute expenses, especially during official duties within and outside your city. It is exempted to a certain limit. Beyond that, it is taxable.

5. Medical Allowance:

This allowance comes under section 80D and is fully taxable.

6. Special Allowance:

This is the part of the salary offered by some companies and is fully taxable.

7. Books & Periodicals Allowance:

This allowance comes under the non-taxable allowance under the IT Act of India.

8. Telephone Allowance:

All expenses on telephone and internet incurred by the employee to carry out official duties (on behalf of the employer) are non-taxable.

Mentioned below are the components that are a part of deductions of your salary statement:

1. Professional tax:

This tax is levied by the state in the case of some professions and can be seen in your salary slip as deductions.

2. Employee State Insurance (ESI):

Employee State Insurance is a statutory deduction for social security that provides medical benefits to employees and their dependents. ESI is computed based on the total gross salary disbursed to employees. According to the ESI Act, employers contribute 3.25% of the wages, while employees contribute 0.75%.

3. Employee Provident Fund (EPF):

This is the amount you contribute towards your EPF/NSP funds.

How do salary slips help in estimating Tax Savings?

Various components of a salary slip can be classified under three categories, and each category is taxed differently. The three types of allowances offered to an employee as per their tax treatments are;

• Fully-taxable allowances
• Partially Exempt allowances
• Fully Exempt allowances

An allowance that is not fully or partially exempted is taxed completely. This may include variable allowance, personal allowance, and other miscellaneous grants. Similarly, the partially exempted allowance includes Conveyance, HRA, entertainment, or any other special allowance.

Fully-taxable allowance	Includes Basic Salary, Medical, DA, Special Allowance, and Leave salary during employment
Partially taxable allowance	HRA, Conveyance/TA
Fully exempt allowance	Contribution of the employer towards your PF/NPS, and employees’ (your) contribution to PF/NPS, Books & Periodicals Allowance, Telephone Allowance

 

Difference between CTC (cost to company) and in-hand /Gross salary

1. Cost to Company (CTC):

This is the amount of salary that the employer spends for the employee’s benefits directly and may include the below components:

Group health insurance premium/life insurance premium of the employee and family
Gratuity amount plus leave encashment plans
EPF/NPS contribution of the employer
The above amounts are a part of your salary but are not paid directly to the employee.

2. Gross Salary and In-hand Salary:

Gross salary is the part of the salary that is payable to the employee as salary. This includes the cash allowances, your EPF contribution, etc. In-hand or net salary is the final amount that reaches you after the deductions, which is the amount that gets reflected in your bank account.