There are many statutory deductions in India payroll and there are also also payouts like Statutory Bonus, Leave encashment, Gratuity which depend upon the definition of "Wages". In EazeWork we provide you the flexibility to select the heads which you want to include while defining the basis for calculation of wages for these heads.

For regular employees "Basic" is automatically selected and cannot be deselected across all columns. During the monthly payroll run or Full and Final settlement process the deduction or encashment is calculated on the basis of the heads selected in this table.

Some heads might not be available for selection as they might be not relevant for the selection.

Deductions or Payouts which can be managed can be divided in three categories -
1. Payouts
- Leave Without Pay
- Notice Period
- Leave Encashment
- Gratuity

2. Statutory Deductions
- Employee Provident Fund
- Bonus : Payment as per Bonus Act
- ESI : Employee State Insurance
- PT : Professional Tax
- Perquisite : calculation of wages for the purpose of calculation of perquisite value of Company accommodation
- OT : Overtime
- NPS : National Pension Scheme
- PF Expat : a different basis can be maintained for PF deduction of Expats
- HLWF - Haryana Labor Welfare Fund : this is a unique scenario since the amount to be deducted in LWF only in Haryana is linked to wages

3. Custom deductions : these can only be linked to Leave Without Pay

In this section if we select any head which is not fixed but is variable then the calculation will be done after taking into account the projected value of the variable heads after basing it on a monthly value. For example suppose there is a head "Sales incentive" which is not fixed but is variable with annual value of 18,000 or a monthly value of 1,500 – based on this a PF value of 12% x 1500 will be added to projected figures.

The heads can be selected or deselected at any point of time, any changes to the status is applied to only used for the subsequent payroll runs.

Leave Encashment is a unique head as it is there in both the column and row of the table. If you want to deduct ESI / PF on the leave encashment payout you can select these heads on the Leave encashment row. Refer article on "Leave encashment" for more details.

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Example 1 - The impact of LWP on various heads is explained through this example

Claim / Reimbursement head eligibility accrues in advance on 1^st of the month for the current month.  Suppose for an employee

Medical Expense – 1250 is monthly eligibility

Basic – 25000

On 1-Feb employee is credited with an expense eligibility of 1250 and he is paid a Basic of 25,000 when payroll is processed on 25 Feb. Suppose on 28-Feb it is updated in the system that the employee is on LWP for the whole month and suppose that besides the 4 Sundays there were no holidays and there were 24 working days so there are 24 LWP.

Then on approval of the LWP immediately the revised Medical expense eligibility of the employee will be calculated as

1250 – 1250 x 24 / 28 here 24 is the number of LWP and 28 is the number of days in February

Similarly when payroll for March is processed system will pay Basic which is calculated as 25000 – 25000 x 24/28
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Example 2 – Impact of change in Deduction and Encashment settings

Suppose only Basic is selected under LWP and there is one LWP on 10-June, June payroll is processed. In this payroll the impact of LWP will be seen only on Basic.

Now we select HRA also under LWP in the grid.

Case 1 – A LWP is entered for 11-Jun and July payroll is processed, in this payroll the impact will come on both Basic and HRA

Case 2 – June payroll is cancelled and LWP for 11-Jun is added and June payroll is rerun. In this payroll both 10-Jun and 11-Jun LWP will lead to reduction for Basic and HRA now since HRA has been added.
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Change in basis of Deductions and Encashment

The selection of heads can be changed at any point of time and the revised selection will be used for calculations being done in subsequent payroll runs or full and final calculations.

Additional constraints - The Deduction and Encashment settings for a month for LWP column are frozen when payroll for the month is run. Till the payroll is run the revised settings will impact the reduction in Payroll Claim / Reimbursement heads eligibility immediately.

If your company is using Cost to Company - "refer article" - as a basis for defining salary structure then a change in the basis for calculation of Gratuity, Provident Fund or ESI will lead to a change in the value of CTC contribution linked to these heads.

Payroll Manager will have to correct the salary structure of the impacted employees before payroll can be run.