Pay Heads may be broadly considered as Earnings and Deductions from an employee’s point of view. However, these pay heads would still be Expense and Liability from the employer’s viewpoint.
Some examples of Earnings Pay Heads are Basic Salary, Dearness Allowance, City Compensatory Allowance, House Rent Allowance, Night Shift Allowance, Uniform Allowance, Sales Commission and so on. Some examples of Deductions pay heads are Employees’ Provident Fund(EPF), Employees’ State Insurance (ESI), Professional Tax, Income Tax, TDS, Advance (if any).
In Tally.ERP 9, each pay head is to be created as an individual ledger account and grouped under its respective group i.e., all Earnings pay heads under Indirect Expenses group or Direct Expenses group and all Deductions pay heads under Current Liabilities, Current Assets and Duties & Taxes group.
The preset Pay Head types in Tally.ERP 9 are:
The pay heads marked with the above pay head types will be available during payroll processing,and if the Pay Head Type is marked as Not Applicable, it will not be available. The Salary Payable, PF Payable, ESI Payable ledgers should be created by selecting Not Applicable as the Pay Head Type.
Create the following pay heads in the books of M/s. Spectrum Software Solutions.
Earning Pay Heads
Create the following Earnings Pay Heads:
i. Basic Pay Head Creation
Go to Gateway of Tally > Payroll Info. > Pay Heads > Create In the Pay Heads Creation screen,
The Pay Head Creation screen is displayed as shown:
Basic Pay Head Creation – Pay Head Type Selection
Description of general parameters in Pay Head creation:
Affect Net Salary– If this option is set to Yes, then the Pay Head will appear in the Salary Slip for calculation of Net salary.
Name to appear in the Pay Slip– If Affect Net Salary is set to Yes, then the required name for the Pay Head that appears in the Pay Slip should be specified against this field.
Use for Gratuity – This parameter should be set to Yes, for the Pay Head components that will be used for the Gratuity calculation (e.g. Basic and DA)
The Pay Head Creation screen with the List of Calculation is displayed as shown:
Basic Pay Head Creation - Calculation Type
As Computed Value – This method is used when the pay value is computed based on certain predefined factors i.e., slab rates, pay heads and so on.
As User-Defined Value – This method is used when the value of pay is not fixed and does not depend upon any pay components.
Flat Rate – This method is used when the value of the pay heads is fixed for the given month. This calculation type is not dependant upon attendance/production. For example, conveyance of Rs. 800 per month.
On Attendance — This calculation type depends upon Attendance records and is used along with rate per unit of attendance. For example, Overtime of Rs. 25 per hour.
On Production — This method is used when the pay value is measured based on work done i.e., pieces or numbers produced/manufactured.
The Pay Head Creation screen with the List of Attendance Types is displayed as shown below:
Pay Head Creation screen with List of Attendance Types
Tips:If the user intends to record Negative Attendance viz., Absent(i.e if the pay value is measured on the basis of negative attendance units), select Not Applicable in the Attendance/ Leave with Pay field and press Enter & then select Absent in the Leave without Pay field. In the above example we are selecting Positive Attendance unit i.e Present.
The Pay Head Creation screen with the List of Calculation Periods is displayed as shown:
Pay Head Creation - Calculation Period selection
Pay Head Creation screen - Calculation Basis Selection
Calculation Basis refers to the periodicity of the given calculation period. As per Calendar Period refers to the perpetual calendar month, i.e. if the payroll process is carried out for the month of March, then the attendance records will be entered for 31 days. User Defined Value refers to the consistent payroll period irrespective of calendar month, i.e. If an employee’s salary is based on a standard month of 30 days irrespective of the calendar month, then you can select
User Defined as the Calculation Basis and define the periodicity of the specified period or month. For example, an employee’s monthly salary is Rs. 3,000 and the calculation basis is defined as a month of 30 days. If he takes 3 days leave in January(which consists of 31 days), then the salary per day is computed as (Rs.3000/30 days, i.e. 100). The net salary after deducting the leave salary [i.e.Rs. 300 (3 days x Rs. 100)] amounts to Rs. 2,700. User Defined Calendar Type will provide flexibility to change the per day salary for the Employee based on the User Defined Calendar days.For example, for Basic salary of 3000 if the number of days in a month are defined as 30 then per days salary will be Rs. 100. In the next month if the number of days is 25 then per day salary will be Rs. 120.
Pay Head Creation screen - Calculation period
Pay Head Creation screen – Rounding Method selection
The completed Basic Pay Head Creation screen is displayed as shown:
Completed Basic Pay Head Creation screen
ii. House Rent Allowance Pay Head Creation
In the Pay Head Creation screen,
HRA Pay Head Creation screen - Calculation Type selection
Pay Head Creation screen with Compute method
Computation on details:
On Current Deductions Total – This calculation type is used when the value of a pay head depends upon the total of the deductions pay heads previously defined.
On Current Earnings Total – This calculation type is used when the value of a pay head depends upon the total earnings pay heads previously defined.
On Current Sub Total – This calculation type is used when the value of apay head depends upon the net totals of earnings and deductions previously defined.
On Specified Formula – This calculation type is used when the pay head value is computed on the value of one or more pay heads already defined in the pay structure. (Tally.ERP 9 allows the addition and subtraction of pay heads already defined in the pay structure and multiplication and divisions using attendance types. For example, HRA is computed as 40% of the basic salary.)
The pay head drop-down box contains pay heads already created. If any pay head(s) is a component for the given Pay Head, you may create the required Pay Head by pressing Alt+C from the above Pay Head field and make the necessary alterations in the required pay head.
Compute: On Specified Formula sub-screen
Pay Head Creation screen - Slab Type selection
Slab Type Details:
Percentage – This Slab rate is used when the amount is stated as a proportion of a whole.
Value – This Slab rate is used when the amount is stated as absolute value.
Pay Head Creation - Value Basis screen
The completed House Rent Allowance (HRA) Pay Head Creation screen is displayed as shown.
Completed HRA Pay Head Creation screen
iii. Conveyance Pay Head Creation
Create the Conveyance Pay Head with Calculation Type as Flat Rate.
The completed Conveyance Pay Head Creation screen is displayed as shown:
Conveyance Pay Head Creation
iv. Overtime Pay Head Creation
Create the Overtime Pay Head with Calculation Type as Production.
The completed Overtime Pay Head Creation screen is displayed as shown:
Overtime Pay Head Creation screen
v. Variable Pay Head Creation
Similarly, create the Variable Pay Head with Calculation Type as User Defined Value.
Variable Pay Head Creation
Deduction Pay Heads
Create the following Deduction Pay Heads.
i. Employee’s PF Contribution @ 12% Pay Head Creation
Go to Gateway of Tally > Payroll Info. > Pay Heads > Create
In the Pay Head Creation screen,
Employees' PF Contribution @ 12% Pay Head Creation
Employees' PF Contribution @ 12% Statutory Pay Type selection
Deduction Pay Head Creation screen – Compute On selection
Deduction Pay Head Creation – Computation Info.
Deduction Pay Head Creation screen with Value Basis
The completed Employee’s PF Contribution @ 12% Pay Head Creation screen is displayed as shown:
Completed Employee’s PF @ 12% Pay Head Creation screen
ii. Employee’s ESI Contribution @ 1.75% Pay Head Creation
Create Employee’s State Insurance (ESI) Pay Head as discussed.In the Pay Head Creation screen,
Employee's ESI Pay Head creation screen - Compute On Selection
In the Compute OnSub-screen, subscreen,
Employee's ESI Pay Head creation screen - Add Pay Head selection
Any income of a regular nature will be subject to ESI calculation viz., Basic Pay, Dearness Allowance, House Rent Allowance, Conveyance, Overtime etc.,)
The Pay Head Creation screen is displayed as shown:
Employee's ESI Pay Head creation screen – Slab Rate
The completed ESI – Employee’s Contribution Pay Head Creation screen is displayed as shown:
Completed ESI – Employee’s Contribution Pay Head Creation screen
iii. Professional Tax Pay Head Creation
Create Professional Tax Pay Head with the following Slab rates.
The completed Professional Tax Pay Head Creation screen is displayed as shown:
Profession Tax Pay Head Creation
Gratuity Pay Head
Apart from the above Pay Heads, create Gratuity Expenses (Provisional) Account in order to get provisional Gratuity liability report for the employer at any given period.Gratuity refers to the monetary benefit given by the employer to the employee at the end of the employment for the services rendered over a period of employment either by law or otherwise. It is calculated provisionally at the end of each financial period to assess the possible liability of the company towards its employees. A Gratuity Provisional Account is created to capture the details required for the calculation of gratuity. Gratuity is calculated based on select salary components.
The formula used for Gratuity calculation is as follows:
In the Pay Head Creation screen,
The Slab Rate Details for Gratuity calculation screen is displayed as shown:
Slab Rate Details for Gratuity Calculation screen
Gratuity parameter details:
Gratuity days of a Month – The number of days per calendar month varies from 28 to 31. In this case, you can apply a consistent period of 26 days (excluding 4 Sundays) for all employees irrespective of their month of leaving.
It can also be fixed by law. Number of months From and To – This represents the months until which the eligible days are applicable in the Slab system, beginning from the date of joining.
Eligibility days for Gratuity Calculation per year – This refers to the Number of days’ pay given as gratuity for the entire slab. If the slab period has not ended, then the slab is applied based on the number of months covered in the previous slab. If the number of days eligible is zero (0), then the eligible days mentioned in the next slab are considered.
The completed Gratuity Expenses (Provisional) Pay Head Creation screen is displayed as shown:
Gratuity Expenses Ledger Creation screen
Tally Related Interview Questions
|General Accounting Interview Questions||Financial Accounting Interview Questions|
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|MSCIT Interview Questions||Banking Interview Questions|
|Account executive Interview Questions||Banking Operations Interview Questions|
|Tax Deducted at Source (TDS) Interview Questions||Excise Duty Tax / CENVAT Interview Questions|
|General Ledger Interview Questions||E Tds Return Filing Interview Questions|
Configuring Payroll In Tally.erp 9
Creation Of Payroll Masters
Processing Payroll In Tally.erp 9
Accounting For Employer Pf Contributions
Accounting For Employer Esi Contributions
Payment Of Professional Tax
Tracking Of Salary Advances / Loans
Accounting For Pay Revision & Arrears
Processing Payroll For Contract Employees
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