Payroll and its components

May 30, 2018

An inevitable aspect of HR, which often gets overlooked, or worse, tossed over is the payroll. Perhaps one of the most important details that fall under the job of an HR professional and/or their employee is the payroll, but unfortunately, there is a lot of blank gaps with respect to how the salary structures and what not should be drafted.

Payroll outsourcing in India is one of the HR processes and is being outsourced since 1997. Payroll outsourcing involves an external organization performing all the activities related to payroll management. When you plan to outsource your Payroll, it’s important to understand what payroll is and what the payroll components are.

Like all other aspects of every business, payroll calculations too vary from company to company. But it must be noted that they should be made from a specific time to time. The Payroll process as such consists of salary calculations towards the work done by the employee, be it in the order of productivity, deductions, or benefits.

Of course, there are external factors that influence and affect the concept of payroll calculations. These factors include but are not restricted to rules, laws and acts by the government.

As workers of the trade, we feel the need to form a guide or an understanding for other workers of the payroll System and Industry, for the components have not been discussed largely. Thus we have formed a few points regarding the payroll Process and on how to ideally structure a salary. In the course of this article, we shall observe the diverse components payroll.

Basic and DA:

This is a fully taxable component. The provident fund for the basic component is applicable. Employees’ State Insurance, which is a self-financing social security and health insurance scheme especially for Indian workers, is also deemed applicable under this component.


Since the coming of April 2018, medical taxes have been declared fully taxable. Although the provident fund is not applicable, the ESIC is. Medical component is not part of gratuity.


HRA, as in the House Rent Allowance Exemption is a possibility if the expenses on rent have been brought upon. The HRA is only taxable if the employee decides to live in a piece of property/ house which has been proved to be theirs. The stipend for this can be given, but rather than a fixed amount, it is based on the exact location and area of where the employee stays.

Children education stipend:

The stipend for children’s’ education falls to Rs. 100 per month per child for a maximum of 2 children.

Children Hostel Stipend:

This allowance falls within the limit of Rs. 300 monthly per child for up to 2 children.

Phone calls reimbursement:

This is not restricted to just the calls but also the data and messages. The limit for this particular component is the actual amount of money that has been spent as phone allowance, but on one phone and one landline.


The LTA, leave travel allowance, hosts an exemption obtainable for no more than two journeys which come from a line of 4 calendar years. This component of leave travel is compensated in order to meet the said travelling expenditure which would have been sustained by the employee/ individual and their family members, the list being limited to only the spouse, two children and dependent parents, brothers and sisters, while on some vacation in India. The amount of money that will be given to them is based upon where they travel to and the mode of transport they use.

Things to note:

The concept of PF (provident fund) applies to all companies that have an employee list of more than 20 individuals. Also, in such a company with more than 20 employees, if the gross salary is less than Rs. 21,000 per month, then the Employees’ State Insurance is immediately applicable.

Those were some of the important components with respect to payroll and Payroll system. If you feel any doubt arising, never hesitate to talk to your employer.

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