Compensation And Employee Payroll

- A General Overview
Vijay Laxman
Compensation

What is Compensation ?
Compensation is an integral part of human resource
management which helps in motivating the employees and
improving organizational effectiveness.
Compensation provided to employees can direct in the form of
monetary benefits and/or indirect in the form of non-monetary
benefits known as perks, time off, etc.
Compensation does not include only salary but it is the sum total
of all rewards and allowances provided to the employees in
return for their services.


Types of Compensation Management

Direct Compensation


Indirect Compensation
Direct Compensation

Direct Compensation

Direct compensation refers to monetary benefits
offered and provided to employees in return of the
services they provide to the organization.
The major benefits include basic salary, HRA,
conveyance, LTA, medical reimbursements,
special allowances, bonus, Pf/Gratuity, etc.
Components in Direct Compensation
Basic Salary
HRA (House Rent Allowance)
CA (Conveyance Allowance)
LTA (Leave Travel Allowance)
Medical Reimbursement
Bonus (Salary Bonus)
SA (Special Allowance)
Components in Direct Compensation
1) HRA (House Rent Allowance):
Organizations either provide accommodations to
its employees who are from different state or
country or they provide house rent allowances to
its employees




Components in Direct Compensation
2) Conveyance :
Organizations provide for cab facilities to their
employees. Some may also provide vehicles and
petrol allowances to their employees.
Components in Direct Compensation
3) Leave Travel Allowance:
These allowances are provided to retain the
employee in the organization.
The employees are given allowances to visit any
place they wish with their families or cash back to
the employee after completion of the year of
joining.
The allowances are scaled as per the position of
employee in the organization.
Components in Direct Compensation
4) Medical Reimbursement :
Organizations also look after the health
conditions of their employees.
The employees are provided with medi-claims for
them and their family members.
These medi-claims include health-insurances
and treatment bills reimbursements


Components in Direct Compensation
5) Bonus:
Bonus is paid to the employees during festive
seasons to motivate them and provide them the
social security .
The bonus amount is usually minimum of 8.33%
of the gross salary or depending on the
organization.
This is apart from the salary.

Components in Direct Compensation
6) Special Allowance :
Special allowance such as overtime, mobile
allowances, meals, commissions, travel
expenses, reduced interest loans; insurance, club
memberships, etc are provided to employees on
basis of increasing the tax free component to
facilitate the employee.

Indirect Compensation
Indirect Compensation
Indirect compensation refers to non-monetary
benefits offered and provided to employees in lieu
of the services provided by them to the
organization.
They include Leave Policy, Overtime Policy, Car
policy, Hospitalization, Insurance, Leave travel
Assistance Limits, Retirement Benefits, Holiday
Homes.
Components in Indirect
Compensation
Leave Policy
Overtime Policy
Hospitalization
Insurance
Leave Travel
Retirement Benefits
Holiday Homes
Flexible Timings



Components in Indirect
Compensation
1) Leave Policy:
It is the right of employee to get adequate
number of leave while working with the
organization.
The Leave Policy differs in every organization.
The organizations provide for paid leaves
such as casual leaves, medical leaves (sick
leave), and maternity leaves, statutory pay,
etc.

Components in Indirect
Compensation
2) Overtime Policy :
Employees should be provided with the adequate
allowances and facilities during their overtime, if
they happened to do so, such as transport
facilities, overtime pay, etc.


Components in Indirect
Compensation
3) Hospitalization :
The employees should be provided allowances to
get their regular check-ups, say at an interval of
one year.
Even their dependents should be eligible for the
medi-claims that provide them emotional and
social security.
Components in Indirect
Compensation
4) Insurance :
Organizations also provide for accidental
insurance and life insurance for employees.
This gives them the emotional security and they
feel themselves valued in the organization.
Components in Indirect
Compensation
5) Leave Travel :
The employees are provided with leaves and
travel allowances to go for holiday with their
families. Some organizations arrange for a tour
for the employees of the organization.
This is usually done to make the employees
stress free.


Components in Indirect
Compensation
6) Retirement Benefits :
Organizations provide for pension plans and
other benefits for their employees which benefits
them after they retire from the organization at the
prescribed age.
Components in Indirect
Compensation
7) Holiday Homes :
Organizations provide for holiday homes and
guest house for their employees at different
locations.
These holiday homes are usually located in
hill station and other most wanted holiday
spots.
The organizations make sure that the
employees do not face any kind of difficulties
during their stay in the guest house.


Components in Indirect
Compensation
8) Flexible Timings :
Organizations provide for flexible timings to the
employees who cannot come to work during
normal shifts due to their personal problems and
valid reasons.










Payroll Management

Payroll Management

Payroll refers to the administration of
employees' salaries, wages, bonuses, net
pay, and deductions.
It consist of the employee ID, employee
name, date of joining, daily attendance record,
basic salary, allowances, overtime pay, bonus,
commissions, incentives, pay for holidays,
vacations and sickness, value of meals and
lodging etc.
There are some deductions such as PF,
taxes, loan installments or advances taken by
employee.
Sample type of Salary Break
Basic
40%
HRA ( 40% or
50% on
Baisc)
15%
Conveyance (
800/month
fixed)
3%
Medical
(1250/month
fixed)
4%
Spl Allowance
25%
Deductions
13%
Overview
The Basic is Calculated as per 40% of the total Gross CTC
HRA is calculated as 50% (metro cities) or 40% (non metro cities) on
the Basic
Medical and Conveyance are fixed at Rs. 1250/- and 800/- per month
under non- taxable deduction.
The Spl Allowance is the rest of the remaining amount in the gross
CTC, which is taxable.
Certain organizations provide DA( Dearness allowance) its is normally
40% of basic for metro and variable for other cities, This DA is taxable
and PF will be deducted as from basic.
Provident fund is deducted from the Basic salary ( BASIC + DA) of
employee on the monthly basis as per the employment law, which is
provided later to the employee.
Organizations also contribute the same amount to the provident fund of
the employee.
Deductions such as tax and loan/advances taken by the employee
from organizations are deducted only where applicable.

Annual Payroll
What is Annual Payroll?
Annual payroll consists of leave travel
allowances, incentives, annual bonuses, meal
vouchers/reimbursements, and medical
reimbursements, shares etc.

LTA
Annual
bonus
Meal
vouchers
Incentives
Medical
reimburem
ents
Others
Sample Annual Pay out

Some Important Act Check list
APPRENTICES ACT, 1961

Object of the Act
Promotion of new manpower at skills.
Improvement/refinement of old skills
through theoretical and practical training
in number of trades and occupation
Applicability of the Act
Areas and industries as
notified by the Central
Government
Sec. 1
Industry
Industry means any industry or business or
in which any trade, occupation or
subject/field in engineering or technology
or any vocational course may be specified
as a designated trade
Sec. 2(k)

Contract of Apprenticeship
To contain such terms and
conditions as may be agreed to by
the apprentice, or his guardian (in
case he is a minor) and employers.
Sec. 4

Termination of
Apprenticeship
On the expiry of the period of
Apprenticeship training.
On the application by either of the
parties to the contract to the
Apprenticeship Advisor
Sec. 6

Payment to Apprentices
The employer to pay such stipend at a rate
of not less than the prescribed minimum
rate as may be specified.
Sec. 6

Obligations of Apprentice
To learn his trade conscientiously, diligently.
To attend practical and instructional classes regularly.
To carry out all lawful orders.
To carry out his contractual obligations.
Health safety & Welfare measures for Apprentices
As per Factories Act or Mines Act as the case may be
when undergoing training.
Hours of work
42 to 48 in a week while on theoretical training.
42 in a week while on basic training.
42 to 45 in a week in second year of training.
As per other workers (in the third year).
Not allowed to work between 10 PM to 4 AM unless approved
by Apprenticeship Advisor.
Leave and Holidays
Casual leave for the maximum period of 12 days in a year.
Medical leave for the maximum period of 15 days and the
accumulated leave upto 40 days in a year.
Extraordinary leave upto a maximum period of 10 days in a
year.
Sec. 15

EMPLOYEES PROVIDENT FUNDS &
MISC. PROVISIONS ACT, 1952
Eligibility : Any person who is employed for work of an
establishment or employed through contractor in or in connection
with the work of an establishment.
Benefits : Employees covered enjoy a benefit of Social Security
in the form of an unattachable and unwithdrawable (except in
severely restricted circumstances like buying house,
marriage/education, etc.) financial nest egg to which employees
and employers contribute equally throughout the covered
persons employment. This sum is payable normally on
retirement or death. Other Benefits include Employees Pension
Scheme and Employees Deposit Linked Insurance Scheme.
Provident Fund Scheme : Employee contribution : 12.36 % +
Employer : 13.61%

EMPLOYEES STATE INSURANCE
ACT, 1948
Applicability : Is extended in area-wise to factories using power
and employing 10 or more persons and to non-power using
manufacturing units and establishments employing 20 or more
person upto Rs.7500/- per month w.e.f. 1.4.2004. It has also
been extended upon shops, hotels, restaurants, roads motor
transport undertakings, equipment maintenance staff in the
hospitals.
Coverage :Drawing wages Upto Rs.10000
Rate of Contribution : Employers 4.75% - Employees 1.75%
Benefits : Medical, sickness, extended sickness for certain
diseases, enhanced sickness, dependents maternity, besides
funeral expenses, rehabilitation allowance, medical benefit to
insured person and his or her spouse.
Contribution period : 1st April to 30th September or 1st
October to 31st March
MATERNITY BENEFIT ACT, 1961

Objective: To protect the dignity of motherhood and the dignity of
a new persons birth by providing for the full and healthy
maintenance of the woman and her child at this important time
when she is not working
Benefits :Women indulging temporary of unmarried are eligible
for maternity benefit when she is expecting a child and has
worked for her employer for at least 80 days in the 12 months
immediately proceeding the date of her expected delivery
10 weeks before the date of her expected delivery, she may ask
the employer to give her light work for a month. At that time she
should produce a certificate that she is pregnant.
She should give written notice to the employer about seven
weeks before the date of her delivery that she will be absent for
six weeks before and after her delivery. She should also name
the person to whom payment will be made in case she can not
take it herself.
She should take the payment for the first six weeks before she
goes on leave.
She will get payment for the six weeks after child-birth within 48
hours of giving proof that she has had a child.

She will be entitled to two nursing breaks of fifteen minutes each in the course of
her daily work till her child is fifteen months old.
Her employer cannot discharge her or change her conditions of service while
she is on maternity leave.
Cash Benefits
Leave with average pay for six weeks before and after the delivery( 6 +6 weeks).
A medical bonus of Rs.25 if the employer does not provide free medical care to
the woman.
An additional leave with pay up to one month if the woman shows proof of illness
due to the pregnancy, delivery, miscarriage, or premature birth.
In case of miscarriage, six weeks leave with average pay from the date of
miscarriage.
Non Cash Benefits/Privilege
Light work for ten weeks (six weeks plus one month) before the date of her
expected delivery, if she asks for it.
Two nursing breaks in the course of her daily work until the child is 15 months
old.
No discharge or dismissal while she is on maternity leave.
No change to her disadvantage in any of the conditions of her employment while
on maternity leave.
Pregnant women discharged or dismissed may still claim maternity benefit from
the employer.
Exception: Women dismissed for gross misconduct lose their right under the
Act for Maternity Benefit
MINIMUM WAGES ACT, 1948
Objective : To provide for fixing minimum rates of wages in
certain employments
Minimum Rates of Wages : Such as Basic rates of wages etc.
Variable DA and Value of other concessions etc.
Government fixes Minimum Wages based on: Time work
,Piece work at piece rate ,Piece work for the purpose of securing
to such employees on a time work basis, Overtime work done by
employees for piece work or time rate workers.
Payment of Minimum Rates of Wages :Employer to pay to
every employee engated in schedule employment at a rate not
less than minimum rates of wages as fixed by Notification by not
making deduction other than prescribed
The employer is to pay the min wages on a daily or monthly
basis other than the overtime.`
BONUS ACT, 1965
Applicability :Every factory where in 10 or more persons are
employed with the aid of power or An establishment in which 20
or more persons are employed without the aid of power on any
day during an accounting year
Payment of Minimum Bonus : 8.33% of the salary or Rs.100
(on completion of 5 years after 1st Accounting year even if there
is no profit)
Eligibility :An employee will be entitled only when he has
worked for 30 working days in that year
Components :Salary or wages includes dearness allowance but
no other allowances e.g. over-time, house rent, incentive or
commission
Eligible Employees : Employees drawing wages upto Rs.3500
per month or less. For calculation purposes Rs.2500 per month
maximum will be taken even if an employee is drawing upto
Rs.3500 per month
Time Limit for Payment of Bonus :Within 8 months from the
close of accounting y ear.
GRATUITY ACT, 1972
Applicability : Every factory, mine, oil field, plantation, port,
railways, company, shop, establishment or educational
institutions employing 10 or more employees
Qualifying requirement : All employees irrespective of status or
salary, Entitlement On completion of five years service except in
case of death or disablement
Calculation : @ 15 days wages for every completed year as if
the month comprises of 26 days at the last drawn wages.
Maximum Ceiling : Rs.3,50,000
Mode of payment :Cash or Bank Draft or Cheque
Forfeiture:On termination of an employee for moral turpitude or
riotous or disorderly behavior. Wholly or partially for willfully
causing loss, destruction of property etc.
Thank You
Happy Learning while Enjoying work