Pay Heads - Tally

Pay Heads in Tally Payroll

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.

Pay Head Types

The preset Pay Head types in Tally.ERP 9 are:

  1. Earnings for Employees
  2. Deductions from Employees
  3. Employees’ Statutory Deductions
  4. Employer’s Statutory Contributions
  5. Employer’s Other Charges
  6. Bonus
  7. Gratuity
  8. Loans and Advances
  9. Reimbursements to Employees

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:

Earning Pay Heads

i. Basic Pay Head Creation

Go to Gateway of Tally > Payroll Info. > Pay Heads > Create In the Pay Heads Creation screen,

  1. Type Basic Pay as the Name of the Pay Head
  2. Select Earnings for Employees in the field Pay Head Type.
  3. The Pay Head Creation screen is displayed as shown:

    Basic Pay Head Creation – Pay Head Type Selection

    Basic Pay Head Creation – Pay Head Type Selection

  4. Specify the group as Indirect Expenses in the field Under and press Enter
  5. Set Affect Net Salary to Yes
  6. Specify Basic in the field Name to appear in Pay Slip
  7. Set Use for Gratuity to Yes
  8. Select On Attendance in the field Calculation Type and press Enter
  9. 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

    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.

  10. Select Present in the field Attendance/ Leave with Pay.
  11. 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

    Pay Head Creation screen with List of Attendance Types

  12. SelectMonths in Calculation period field and press Enter.

    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 - Calculation Period selection
  13. Select User defined in the Per Day Calculation Basis field

    Pay Head Creation screen - Calculation Basis Selection

    Pay Head Creation screen - Calculation Basis Selection
  14. Press Enter to Accept

    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.

  15. Specify the Months of 26 Days and press Enter

    Pay Head Creation screen - Calculation period

    Pay Head Creation screen - Calculation period
  16. Select Normal Rounding as the Rounding Method and press Enter.

    Pay Head Creation screen – Rounding Method selection

    Pay Head Creation screen – Rounding Method selection
  17. Specify 1 as the rounding Limit (The Rounding limit allows the value to be in multiples of the limit specified and is based on the Rounding Method selected)

    The completed Basic Pay Head Creation screen is displayed as shown:

    Completed Basic Pay Head Creation screen

    Completed Basic Pay Head Creation screen
  18. Press Enter to Accept the screen.

ii. House Rent Allowance Pay Head Creation

In the Pay Head Creation screen,

  1. Type House Rent Allowance as the Name of the Pay Head
  2. Select Earnings for Employees in the field Pay Head Type
  3. Specify the group as Indirect Expenses in the field Under and then press Enter
  4. SetAffect Net Salary to Yes
  5. Specify HRA as the Name to appear in Pay Slip
  6. Se tUse for Gratuity to No
  7. Select As Computed Value in the Calculation Type field and press Enter
  8. HRA Pay Head Creation screen - Calculation Type selection

    HRA Pay Head Creation screen - Calculation Type selection

  9. Select Normal Rounding as the Rounding Method and 1 as the rounding Limit and press Enter
  10. In the Computation Info screen, select On Specified Formula in the Compute field

    Pay Head Creation screen with Compute method

    Pay Head Creation screen with Compute method
  11. 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.)

  12. Press Enter and the Compute subscreen is displayed
  13. In the Sub-screen Compute:
    • Select Basic Pay as the Add Pay Head function and press Enter
  14. Compute sub-screen

    Compute sub-screen

    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.

    • Select End of List

    Compute: On Specified Formula sub-screen

    Compute: On Specified Formula sub-screen

    • Press Enter to Accept the screen
  15. Specify 1-4-2008 as the Effective From date (In case of a revision in pay structure, you can define the revised computation information for the given pay head, by giving the effective from date)
  16. TheF rom Amount column is automatically skipped, assuming it to be zero. Press Enter to skip the Amount Upto column
  17. Select Percentage as the Slab Type from the List of Slabs
  18. Pay Head Creation screen - Slab Type selection

    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.

  19. Specify 40% in the Value Basis field and press Enter
  20. Pay Head Creation - Value Basis screen

    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

    Completed HRA Pay Head Creation screen

  21. Press Enter to Accept the 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

Conveyance Pay Head Creation

  • Press Enter to Accept the screen

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

Overtime Pay Head Creation screen

  • Press Enter to Accept the screen

v. Variable Pay Head Creation

Similarly, create the Variable Pay Head with Calculation Type as User Defined Value.

Variable Pay Head Creation

Variable Pay Head Creation

Deduction Pay Heads

Create the following Deduction Pay Heads.

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,

  1. Type Employee’s PF Contribution @ 12% as the Name of the Pay Head
  2. Select Employees’ Statutory Deductions in the field Pay Head Type and press Enter
  3. Employees' PF Contribution @ 12% Pay Head Creation

    Employee’s PF Contribution @ 12% Pay Head Creation

  4. Select PF Account (A/c No. 1) in the Statutory Pay Type field as shown:
  5. Employees' PF Contribution @ 12% Statutory Pay Type selection

    Employees' PF Contribution @ 12% Statutory Pay Type selection

  6. Specify the group as Current Liabilities in the field ‘Under’ and press Enter (In Tally.ERP 9, only relevant groups appear during selection, to reduce erroneous data inputs)
  7. Set Affect Net Salary to Yes
  8. Specify EPF @ 12% in the field Name to appear in Pay Slip
  9. As Computed Value appears in the field Calculation Type by default
  10. Select Normal Rounding as the Rounding Method. Specify 1 as the rounding Limit and press Enter
  11. Select On Specified Formula as the Compute method and press Enter
  12. In the Compute sub-screen, select Basic Pay as the Add Pay Head function and press Enter
  13. Deduction Pay Head Creation screen – Compute On selection

    Deduction Pay Head Creation screen – Compute On selection

  14. Press Enter to Accept the screen
  15. Specify 1-4-2008 as the Effective From date
  16. The column From Amount is automatically skipped, with the assumption that the amount is zero
  17. Specify 6500 in the Amount Upto column and press Enter
  18. Deduction Pay Head Creation – Computation Info.

  19. Select Percentage as the Slab Type from the List of Slabs
  20. Specify 12% as the Value Basis Percentage and press Enter (the From Amount is defaulted as 6500)
  21. Press Enter to accept the upper level as 0 and select Value as the Slab Type from the List of Slabs
  22. Specify Rs. 780 in the Value Basis field and then press Enter
  23. Deduction Pay Head Creation screen with Value Basis

    Deduction Pay Head Creation screen with Value Basis

  24. Press Enter twice
  25. The completed Employee’s PF Contribution @ 12% Pay Head Creation screen is displayed as shown:

    Completed Employee’s PF @ 12% Pay Head Creation screen

    Completed Employee’s PF @ 12% Pay Head Creation screen

  26. Press Enter to Accept the 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,

  1. Type Employee’s ESI Contribution @ 1.75% as the Name of the Pay Head
  2. Select Employees’ Statutory Deductions in the field Pay Head Type
  3. Select ESI in the field Statutory Pay Type
  4. Specify the group as Current Liabilities in the field Under and press Enter
  5. Set Affect Net Salary to Yes
  6. Specify ESI @ 1.75% in the field Name to appear in Pay Slip
  7. As Computed Value appears by default in the field Calculation Type
  8. Select the option Normal Rounding as the Rounding Method. Specify 1 as the rounding Limit and press Enter
  9. Select On Specified Formula in the field Compute and press Enter
  10. Employee's ESI Pay Head creation screen - Compute On Selection

    Employee's ESI Pay Head creation screen - Compute On Selection

    In the Compute OnSub-screen, subscreen,

    • Select Basic Pay as the Add Pay Head function and press Enter
    • Select House Rent Allowance as the second Pay Head in the Add Pay Head Function
    • Similarly, select Conveyance and Overtime Pay as the Add Pay Head function

      Employee's ESI Pay Head creation screen - Add Pay Head selection

      Employee's ESI Pay Head creation screen - Add Pay Head selection
    • Select End of List and press Enter
  11. Specify 1-4-2008 as the Effective From date
  12. The From Amount and Amount Upto fields are skipped as the amount is already entered in the Statutory & Taxation screen
  13. Select Percentage as the Slab Type from the List of Slabs
  14. Specify 1.75% as the Value Basis Percentage and press Enter
  15. 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

    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

    Completed ESI – Employee’s Contribution Pay Head Creation screen

  16. Press Enter to Accept the screen.

iii. Professional Tax Pay Head Creation

Create Professional Tax Pay Head with the following Slab rates.

Professional Tax Pay Head Creation

The completed Professional Tax Pay Head Creation screen is displayed as shown:

Profession Tax Pay Head Creation

Profession Tax Pay Head Creation

  • Press Enter to Accept

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:

Gratuity Pay Head

In the Pay Head Creation screen,

  1. Type Gratuity Expenses (Provisional) as the Name of the Pay Head
  2. Select Gratuity in the field Pay Head Type. The Slab Rate details for Gratuity Calculation screen are displayed.
  3. In the Gratuity Calculation subscreen, specify the following details:
    • Specify Gratuity Days of a Month as 26
    • Enter 1 and 60 (months) in the From and To fields under the Number of Months column
    • Specify 0 in the field Eligibility days for Gratuity Calculation per year
    • Similarly, select 61 and 120 in the From and To fields
    • Specify 15 in the Eligibility days for Gratuity Calculation per year field
    • Press Enter to accept 121 in the field From
    • Specify 15 in the field Eligibility days for Gratuity Calculation per year

      The Slab Rate Details for Gratuity calculation screen is displayed as shown:

      Slab Rate Details for Gratuity Calculation screen

      Slab Rate Details for Gratuity Calculation screen
  4. Press Enter to Accept the screen
  5. Specify the group as Provisions (Current Liabilities) in the field Under and press Enter
  6. 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

    Gratuity Expenses Ledger Creation screen

  7. Press Enter to Accept the screen.

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