In today’s fast-paced corporate world, it is critical to maintain accurate records of each employee’s salary payments. That is where salary slips can be handy. It is an essential document for both employees and employers as it allows employees to know how their salary is calculated, thus creating transparency in the salary payment process. Employees can also use salary slips for various purposes including, seeking employment, applying for loans and tax planning.
However, many companies and employees do not have a proper understanding of the various components of a payslip. In this guide, we have provided a detailed explanation of each component and the importance of a salary slip. Additionally, we have provided a ready-to-use salary slip format that employers can use in their organizations.
A salary slip or payslip is a detailed document that includes important information related to employees’ salary payments, including earnings and deduction components of the salary. Payslips are mostly issued on a monthly basis and distributed as a printed copy or through email. The main motive behind providing payslips is to help employees get a clear idea about how they are paid and help them track their income.
Each organization has their different formats of salary statements, but the basic elements remain the same everywhere. We have listed out all these important elements here:
As various salary components are included in the payslip, you must know each of them in detail. Here we have listed all the important wage components of the payslip.
Generally, employee wage components come under two main categories –
1. Earnings (Income)
Earning Components included in the salary slip are:
On the other hand, deduction components contained in the employee payslip are:
All of these components are the crucial part of the employee salary. Check out our blog on salary structure, if you want to know more about how the employee salary is calculated.
For employees, keeping payslips is as beneficial as their employment certificate. These slips can help them with loan processes, planning for income tax, seeking employment and at the time of salary negotiation. Here, we have discussed why it is important in detail.
Employees can use payslips when they are required to provide legal proof of employment. In case employees apply for travel visas, they may need to provide a copy of the payslip as proof of their last drawn salary and job title. Besides, it can be considered as one of the most crucial documents for background checks when applying for jobs.
When a particular employee is seeking a job change, he/she may have to provide proof of employment and the pay scale at which they are working. A payslip can be helpful when negotiating with potential employers about the total CTC and its every component (i.e. basic salary, deductions, etc). Mostly every employer asks for employees’ past payslips to verify their employment and earnings.
The employees can compare the salary offered by the prospective employer with their previous pay mentioned in the payslips. So, the chances of getting a good salary will increase.
A payslip shows a monthly break-up of an individual’s total earnings, deductions and taxable components. The break-up of deductions includes professional tax, TDS, ESIC and EPF. It becomes crucial for employees to collect this information for the relevant financial year to determine their tax liability and plan out tax-saving investments.
So, employees must gather the values for these components for the relevant fiscal year. All of this information will be helpful to precisely determine their tax liability and plan out tax-saving investment plans accordingly. Without a salary slip, the chances of inaccurate calculations will be more, which can ultimately lead to legal issues.
If an employee’s tax liability is less than the deducted amount, then he/she can claim the refund of that excess amount as the payslip includes the amount of TDS.
As the payslip covers all the crucial information about the individual’s wages, it can be used as a legal proof of their credit-paying ability i.e. when availing credit cards, loans, mortgages, etc. All the banks and lending institutions are required to ask for a copy of the salary slip from the person. They check the creditworthiness based on the information from the individual’s salary statements. Payslips also determine employees’ taxes in the fiscal year.
- Every salaried individual who is employed in a company is eligible for the payslips. As per the payroll cycle of the organization, employers distribute each employee with a copy of the payslip after the salary payments are made. If organizations do not provide payslips, in that case, employees can request a salary certificate from the employer. As tech advancement has changed the way business operates, salary statements can now be shared with employees in digital format in no time.
- No, there is a clear difference between payslips and salary certificates. The payslip contains all the information related to the employee’s earnings and deductions made in monthly payments. While the salary certificate is a document that verifies an employee’s salary for a specific period. Usually, it is issued by an employer when the employee requests it. It can be used for financial or loan-related purposes.
– CTC is the total amount an organization spends on an individual employee. While the gross salary is the amount a company pays to the employee (before any deductions) and the net pay is an in-hand salary that the employee receives (after all the deductions).
Employees should not share information about their salary packages and offered benefits. There is no specific rule from the government, but some companies may have clauses (in employment contracts) that clearly prohibits employees from disclosing their salary details.
Providing payslips to employees is just as important as the salary itself. If any organization refuses to share the salary slips, then employees have the right to file a complaint against them (under the labor court – state and central authority).