Framing the key components of salary is one of the major challenges of any payroll management system. It is a complex process and involves taking into consideration several factors like constant & variable pay, taxable & tax-exempt income, deductions, allowances, etc. This is one of the primary reasons why many organisations opt for fully-integrated and intuitive HR platforms like PeopleCentral.
Discussed here are 5 crucial components of payroll:
1. Employee Information: This is an essential step of payroll – collecting all employees’ personal information into an integrated payroll system for fast and accurate payroll processing. PeopleCentral’s payroll solution aids in Employee Self Service, allowing your staff to update their personal information, view payslips, apply for leaves, check claim status, etc.
2. Basic Salary: Another key component of payroll is the basic salary which can be 35%-50% of the total CTC. This is the base pay and is not variable throughout the employee’s journey at the organisation. Several factors determine the basic salary. This includes the hierarchical position and designation of the employee, fixed commissions, added responsibilities, etc. The basic pay is fully taxable.
3. Gross Salary: It is the total cost the company incurs towards an employee. It is also called the CTC or the Cost to Company. The gross salary is the employee’s total salary before deductions are made. It includes the basic pay, all deductibles the company offers, retirement schemes, additional benefits, etc. The net salary of an employee is computed after all deductions are made from the gross salary.
4. Deductions & Allowances: Deductions can be voluntary or involuntary. Voluntary deductions include insurance premiums, health benefits, investment premiums, stock options, etc. On the other hand, involuntary deductions include income tax, professional tax, withholdings and garnishments.
Allowances, on the other hand, are extra payments the company provides to the employees in addition to other benefits. It will vary from one company to another and based on the employee’s designation. Some examples of these allowances are conveyance allowance, rent allowance, dearness allowance, travel allowance, medical allowance, etc.
5. CPF, IRAS and MOM Regulations
The payroll should also include taxes, central provident fund, and regulations stated by the Ministry of Manpower with regard to hours of work, rest day, overtime, etc. PeopleCentral is a fully automated cloud based payroll software that incorporates all the key components of payroll, aiding in electronic submissions for faster and efficient payroll processing.