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Saral PayPack - Glossary

1. Company

Company in business perspective is an institution / organization created by an individual/group of people to conduct business. As per the companies act, 1956, a company means an institution formed and registered under The Companies Act, 1956. Since it is an association of persons constituted to perform business, it must be registered under the above specified act with a distinct name. A company is a separate legal entity and its constituents are mainly its members & directors.

The members are said to be the owners of a company but it has to be managed necessarily by a human agency. Managing a company is done by a group of people called Board of directors which comprises of Directors. Members can elect representatives to act as Directors in a Board of Directors.

Registrar of Companies (ROC):
Registrar of Companies (ROC) has been appointed under The Companies Act, to register the floated companies in the respective states and union territories. ROC also ensures that such companies comply with statutory requirements under the Act. The ROC deals with the incorporation of companies, change of name of companies, change of financial year, conversion of companies from public to private and vice versa, striking off the names of companies and default action against companies.

2. Branches of a Company
In relation to a company, Branch means, an establishment described as a branch by the company and carries the same activity (business) as carried by the Head office or registered office of the company.
3. Employee

An employee is a person hired to perform a job. Employee in the payroll perspective is said to be a person who is hired to perform certain job and on accomplishing the job receives remuneration from the employer.

As per the Employees Provident Fund & Miscellaneous Provisions Act, 1952 “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer, and includes any person.

4. Payroll
Payroll is a record of all the payments made towards salary / wage / remuneration of each and every employee in an organization. Regardless of the number of employees, an employer should maintain the details pertaining to all the payments made towards the business. Managing a record of salaries, wages, deductions, bonus made to employees is called as Payroll.
5. Payroll Processing
Processing a payroll is a Herculean task in present day scenario. HR activities include selecting the candidates, getting them interviewed, fixing the scale of salary, recruitment, processing salary, training, appraisal etc. Amongst all the tasks mentioned above, payroll processing of salary needs more supervision as it has to be done in time coupled with accurateness. While processing the salary of employees, many factors have to be considered like, employee’s present days, leaves, standing instructions (if any) etc. Also, payroll processing must be done keeping in view of present day’s statutory, MIS requirements etc., and the person who is taking care of payroll processing must ensure the statutory compliance. Statutory compliance means calculating the statutory deductions like PF, ESI, PT, TDS etc., from the salary, filing the returns etc.
6. Payroll Software

Payroll software means an application used to run the payroll processing. In simple words, payroll software automates the processing of payroll by reducing the paper work etc., for HR personnel. Now a days, everything is getting computerized and so is the payroll processing. By using payroll automation software, user can have the following benefits:

  1. Saves time.
  2. Reduces paper work.
  3. Faster processing of details and pay cheques can be disbursed in time.
  4. Accurateness.

Going a step ahead, software companies are offering people with customized software which meets exclusive needs & demands of the customer.

7. Salary Month
Usually, every month salary calculation starts in the last week of a month and salary is paid at the first week of succeeding month. Salary month is the month for which salary is being calculated and Pay month is the month in which payment is done.
8. Provident Fund
Provident Fund is a retirement benefit scheme, where the benefits are paid in lumpsum after retirement. It is mandatory for all organizations employing more than 19 employees to register under the scheme. Under this scheme, a stipulated amount (12%) is deducted from the employee's salary and contributed towards the fund. Also, the same % of amount has to be contributed by employer. The accumulated amount with interest is returned to Employee at the time of retirement.
9. Employee State Insurance
An act to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto.
It is an integrated social insurance scheme introduced for the sake of industrial workers in certain contingencies such as sickness, maternity, temporary or permanent physical disablement and death due to employment injury which results in loss of wages or earning capacity.
According to this act, full medical care is guaranteed to the workers and their dependent family members. All non seasonal factories using power and employing 10 or more persons and non-power using factories employing 20 or more persons are coverable under the ESI Act.
10. Profession Tax
Profession tax is a state specific tax. Every state will have a specific slab of rates. PT is collected on profession, trades, and callings or holds any appointment public or private or is employed in any manner in the state for the benefit of the state. Every employee has to pay profession tax based on his earnings. Employer deducts the tax from the salary and remits to state government account every month in the specified form.
11. Rates of PF
In respect to the establishments employing 20 or more persons, 12 % of Basic + DA up to a maximum of Rs. 6,500/- pm has to be contributed to the Fund. However, the rate of contribution is 10% under some exceptional cases. Apart from this, Voluntary contributions are also acceptable at the joint request of both employer & employee.

Employer Contribution for Provident Fund:

Both employer and employee has to contribute 12% of Basic + DA of employee’s salary up to a maximum of Rs. 6,500/-.

The total contribution (12%) made by employer is bifurcated among Pension fund and Provident fund.

The rates of PF are as follows:

Employee contribution Rate - 12 %
Cutoff amount - Rs. 6,500/- pm
Employer contribution
Towards Pension Fund - 8.33 %
Towards Provident Fund - 3.67 %
Total Employer Contribution Rate - 12 %

Employer is supposed to pay the administration, handling charges etc. at the rates specified below:

Acc No. 02     1.10 % of Pay towards PF Administrative charges.
Acc No. 21     0.50 % of Pensionable salary for EDLI Contribution.
Acc No. 22     0.01 % of Pensionable salary for EDLI Administrative charges.

12. Rates of ESI

All employees in such factories and establishments getting wage less than or up to Rs.10,000/-Pm are coverable under the Act.

Employee share                 1.75 % of wages.
Employer share                  4.75 % of wages.
Employees in receipt of a daily average wage up to Rs.50/- are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.

13. Profession Tax Calculation

Profession tax is a state specific tax. Every state will have a specific slab of rates. Depending on the slab proposed by the Government, employer has to deduct the PT from employee’s salary and remit the amount to Government. For example, the PT slab of Karnataka is as follows:


Max. Value
14. Payroll Reminders

A reminder in general perspective is a message that helps to remember something. Payroll reminder is a reminder which helps in reminding the tasks pertaining to payroll. While processing a large payroll, a HR may not be able to remember all the tasks on own. In such case, HR can identify the tasks which need to be done periodically and set up a reminder for those tasks.

Payroll softwares provide an option to set reminders for various tasks such as to send pay slips to employees on specific dates or to remind the employee about the due amount towards a loan / advance etc., or to send a note to the employees on special dates etc.

15. Branch Salary Processing

Many companies will have branches and it depends on the company policy on where the salary has to be processed. Although a company may have unique payroll policy, statutory requirements may change. For example, in one branches there might be employees covered under and in some other branch, the case may not be the same. Coming to Profession Tax, it is a state specific tax and varies from state to state. If the company has multiple branches in other states then PT calculation varies to a great extent.

Despite having multiple branches, many firms choose to have central salary processing. This is mainly because; one will have control over transfer of information. The other reason is statutory requirement, as the Provident Fund report for whole company is expected as one report. Since it is very difficult to manage salaries of very big organizations centrally, salaries can be processed branch wise.

16. Salary Heads
  Salary of an employee is constituted by salary heads. The salary heads can be broadly categorized in to two types. One is earning heads and the other is deduction heads. Basic, DA, HRA, Conveyance, Allowance etc., form the earning heads. Deductions like PF, ESI, PT & TDS, EMI for a loan etc., form the deduction heads.
17. Salary Structures

In a company, all the employees are grouped and segregated in to different categories. The salary of employees in different groups varies from one to another. There may be 4 earning and 4 deduction heads for one category. And for another category, there may be 6 earning and 5 deduction heads.

The earning & deduction heads comprises of salary structure. For each group or category, there may be a different salary structure.

18. Salary Rate

Salary rate is a fixed rate defined for paying the salary to employees. It is a fixed amount based on which the earned salary is derived.

Consider an example where the employee’s salary is Rs. 5,000/-. If the employee has 2 days of LOP, the salary for 2 days has to be reduced in the total salary. 2 days salary would come up to Rs. 334/-.

5,000/30 days = 167
167 * 2 days (LOP) = 334
5,000 – 334 = 4,666
Here Rs. 5,000/- is the salary rate and Rs. 4,666/- is the salary earned.

19. Attendance Calculation
Attendance in general perspective means, the act of being present. While processing the payroll of an employee, no. of days attended by employee is calculated. Based on the no. of days attended, the salary of employee can be derived.
20. Types of Attendance

Generally, employee’s attendance can be of 2 types.

  1. Daily Attendance: This type of attendance is for the employees who are working on Daily basis.
  2. Hourly Attendance: This type of attendance can be for employees who are working on hourly basis.
21. HR Details of an Employee

Employees are the most valuable assets of an organization. Human Resource Management is a strategic approach to the management of employees. As a part of HR Management, a HR Personnel is supposed to record and keep update the details of employee from time to time. HR Details of an employee has to be handled in two ways.

At the time of recruiting an employee HR must ensure the details like personal, academic qualification, previous experience, family, extra curricular activities details etc. pertaining to the employee.

After joining, a HR personnel must take care of recording the details such as changes in designation, performance appraisal, transfer/onsite details, training attended, compensation given, disciplinary actions taken etc. of each employee.

22. Company Holidays
Considering the statutory requirement, there are certain holidays which are to be given for employees. However, most of the companies usually would volunteer to give a holiday on Foundation day or Founder’s day. While some companies declare it as a holiday and some companies make it as a non working day by conducting the celebrations like, cultural activities and prize distributions etc. Again, it all depends on Company’s policy.
23. Weekly Holidays
Weekly holiday is the weekly off provided for employees. Organizations usually do consider Sunday is a weekly holiday. For some corporate organizations, MNCs etc., who follow 5 days week method, Saturday & Sunday are considered as weekly off. For some companies who hire employees on shift basis, rotating weekly holidays are provided.
24. Leaves and Types of Leaves

Leave is the period of time which an employee is absent from work or duty. Organizations do provide its employees with some leaves, using which employees can take off. There different types of leaves given by employers to its employees.

  1. Earned Leave (EL)
  2. Casual Leave (CL)
  3. Sick Leave (SL)
  4. Maternity Leave (ML)
  5. Paternity Leave
  6. Personal Leave of Absence
  7. Bereavement Leave
  8. Paid Holidays (Public Holidays)
  9. Weekly Holidays
25. Leave Management
In payroll processing, employee’s leaves play a major role, as the salary calculation is based on employees present days. While managing the leave details of employees HR personnel has to take care of recording the opening balance, no. leaves allotted, availed, lapsed, closing balance etc.
26. Allotment of Leaves
Companies give leaves to employees, most of them are defined statutorily. Other leaves are given considering employee’s welfare. Most of the times, some leaves are given after considering the union request or demand. There are various practices for allotment of eligible leaves. Some organizations allot leaves before the year begins and some allot before the month start. Some organizations follow different types of allotment rule for different types of leaves.
27. Leave Register
  Leave Register is a register which holds the leave details of employees in a company.
28. Overtime
Overtime can be defined as working beyond the normal working hours. It is the work done in addition to the regular working hours (usually 8 hrs or as defined by company rules) by an employee. For working overtime, in return, employee will get compensation by way of cash or compensatory off.
29. Salary Advance
Salary advance means to pay the amount (salary) before it is due. In some organizations, employees are provided with this facility of advance for festivals etc., Salary Advance is given under different names, such as, Festival Advance, Vehicle loan advance etc. The amount paid as advance is recovered from employee’s salary.
30. Payroll Loan
Loan is temporary aid of finance provided to the employee that must be repaid in certain time along with interest. Organizations with a tie up with other financial institutions can make arrangement for loans to its employees. For which, employee has to give a standing instruction to repay the loan amount with interest from salary every month. Loans can be given for purchasing a house, car etc.
31. Insurance

Insurance is an agreement / contract made between two parties in which one party agrees to compensate another party for any contingent loss or damage occurred. Insurer is a company selling an insurance policy. And Insured is the person or entity buying the insurance.

Insured person has to pay some amount of premium for which in turn the Insurer will pay the loss amount in case of any damage or loss occurred (if any in future).

32. Group Insurance
Group insurance is an insurance policy offered for a group of people (such as Employees of a company) at a reduced rate. The premium amount to be paid can be cut from employee’s salary and paid to the insurance company.
33. Salary Saving Scheme (SSS)
The Salary Saving Scheme popularly known as SSS, provides an easy and convenient way to save some amount every month on a regular basis under a scheme. Employees can make arrangement with their employer to pay the premium amount every month by deducting from salary.
34. Salary Increment
Salary Increment is the process of increasing salary of an employee after certain period of work in a company. The increment process & percentage differs from one organization to the other.
35. Employee Bonus
Bonus is the amount given or paid in addition to what is usually expected or due. The objective of this act is to provide for the payment of bonus (linked with profit or productivity) to the persons employed in certain establishments. Any establishment employing more than 20 employees on any day during an accounting year should pay the bonus to its employees.
36. Salary Exgratia
Ex-gratia payment is more often used in a legal context. It is paid voluntarily, out of kindness or grace. Exgratia payment is a payment made by giver with out any legal obligation. For the employees in service industries like Hospitals, social work organizations etc., which work for "No profit No loss", employees are provided with Exgratia. For the payment of ex-gratia, there is no ceiling and also the % may get varied from year to year and is purely at the discretion of the management.
37. Monthly Salary Calculation
Salary is a form of payment made at regular intervals (monthly / daily / weekly) from an employer to their employees. Salary is the compensation paid to an employee for the work done. Salary calculation is a process of arriving at an amount as “Salary” for an employee after considering the attendance, salary rate etc. by the employer.
38. ESI Applicability change

ESI applicability change is needed when the employee’s salary crosses the eligibility limit of ESI.

For example, an employee has joined the company in the month of April with a salary of Rs.7,000/- Pm. As per the rules of ESI, an employee who is getting salary less than Rs.10,000/- are eligible for ESI. So, the employee is covered under ESI. If the employee’s salary got raised to Rs.11,000/- in the month of August. In such case, the ESI applicability must be changed.

For ESI, April to September is considered as First half and October to March is considered as Second Half. Although, employee’s salary crosses the eligibility amount in the mid of the year, ESI contribution must be continued till the end of that particular half.

39. Supplementary Salary
Supplementary salary is the amount paid for the employees as an adjustment or arrears other than regular salary. It is not a regular salary but is given as an adjustment of salary. Usually, supplementary salary comes in to picture, when an employee gets some rise in the salary and the increment amount is paid in the latter months.
40. Tax Deduction at Source
TDS means Tax Deducted at Source. In payroll perspective, deducting the employee’s income tax to be paid to the government from salary is TDS. The employer has to deduct and remit the full tax arising out of employee’s salary. For this, employer has to make the estimation at the beginning of the financial year as to what would be the probable income and income tax for each employee based on the earnings, deductions and investments proposed to be made by such employees. This total tax is to be deducted from their salaries over the 12 months between April and March.
41. TDS Declaration
Declaration form holds the investment details of an employee for the selected financial year. It contains the details of 80C, 80G, 80D, House property details etc.
42. Income Tax Computation
Computation of tax to be paid by an assessee is called Income tax computation. Tax computation is done based on the salary earnings, deductions, perquisites etc.
43. E-TDS returns
Payment of Tax Deducted at Source (TDS) through online is called as e-TDS returns. This E-TDS returns has to be done by the employer to the government. An employer is liable to cut the TDS from employees and pay to the government.
44. Pay Slip
A slip of paper included while paying the salary is called as Pay slip. It records the employee’s earnings, deductions, tax etc. Or in simpler words, it is a basic reference document for information and transparency on the monthly financials between employee and employer.
45. Salary Sheet
  Salary sheet is a record of salary details of all employees in an organization.
46. Bank Statement
Bank statement is a summary of transactions that occurred over a period of time pertaining to an account.
47. Reports on Attendance
Major inputs required for payroll processing is from attendance details. Referring to Attendance Register, one can consolidate the attendance report. But in Labor incentive providing organizations, generating attendance report is difficult. Each extra hour employee works has to be considered as over time. Organizations with multiple doors have change of consolidating entices at various doors in to one attendance report. When organizations practice shift system, consolidating the attendance report is difficult. Similarly, it is equally difficult when the company practices roster system for shift management. A separate team is required to manage and summarize the attendance details. Now a day, there are hardware instruments like Biometrics instrument / proximity readers which can manage in/out details and further there are softwares are available which consolidates them in to one attendance report.
48. PF Forms
PF forms are the forms for claiming the benefits under the Employee’s Provident Fund Scheme.
Form 13 (revised) For transferring the PF account of a member from one establishment to another establishment covered under the act.
Form 14 For financing a life insurance policy out of PF account.
Form 19 For withdrawing Provident Fund dues on leaving service / retirement / termination. It is to be submitted by a member.
Form 20 To claim the deceased member’s PF accumulation. It is to be submitted by the nominee in the event of death of member.
Form 31 For the use of PF members to avail advances / withdrawals as provided in the scheme.
49. ESI Forms

ESI Forms for employer include, Registration form, Return of contributions form, Register of Employees, Accident Register etc.

ESI forms for employee includes, Declaration form, Claim forms, Life Certificate, Dependant benefits declaration etc.

ESI Forms for Employer

Form 01 Employers' Registration Form
Form - 01A Annual information of factory/estt submission form
Form 3 Return of Declaration forms
Form 5 Return of contributions
Form 5a Statement of advance payment of contributions
Form 6 Register of employees
Form 10 Abstention verification
Form 11 Accident Register

ESI Forms for Employee

Form 1 Declaration Form
Form 2 Addition / Deletion in Family declaration form
Form 9 Claim form for sickness /TDB/ Maternity
Form 14 Claim form for Permanent disablement benefit (PDB)
Form 15 Claim form for Permanent disablement benefit (PDB)
Form 16 Claim form for periodical payments of DB
Form 19 Claim for Maternity benefit
Form 20 Claim form for Maternity benefit after death of child
Form 22 Claim form for Funeral Expenses
Form 23 Life certificate
Form 24 Dependant benefits declaration
50. Monthly PF and ESI Reports
  The employer has to submit the returns of PF & ESI every month to the respective boards.

Monthly PF Reports

12A Consolidated Statement of dues and remittance by 25th of the following month to which the dues relate.
5 Return of Employees qualifying for membership to the Employees' Provident Fund for the first time during every month. It has to be submitted within 15 Days of the following month.
10 Return of members leaving service during the month.

Monthly ESI Reports

  1. Monthly ESI
  2. Challan
51. Profession Tax [PT] Forms

Monthly Return has to be submitted in Form No. 5A along with the remittance. The PT contributions amount has to be remitted to the Professional Tax Officer (Respective PTO Circle) before the 20th of every month.

Annual Return in Form No. 5 has to be submitted to the Professional Tax officer (Respective PTO Circle) with in 60 days of the expiry of the year (i.e., before 31st May of every year).

52. Annual Census
Annual census is the act of recording information pertaining to each and every individual in a group of population for a selected period. This is most widely used in the context of recording the national population in a year.
53. MLWF
MLWF is the short form of Maharashtra Labor Welfare Fund. MLWF is one of the Statutory Reports which is applicable for Maharashtra State. It is to be submitted to Maharashtra Labor Welfare Board. The employees are classified into four categories, namely Manager, Supervisor, Skilled and Unskilled. Based on the category and the wages of the employee, contributions from employee and employer are kept aside in a welfare fund.
54. Form T
Form T is a statutory report which shows the wage details of the employees in a company. In other words, it is the salary sheet, which contains the Attendance, Earnings and Deductions details of the employees. To keep track of the wages given to the employees, this is maintained by the employer.
55. Form 16
Form 16 is a certificate issued by the employer to their employees under section 203 of Income Tax Act for Tax deducted at Source (TDS) from the income chargeable under the head “Salaries”. This is issued yearly and original form 16 is required to file individual Tax Returns.
56. Statement of Total Income
Statement of Total Income is a report which shows the details of income, deductions, total income, tax on total income, surcharge details, Tax payable etc., pertaining to an employee. This statement of income is issued by employer to their employees for reference. It bears the details pertaining to Income from salary, VI A deductions, Gross total income, Surcharge, Tax payable etc.
57. Salary Certificate
Salary certificate shows the salary details of an employee. It is issued by an employer to employee. In most of the cases, a salary sheet is issued to facilitate the employees in getting loan from banks or other financial institutions.
58. Salary Arrears

Arrears are paid to compensate the salaries left, which should have been given earlier. Arrears come in to picture, when the employees gets salary hike in one month but receives the amount in some other month. In such case, the company is due to its employees and the due amount which is paid in later date is called as arrears.

Though the management decides to give a rise in salary, it may take some time to process that and in such case, the amount due will be paid as arrears on a later date. The arrears feature will be enabled in the Salary transactions menu, when Arrears option is checked in options settings screen.

59. Employee ID card
Employee ID card is a proof that states the bearer is an employee of certain company. Employee ID card contains the details of Employee name, DOB, Employer Logo & Contact details etc. It can be used to provide as a photo identity proof for Mobile connections or in opening bank accounts etc.
60. Interest Calculation

Many companies have practice of giving Salary advance to its employees and some organizations even offer loans to employees on rules that they have defined. Considering the loan / advance amount given, interest is calculated on these amounts given to employees. Various methods have been adopted in the industry for calculating the interest.

Some levy Simple interest, some levy compound interest. Some organizations collect the interest during the final recovery and some have very clear definition. Loan / Advance will be divided into equal monthly installment at the time of loan sanction process it self. It is important to note that, if the rate of interest recovery on bigger amounts is less then State Bank of India’s rate of interest, then the difference is considered as the perquisite to employee and Income tax is payable on such amounts.

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