Payroll Components
Payroll components are the building blocks of every salary calculation. They define what makes up an employee's pay โ from base allowances like House Rent Allowance, to deductions like Provident Fund, to taxes like Income Tax. Each component has a type, a calculation method, and a default value.
You set up components once at the organization level. They are then assigned to individual employees through Salary Structures.
Component Typesโ
Every payroll component belongs to one of three types:
| Type | Purpose | Example |
|---|---|---|
| Allowance | Additions to the basic salary that increase gross pay | House Rent Allowance, Transport Allowance, Medical Allowance |
| Deduction | Amounts subtracted from gross pay | Provident Fund, Professional Tax, Loan Repayment |
| Tax | Tax amounts calculated on gross salary | Income Tax, Social Security Tax |
How They Fit Into the Salary Calculationโ
Basic Salary
+ Allowances
+ Overtime Pay (if applicable)
---------------------
= Gross Salary
- Deductions
- Taxes
---------------------
= Net Salary (take-home pay)
Allowances are added to the basic salary to arrive at the gross salary. Deductions and taxes are then subtracted from the gross salary to determine the employee's net (take-home) pay.
Calculation Methodsโ
Each component uses one of two calculation methods:
Fixed Amountโ
The component contributes a set monetary value regardless of the basic salary.
Example: Transport Allowance = 5,000. Every employee assigned this component receives exactly 5,000.
Percentage of Basic Salaryโ
The component amount is calculated as a percentage of the employee's basic salary.
Example: House Rent Allowance = 40%. An employee with a basic salary of 50,000 receives 20,000 as HRA.
For taxes, the percentage is calculated on the gross salary (not the basic salary). This means taxes factor in allowances and overtime pay as well.
Creating a Payroll Componentโ
- Navigate to HRM > Payroll Components in the sidebar.
- Click Create Payroll Component.
- Fill in the form:
| Field | Required | Description |
|---|---|---|
| Name | Yes | A descriptive name (e.g., "House Rent Allowance") |
| Code | Yes | A short unique code (e.g., "HRA"). Used internally for identification. |
| Type | Yes | Select Allowance, Deduction, or Tax |
| Calculation Type | Yes | Fixed or Percentage |
| Default Value | Yes | The default amount or percentage. This value is pre-filled when adding the component to a salary structure, but can be customized per employee. |
| Description | No | An optional explanation of what this component covers |
| Is Taxable | No | Whether this component's amount should be subject to tax calculations |
| Is Deductible | No | For deduction-type components โ whether the deduction should actually be applied during payroll processing. Uncheck to temporarily disable a deduction without removing it. |
| Is Active | No | Whether the component is available for use. Inactive components cannot be added to new salary structures. |
| Display Order | No | Controls the order in which this component appears in lists and on payslips. |
- Click Create.
Editing and Deactivating Componentsโ
To edit a component, click on it from the Payroll Components list and modify the fields.
Changing a component's default value does not retroactively change existing salary structures. It only affects new assignments. To update values for employees who already have this component, edit their individual salary structures.
To temporarily disable a component without deleting it, uncheck the Is Active toggle. Inactive components remain on existing salary structures but cannot be added to new ones.
The Is Deductible Flagโ
Deduction-type components have an Is Deductible checkbox. When unchecked, the deduction is skipped during payroll calculation even if it appears in an employee's salary structure. This is useful when you need to temporarily suspend a deduction (such as a loan repayment pause) without modifying every affected salary structure.
Default Componentsโ
The system comes with a set of pre-configured components to get you started:
| Component | Type | Calculation | Default Value |
|---|---|---|---|
| House Rent Allowance | Allowance | Percentage | 40% |
| Transport Allowance | Allowance | Fixed | 5,000 |
| Medical Allowance | Allowance | Percentage | 15% |
| Special Allowance | Allowance | Percentage | 10% |
| Provident Fund | Deduction | Percentage | 12% |
| Professional Tax | Deduction | Fixed | 2,500 |
| ESI (Employee State Insurance) | Deduction | Percentage | 1.75% |
| Income Tax (TDS) | Tax | Percentage | 10% |
| Social Security Tax | Tax | Percentage | 6.2% |
You can edit, deactivate, or delete these defaults and create your own to match your organization's compensation structure.
Filtering and Viewsโ
The Payroll Components list includes two pre-built views:
| View | Description |
|---|---|
| All Components | Shows all payroll components |
| Active Components | Shows only components that are currently active |
Use the filter panel to narrow results by type (Allowance, Deduction, Tax), calculation type, or active status.