Payroll Module — Employee Salaries and Statutory Deductions

Setting up and processing Sunrise Retail's April 2025 payroll with PF, ESI, PT, and payslips

Module 24 of 31 — Tally Prime. Set up pay heads, create employee masters for Sunrise Retail's 5-person team, process April 2025 payroll with PF, ESI, and Professional Tax, and print payslips. Duration: 55 min.

Learning Objectives

Enable the payroll module in Tally Prime (F11)
Create earnings and deduction pay heads (Basic, HRA, PF, ESI, PT)
Set up all 5 Sunrise Retail employee masters
Process and verify the April 2025 payroll
Print payslips and view statutory compliance summary

Prerequisites: Ledger Creation — tally-05

Enable Payroll Module

F11 → Statutory and Taxation
→ Enable Payroll: Yes
→ Maintain More Than One Payroll: No (single primary group)
→ Payroll Statutory Features:
   Enable PF:                Yes
   Enable ESI:               Yes
   Enable Professional Tax:  Yes (Telangana rates)
→ Ctrl+A

Statutory Rates — Quick Reference

Statutory	Employee	Employer	Applicability
PF	12% of Basic	12% of Basic	All employees
ESI	0.75% of Gross	3.25% of Gross	Gross ≤ ₹21,000/month
PT (Telangana)	Nil (≤ ₹15,000) / ₹150 (₹15,001–₹20,000) / ₹200 (> ₹20,000)	Nil	All salaried

Creating Pay Heads

Gateway → Masters → Payroll Info → Pay Heads → Create

Earnings Pay Heads

Basic Salary:

Name: Basic Salary
Pay Head Type: Earnings for Employees
Affect Net Salary: Yes
Use for Calculation: Yes
Calculate Type: As Computed Value (fixed per employee)
→ Ctrl+A

HRA:

Name: HRA
Pay Head Type: Earnings for Employees
Calculation Type: % of Basic → 40%
(Hyderabad is classified non-metro under Income Tax rules)
→ Ctrl+A

Travel Allowance:

Name: Travel Allowance
Pay Head Type: Earnings for Employees
Calculation Type: Flat Rate
→ Ctrl+A

Deduction Pay Heads

PF Employee Contribution:

Name: Provident Fund (Employee)
Pay Head Type: Deductions from Employees
Calculation Type: % of Basic → 12%
Calculation Period: Month
→ Ctrl+A

PF Employer Contribution:

Name: Provident Fund (Employer)
Pay Head Type: Employer's Statutory Contributions
Calculation Type: % of Basic → 12%
→ Ctrl+A

ESI Employee:

Name: ESI (Employee)
Pay Head Type: Deductions from Employees
Calculation Type: % of Gross → 0.75%
Applicable: Gross ≤ ₹21,000
→ Ctrl+A

ESI Employer:

Name: ESI (Employer)
Pay Head Type: Employer's Statutory Contributions
Calculation Type: % of Gross → 3.25%
Applicable: Gross ≤ ₹21,000
→ Ctrl+A

Professional Tax (Telangana):

Name: Professional Tax
Pay Head Type: Deductions from Employees
Calculation Type: Slab Rate
Slab:
  Up to ₹15,000/month       → Nil
  ₹15,001 – ₹20,000/month  → ₹150
  ₹20,001 and above         → ₹200
→ Ctrl+A

Creating Employee Masters

Gateway → Masters → Payroll Info → Employees → Create

Employee 1 — Kiran Sharma (Managing Director)

Name: Kiran Sharma
Under: Primary
Employee ID: EMP-001
Date of Joining: 15-Apr-2023
Department: Management
Designation: Managing Director
PAN: ABCKS1234Z

Bank Details:
  Bank: State Bank of India — Madhapur Branch
  Account No: XXXXXXXXXXXX (personal account)
  IFSC: SBIN0020229

Salary Structure (from 01-Apr-2025):
  Basic Salary:        ₹35,000
  HRA (40% of Basic):  ₹14,000
  Travel Allowance:     ₹1,000
  Gross Salary:        ₹50,000

PF: Yes  → 12% of ₹35,000 = ₹4,200 (employee)
ESI: No  → Gross ₹50,000 > ₹21,000
PT: ₹200  → Gross > ₹20,000
→ Ctrl+A

Employee 2 — Sneha Reddy (Director – Finance)

Name: Sneha Reddy | EMP-002
Designation: Director – Finance | Department: Finance
PAN: ABCSR5678Y

Salary:
  Basic: ₹31,500 | HRA: ₹12,600 | Travel: ₹900 | Gross: ₹45,000

PF: Yes  → ₹31,500 × 12% = ₹3,780
ESI: No  → Gross > ₹21,000
PT: ₹200

Employee 3 — Ramesh Kumar (Accountant)

Name: Ramesh Kumar | EMP-003
Designation: Accountant | Department: Accounts

Salary:
  Basic: ₹17,500 | HRA: ₹7,000 | Travel: ₹500 | Gross: ₹25,000

PF: Yes  → ₹17,500 × 12% = ₹2,100
ESI: No  → Gross ₹25,000 > ₹21,000
PT: ₹200 → Gross > ₹20,000

Employee 4 — Priya Singh (Sales Executive)

Name: Priya Singh | EMP-004
Designation: Sales Executive | Department: Sales

Salary:
  Basic: ₹12,600 | HRA: ₹5,040 | Travel: ₹360 | Gross: ₹18,000

PF: Yes  → ₹12,600 × 12% = ₹1,512
ESI: Yes → ₹18,000 × 0.75% = ₹135  (Gross ≤ ₹21,000)
PT: ₹150 → ₹15,001–₹20,000 slab

Employee 5 — Suresh Babu (Warehouse Helper)

Name: Suresh Babu | EMP-005
Designation: Warehouse Helper | Department: Operations

Salary:
  Basic: ₹8,400 | HRA: ₹3,360 | Travel: ₹240 | Gross: ₹12,000

PF: Yes  → ₹8,400 × 12% = ₹1,008
ESI: Yes → ₹12,000 × 0.75% = ₹90  (Gross ≤ ₹21,000)
PT: Nil  → Gross ≤ ₹15,000

Processing April 2025 Payroll

Step 1 — Enter attendance:

Gateway → Payroll Vouchers → Attendance/Production → Enter
Date: 30-Apr-2025
Payroll Group: Primary

All 5 employees: Present — 26 days
(April 2025 has 30 calendar days; 4 Sundays off = 26 working days)
→ Ctrl+A

Step 2 — Process payroll:

Gateway → Payroll Vouchers → Payroll Voucher
Date: 30-Apr-2025
Payroll Group: Primary
→ Tally auto-calculates all salary components based on attendance
→ Ctrl+A

April 2025 Payroll — Computed Summary

Employee	Gross	PF (Emp)	ESI (Emp)	PT	Net Pay
Kiran Sharma	₹50,000	₹4,200	—	₹200	₹45,600
Sneha Reddy	₹45,000	₹3,780	—	₹200	₹41,020
Ramesh Kumar	₹25,000	₹2,100	—	₹200	₹22,700
Priya Singh	₹18,000	₹1,512	₹135	₹150	₹16,203
Suresh Babu	₹12,000	₹1,008	₹90	—	₹10,902
Total	₹1,50,000	₹12,600	₹225	₹750	₹1,36,425

Bank payment on Apr 25: SBI Cr ₹1,36,425 (net salaries)

Employer additional cost:

Contribution	Calculation	Amount
PF Employer (all 5)	₹(35,000+31,500+17,500+12,600+8,400) × 12%	₹12,600
ESI Employer (Priya + Suresh)	(₹18,000 + ₹12,000) × 3.25%	₹975
Total employer additions		₹13,575

Total salary cost to Sunrise Retail: ₹1,50,000 + ₹13,575 = ₹1,63,575

Statutory Compliance — Remittance Due Dates

Obligation	Amount	Due Date
PF (employee + employer)	₹12,600 + ₹12,600 = ₹25,200	15-May-2025
ESI (employee + employer)	₹225 + ₹975 = ₹1,200	15-May-2025
Professional Tax	₹750	10-May-2025

Printing Payslips

Gateway → Reports → Payroll → Payslip
→ Select all employees (or specific employee)
→ Period: 01-Apr-2025 to 30-Apr-2025
→ Alt+P to print (or Alt+M to email)

Each payslip shows: name, designation, employee ID, earnings breakdown, deductions, net pay, bank account, and employer's contribution summary.

Practice Exercise

Exercise: A new employee "Vinod Reddy" joins on April 16 at ₹20,000 gross/month (Basic ₹14,000, HRA ₹5,600, Travel ₹400). April has 26 working days. Calculate his April salary for 11 days (Apr 16–26 = 11 days). Is he eligible for ESI and PF?

Show Solution

Prorated salary (11/26 days):

Gross: ₹20,000 × 11/26 = ₹8,462
Basic: ₹14,000 × 11/26 = ₹5,923

PF: Yes — applicable to all employees regardless of salary

PF = ₹5,923 × 12% = ₹711

ESI: Yes — monthly gross is ₹20,000 which is ≤ ₹21,000

ESI = ₹8,462 × 0.75% = ₹63

PT: Telangana PT is assessed on full monthly salary (not prorated): ₹20,000 falls in ₹15,001–₹20,000 slab

PT = ₹150 (full month, not prorated — state-specific rule)

Net Pay: ₹8,462 − ₹711 − ₹63 − ₹150 = ₹7,538

Pay Heads Beyond Statutory

The pay heads above (Basic, HRA, Travel, PF, ESI, PT) handle the statutory part of payroll. Real Indian payroll typically has four more pay heads that need explicit setup in Tally. Skip them and you'll be posting manual journal vouchers every month.

1. Overtime — As a Production Type Pay Head

Overtime is paid per hour, not per day — so it's configured as a Production Type pay head, not an Attendance Type. In Tally:

Step A — Create the Production Type master:

Gateway → Masters → Payroll Info → Attendance/Production Types → Create
Name             : Overtime Hours
Type             : Production Type
Period Type      : Months
Units            : Hours (Hrs)
→ Ctrl+A

Step B — Create the Overtime pay head:

Gateway → Masters → Payroll Info → Pay Heads → Create
Name                : Overtime
Pay Head Type       : Earnings for Employees
Under               : Indirect Expenses
Affect Net Salary   : Yes
Calculation Type    : On Production
Production Type     : Overtime Hours
Calculation Period  : Months
Rate                : ₹120 per Hr  (or per-employee rate)
→ Ctrl+A

Step C — Enter overtime hours in the Attendance voucher:

Gateway → Payroll Vouchers → Attendance / Production → Enter
Date: 30-Apr-2025

Suresh Babu — Attendance (Present)     : 26 days
Suresh Babu — Production (Overtime)    : 25 hours
→ Ctrl+A

Step D — Process payroll voucher — Tally computes:

Overtime earnings for Suresh = 25 hrs × ₹120/hr = ₹3,000
Revised gross                = ₹12,000 + ₹3,000 = ₹15,000
PF                           = 12% × ₹8,400 Basic (unchanged) = ₹1,008
ESI                          = 0.75% × ₹15,000 = ₹113  (gross still ≤ ₹21,000)
PT                           = ₹0  (gross still ≤ ₹15,000)
Net Pay (revised)            = ₹15,000 − ₹1,008 − ₹113 − ₹0 = ₹13,879

Configuring Overtime in Tally — three things that trip people up:

The Production Type master MUST be created before the pay head, otherwise the pay head can't bind to it.
Calculation Type is On Production, not "Flat Rate" — Flat Rate would pay the same overtime amount regardless of hours.
Enter hours via the Attendance/Production voucher, NOT the Payroll voucher. The Payroll voucher reads from the Attendance voucher.

2. Bank Loan EMI / Salary Advance Recovery — Recurring Deduction

When the company advances a personal loan or salary advance to an employee, the monthly EMI is a Loans and Advances pay head — it reduces net pay but doesn't book as expense (it reduces the loan asset instead).

Create the loan master ledger:

Gateway → Masters → Accounts Info → Ledgers → Create
Name        : Ramesh Kumar — Salary Advance Recoverable
Under       : Loans & Advances (Asset)
Opening Bal : ₹50,000 (Dr) — advance given in March
→ Ctrl+A

Create the deduction pay head:

Gateway → Masters → Payroll Info → Pay Heads → Create
Name                : Salary Advance Recovery — Ramesh
Pay Head Type       : Loans and Advances
Under               : Ramesh Kumar — Salary Advance Recoverable
Affect Net Salary   : Yes (reduces take-home)
Calculation Type    : Flat Rate
Value (Flat Rate)   : ₹5,000 per month (10-month recovery)
→ Ctrl+A

Effect on April payslip — Ramesh Kumar:

Component	Amount
Gross Salary	₹25,000
PF Deduction (12% × ₹17,500 Basic)	₹2,100
Professional Tax	₹200
Salary Advance Recovery	₹5,000
Net Pay	₹17,700

After 10 monthly recoveries, the "Salary Advance Recoverable" ledger balance reaches zero — no further deduction.

3. Advance Recovery (One-Off)

For ad-hoc advances paid mid-month and recovered in the same payslip:

Pay Head Type       : Deductions from Employees
Under               : Loans & Advances (Asset) — or specific employee advance ledger
Affect Net Salary   : Yes
Calculation Type    : As Specified during voucher

Enter the amount each time it's used in the Payroll voucher.

4. Bonus

Festive/performance bonus paid alongside regular salary in specific months:

Pay Head Type       : Earnings for Employees
Under               : Indirect Expenses
Affect Net Salary   : Yes
Calculation Type    : Flat Rate (or As Computed Value linked to "1 month's Basic")

Sunrise Retail Diwali Bonus 2025 — posted in October payroll as one extra earnings line equal to one month's Basic for each employee. Total payout: ₹90,000 (sum of all 5 employees' Basic). PF and PT recompute on the elevated October gross.

Sample Sunrise Retail Payroll with Overtime + Loan Recovery

For April 2025, layering overtime (Suresh) and salary advance recovery (Ramesh) on top of the base payroll:

Employee	Gross	OT Earnings	Total Earnings	PF	ESI	PT	Loan Recovery	Net Pay
Kiran Sharma	₹50,000	—	₹50,000	₹4,200	—	₹200	—	₹45,600
Sneha Reddy	₹45,000	—	₹45,000	₹3,780	—	₹200	—	₹41,020
Ramesh Kumar	₹25,000	—	₹25,000	₹2,100	—	₹200	₹5,000	₹17,700
Priya Singh	₹18,000	—	₹18,000	₹1,512	₹135	₹150	—	₹16,203
Suresh Babu	₹12,000	₹3,000	₹15,000	₹1,008	₹113	₹0	—	₹13,879
Total	₹1,50,000	₹3,000	₹1,53,000	₹12,600	₹248	₹750	₹5,000	₹1,34,402

The journal entry split changes accordingly:

Salary A/c debited with full earnings (₹1,53,000 — gross + OT)
"Salary Advance Recoverable — Ramesh" reduces by ₹5,000 (asset comes down, not booked as expense)
Net pay credited to Salaries Payable = ₹1,34,402

Key Terms

Term	Meaning
Pay Head	Salary component — earnings (Basic, HRA) or deductions (PF, ESI, PT)
Employee Master	Employee record with joining date, PAN, salary structure, bank details
Payroll Voucher	Monthly salary processing voucher — Tally auto-computes all deductions
Payslip	Salary statement for each employee showing earnings, deductions, and net pay
EPFO	Employees' Provident Fund Organisation — PF remittance recipient
ESIC	Employees' State Insurance Corporation — ESI remittance recipient
Professional Tax	State-level tax on salaried employees — Telangana rates used here

Module Summary

Enable: F11 → Statutory → Enable Payroll: Yes
Create pay heads for each component, then employee masters with salary structures
Sunrise Retail: 5 employees, gross ₹1,50,000 | Net payout ₹1,36,425 | PF ₹25,200 | ESI ₹1,200 | PT ₹750
Employer total cost: ₹1,63,575/month (gross + employer statutory contributions)
Payslips: Reports → Payroll → Payslip → Alt+P

Quick Quiz

1. Suresh earns ₹12,000 gross. Is he eligible for ESI?

a) No — salary below minimum wage
b) Yes — ESI applies to all employees earning ≤ ₹21,000 gross
c) Only if he opts in
d) Only the employer contributes, not the employee

Answer

b) Yes — ESI is mandatory for employees with gross salary ≤ ₹21,000. Suresh (₹12,000 gross) qualifies. Both employee (0.75%) and employer (3.25%) contribute.

2. PF Employee contribution rate is:

a) 12% of Gross salary
b) 12% of Basic salary
c) 3.25% of Gross salary
d) 0.75% of Basic salary

Answer

b) 12% of Basic salary — PF is calculated on Basic wages, not Gross. ESI Employee is 0.75% of Gross. ESI Employer is 3.25% of Gross.

3. Kiran Sharma's net take-home for April is:

a) ₹50,000
b) ₹45,600
c) ₹45,800
d) ₹44,600

Answer

b) ₹45,600 — Gross ₹50,000 minus PF employee ₹4,200 minus PT ₹200 = ₹45,600. No ESI deduction as gross > ₹21,000.

Payroll Module — Employee Salaries and Statutory Deductions

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