Employees’ salary is what you give your employees for the services provided by them. The amount paid is generally labelled as gross salary. But, do your employees know why there is a difference between the gross salary and what they get in hand?
In this article, we will clear the confusion that your employees might have about the term gross salary and the steps involved in its calculations.
What is gross salary?
Gross Salary is the total of all the components of the salary package offered to an employee. It indicates the earnings before any mandatory and voluntary deductions such as income tax, Provident Fund, medical insurance, etc.
You, as an employer, should provide a breakup of all the components that constitute the gross salary in monthly payslips. It may also include benefits received by the employee. The amount that an employee takes home after all such deductions is termed net salary.
Here’s what a monthly payslip should include.
Components of Gross Salary
These are the components that constitute gross salary:
1. Basic salary
Sum paid to an employee that does not include bonuses, benefits, perks, and incentives.
2. HRA or House Rent Allowance
The sum is paid towards covering the housing expenses of an employee.
3. Provident fund contribution
The employee’s share of the salary towards the Employment Provident Fund. It is 12% of the fixed components of the employees’ salary.
4. Special allowance
This component of the salary includes additional allowances offered by the company. This may include transport, conveyance, and outstation allowance, among others.
5. Special arrears
This may include an additional sum accruing from an increment in the salary of the employee.
Perquisites may include benefits offered over and above the basic salary. In most cases, these are monetary components. However, there could be non-monetary components also – paid as perquisites to employees in some companies.
An employee may receive an additional sum as a bonus in a year. This amount is linked to employees’ performance in the company.
How is gross salary calculated?
Gross salary includes the basic salary and allowances, before deductions like professional tax, TDS, provident fund, etc. The basic salary is the base income of the fixed component of the whole compensation offered to employees.
Gross Salary is, therefore: Basic Salary + HRA + Other Allowances.
What is the difference between Gross Salary and Basic Salary?
There are a few points of difference between gross salary and basic salary.
Gross salary is the monthly (or annual) salary paid to an employee without any tax deductions.
Basic salary is the salary paid to an employee before the addition of any benefits like allowances or perquisites.
Gross salary includes bonuses, overtime pay, allowances, and other perks.
Basic salary constitutes only the core amount received by the employee. Some of the calculations like HRA, PF deductions, are based on this basic amount.
What is the difference between gross salary and net salary?
While gross salary is the employee’s amount without any deductions, net salary is the amount received by the employee after all deductions have been accounted for.
Gross salary includes basic salary, HRA, and other allowances, whereas net salary is gross salary minus income tax, professional tax, and provident fund.
Why are manual payroll calculations complex?
As we can see, there are complex calculations involved in preparing payroll for a company’s employees, and it gets more intricate as the size of the company grows.
It is the most time-consuming task, as the HR department has to deal with several components and also make sure that errors do not creep in when calculating monthly gross and net salaries. When done manually, the margin for human error increases substantially for large companies. Also, tax laws are not simple and straightforward. The calculations have to take into account compliance with the changing tax rules and policies.
Payroll software systems – What every company needs
To make payroll calculations simple, quick, and error-free, companies are using advanced payroll software systems that can automate salary calculations and take care of payroll compliances.
Choosing the right automated payroll software is important to get the best value for your investment in this system, which is a must-have for all types of companies. RazorpayX Payroll is one of the most reliable and popular automated payroll software systems available today.
Why RazorpayX Payroll is the preferred choice?
Companies choose the RazorpayX Payroll as it is user-friendly, comprehensive, and designed to take care of all the payroll management elements in a company.
1. Makes the job of the HR team easy
With RazorpayX Payroll, the HR team can quickly update employee details on the system and provide employees access to their information. Employees can view it on the RazorpayX Payroll dashboard. Onboarding of new employees is done quickly, while it also minimizes inquiries and consultations with the other departments involved in payroll preparation.
With RazorpayX Payroll, the hassles associated with reconciliation and TDS deduction is minimized significantly. The finance managers only have to load the correct amount in the payroll account, and the system carries out the disbursals automatically when the software executes the payroll.
2. Has a short learning curve
RazorpayX Payroll takes the hassle out of getting acquainted with a new payroll system. While handling the other popular payroll systems may involve a long learning curve, that’s not the case with this software. It has an intuitive dashboard and a smooth & friendly interface designed to make the whole learning process simple and fast.
3. A boon for employees
The system is also a boon for employees who are often in the dark about payroll information and have to spend time with the relevant department and managers to get answers to their queries.
With RazorpayX Payroll, employees can get all the information and updates they need in one place. They can access their payslips in a few clicks and need not run from pillar to post for payroll related information.
RazorpayX Payroll USPs
RazorpayX Payroll is good for startups and small businesses as it offers the entire bouquet of payroll management solutions in one place at affordable pricing. The key features of the software are:
- Leave and Attendance tracking
- Automated payroll processing
- Compliance with updated statutory laws
- Group Health Insurance at affordable prices
Now it’s time to automate your payroll with RazorpayX Payroll and spend your valuable time on accelerating business growth.
Frequently Asked Questions
What is CTC?
Cost to Company or CTC is the cost a company incurs when hiring an employee.
How is the monthly salary calculated?
You get the monthly salary by dividing the total salary for the year by the total number of months in the calendar.
What are CTC and gross salary?
Gross salary is the accumulated amount of compensation discharged by an employer or company towards the employment process of an individual. The overall compensation is nothing but the cost to the company or CTC to employees.
What are net and gross pay?
Net salary is the overall amount that an employee takes home. Whereas gross salary is the figure derived after totaling all the allowances and benefits before any tax deduction.
How is gross salary calculated?
Gross salary is calculated by adding an employee's basic salary and allowances prior to making any taxable deductions.
What is basic salary and gross salary?
Basic salary is a rate of pay agreed upon by an employer and employee that does not include any overtime or extra compensation. Whereas gross salary is the amount paid to an employee before any tax or other deductions that includes overtime pay and bonuses.
Does gross pay include benefits?
Yes, gross pay does include benefits like medical allowance, conveyance allowance, etc.