What Is Payroll?

Payroll is the process of paying employees their salary. It covers setting pay policies, structuring salaries, calculating gross and net pay, making the payment, and depositing statutory dues with the right authorities.

Functions

• Define policies — wage policy, leave encashment, flexible benefits, and allowances
• Structure each employee’s salary (basic, variable pay, HRA, LTA, allowances)
• Calculate gross salary, apply statutory and non-statutory deductions, and arrive at net pay
• Pay salaries on time
• Deposit statutory dues such as TDS and PF and file the corresponding returns

The net-pay formula

Net pay = Gross salary − Deductions

Gross salary is regular income plus allowances plus any one-time payment or benefit. Deductions are regular deductions, statutory deductions, and one-time deductions.

Worked example

Item	Amount (₹)
Gross salary	₹25,000
Less: employee PF (12% of basic ₹12,500)	₹1,500
Less: employee ESI (0.75%, if applicable)	₹188
Less: professional tax (if applicable)	₹200
Less: TDS	₹1,800
Total deductions	₹3,688
Net pay	₹21,312

Statutory deductions depend on whether PF and ESI apply to the employee, so the figures vary by establishment.

Sub-topics

• Understanding CTC — the cost-to-company package and wage structure
• Additional payroll components — payslips, Form 16, reimbursements, incentives
• Streamlining your payroll process — policies and data collection
• Payroll process — the calculation steps
• Post-payroll processing — payment, statutory deposits, and accounting
• Attendance and leave — leave types and loss-of-pay