All About Employee One Time Payment, Deduction and Expenses

Employee deductions, payments & expenses

In Indian Payroll, there are a number of ways employers pay remuneration to their employees. Remuneration refers to the total amount an employee receives for performing a service or for being employed by a company or organization.

Definition of Remuneration

Remuneration is payment or compensation received for services or employment. This includes a base salary and any bonuses or other economic benefits that an employee or executive receives during employment. It is a reference to the combination of salary, options, bonuses, and other financial compensation. The one-time payment is one of the elements of employee remuneration in the Indian payroll process.

Understanding One Time Payments and Bonuses

A one-time payment is a single payment to an employee outside of their regular salary.

For exempt employees, one-time payments may be given to recognize superior performance in the form of a bonus, and/or to compensate for a special project or interim assignment.

For non-exempt employees, one-time payments may only be given to recognize superior performance and may not be given to compensate for additional work performed.  If you would like to compensate someone for working additional hours, the employee should record those additional hours on their timesheet.

Recommended Read: Employee Salary Revision, Arrear Processing & Bonus Payments

Understanding the Process

To provide an employee with a one-time payment or bonus, a Personnel Action Form (PAF) should be completed by the department, approved through the appropriate channels, and submitted to Human Resources for processing.

What is PAF (Personnel Action Form)?

The Personnel Action Form (PD-003) is used to report appointments, terminations, changes in status, compensation of an individual employee, etc. The Personal Action Form (PAF) should be used each time there is an action that should be recorded in the individual’s personnel file or that requires payroll action.

To ensure efficient processing of your request, it is important to complete the PAF correctly and include a brief summary explaining the reason for the one-time payment or bonus and providing the name and number of someone HR can contact with questions.

Employee Payroll Deductions

Payroll deductions are amounts withheld from an employee’s payroll check, and these amounts are withheld by their employer. Among these deductions are insurance pension contributions, wage assignments, child support payments, taxes, and union and uniform dues. Deductions that are mandated are government taxes; however, all other deducted amounts are voluntary.

In simple words, Payroll deductions are amounts taken out of an employee’s paycheck each pay period. An employee’s gross pay is different from their net pay, or take-home pay, because of the deductions subtracted. There are both mandatory and voluntary payroll deductions. Examples of payroll deductions include federal, state, and local taxes, health insurance premiums, and job-related expenses.

Deductions are elements of the salary that are part of the CTC but are deducted from the in-hand salary that employees receive. Let’s take a deeper look at some of the most common salary deductions and what they mean.

Provident Fund

Provident Fund (PF) is calculated at 12% of Basic + DA + Special Allowance.  The employer and the employee both make an equal contribution of 12% each.  This is applicable to companies that have 20 or more employees on their payroll.   If an employee’s Basic + DA + Special Allowance are less than Rs. 15,000 then it is mandatory for Provident Fund to be deducted.  Other employees can opt-out by filling form 11 or can choose to have PF deducted on the ceiling of Rs. 15,000 which would be Rs. 1,800 monthly.

Employees State Insurance Corporation (ESIC)

Deductions towards ESIC are mandatory for employees whose gross salary is not more than Rs. 21,000.  It is only applicable in companies where there are 20 or more employees within the Rs.21,000 gross salary bracket.  Employees have to make a contribution of 1.75% of the gross salary and employers have to make a contribution of 4.75% of the gross salary.

Professional Tax

Professional tax is the tax levied by Governments of certain states on salaried employees. The states where professional tax is applicable are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of professional tax that is deducted varies from state to state where they are applicable.

Labour Welfare Fund

Labour Welfare Fund, as the name suggests, is a contribution made by salaried employees for the benefit of the labour class.  This contribution is applicable in the states of Karnataka, West Bengal, Maharashtra, Andhra Pradesh, Kerala, Goa, Delhi, Punjab, Haryana and Madhya Pradesh.

The contribution amount varies from state to state and is relatively small. The employer and the employee both make contributions and the employer pays approximately twice the employee contribution. The payments are made semi-annually in the months of June and December. Like Professional Tax, Labour Welfare Fund contributions also vary from state to state where they are applicable.

Contributing Author
pranay