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  1. 1. Compensation And Employee Payroll - A General Overview Vijay Laxman
  2. 2. Compensation <ul><li>What is Compensation ? </li></ul><ul><li>Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. </li></ul><ul><li>Compensation provided to employees can direct in the form of monetary benefits and/or indirect in the form of non-monetary benefits known as perks, time off, etc. </li></ul><ul><li>Compensation does not include only salary but it is the sum total of all rewards and allowances provided to the employees in return for their services. </li></ul>
  3. 3. Types of Compensation Management <ul><ul><li>Direct Compensation   </li></ul></ul><ul><ul><li>Indirect Compensation   </li></ul></ul>
  4. 4. Direct Compensation
  5. 5. Direct Compensation <ul><li>Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. </li></ul><ul><li>The major benefits include basic salary, HRA, conveyance, LTA, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. </li></ul>
  6. 6. Components in Direct Compensation <ul><li>Basic Salary </li></ul><ul><li>HRA (House Rent Allowance) </li></ul><ul><li>CA (Conveyance Allowance) </li></ul><ul><li>LTA (Leave Travel Allowance) </li></ul><ul><li>Medical Reimbursement </li></ul><ul><li>Bonus (Salary Bonus) </li></ul><ul><li>SA (Special Allowance) </li></ul>
  7. 7. Components in Direct Compensation <ul><li>1) HRA (House Rent Allowance): </li></ul><ul><li>Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees </li></ul>
  8. 8. Components in Direct Compensation <ul><li>2) Conveyance : </li></ul><ul><li>Organizations provide for cab facilities to their employees. Some may also provide vehicles and petrol allowances to their employees. </li></ul>
  9. 9. Components in Direct Compensation <ul><li>3) Leave Travel Allowance: </li></ul><ul><li>These allowances are provided to retain the employee in the organization. </li></ul><ul><li>The employees are given allowances to visit any place they wish with their families or cash back to the employee after completion of the year of joining. </li></ul><ul><li>The allowances are scaled as per the position of employee in the organization. </li></ul>
  10. 10. Components in Direct Compensation <ul><li>4) Medical Reimbursement : </li></ul><ul><li>Organizations also look after the health conditions of their employees. </li></ul><ul><li>The employees are provided with medi-claims for them and their family members. </li></ul><ul><li>These medi-claims include health-insurances and treatment bills reimbursements </li></ul>
  11. 11. Components in Direct Compensation <ul><li>5) Bonus: </li></ul><ul><li>Bonus is paid to the employees during festive seasons to motivate them and provide them the social security . </li></ul><ul><li>The bonus amount is usually minimum of 8.33% of the gross salary or depending on the organization. </li></ul><ul><li>This is apart from the salary. </li></ul>
  12. 12. Components in Direct Compensation <ul><li>6) Special Allowance : </li></ul><ul><li>Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees on basis of increasing the tax free component to facilitate the employee. </li></ul>
  13. 13. Indirect Compensation
  14. 14. Indirect Compensation <ul><li>Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. </li></ul><ul><li>They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes. </li></ul>
  15. 15. Components in Indirect Compensation <ul><li>Leave Policy </li></ul><ul><li>Overtime Policy </li></ul><ul><li>Hospitalization </li></ul><ul><li>Insurance </li></ul><ul><li>Leave Travel </li></ul><ul><li>Retirement Benefits </li></ul><ul><li>Holiday Homes </li></ul><ul><li>Flexible Timings </li></ul>
  16. 16. Components in Indirect Compensation <ul><li>1) Leave Policy: </li></ul><ul><li>It is the right of employee to get adequate number of leave while working with the organization. </li></ul><ul><li>The Leave Policy differs in every organization. </li></ul><ul><li>The organizations provide for paid leaves such as casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc. </li></ul>
  17. 17. Components in Indirect Compensation <ul><li>2) Overtime Policy : </li></ul><ul><li>Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc. </li></ul>
  18. 18. Components in Indirect Compensation <ul><li>3) Hospitalization : </li></ul><ul><li>The employees should be provided allowances to get their regular check-ups, say at an interval of one year. </li></ul><ul><li>Even their dependents should be eligible for the medi-claims that provide them emotional and social security. </li></ul>
  19. 19. Components in Indirect Compensation <ul><li>4) Insurance : </li></ul><ul><li>Organizations also provide for accidental insurance and life insurance for employees. </li></ul><ul><li>This gives them the emotional security and they feel themselves valued in the organization. </li></ul>
  20. 20. Components in Indirect Compensation <ul><li>5) Leave Travel : </li></ul><ul><li>The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. </li></ul><ul><li>This is usually done to make the employees stress free. </li></ul>
  21. 21. Components in Indirect Compensation <ul><li>6) Retirement Benefits : </li></ul><ul><li>Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from the organization at the prescribed age. </li></ul>
  22. 22. Components in Indirect Compensation <ul><li>7) Holiday Homes : </li></ul><ul><li>Organizations provide for holiday homes and guest house for their employees at different locations. </li></ul><ul><li>These holiday homes are usually located in hill station and other most wanted holiday spots. </li></ul><ul><li>The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house. </li></ul>
  23. 23. Components in Indirect Compensation <ul><li>8) Flexible Timings : </li></ul><ul><li>Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons. </li></ul>
  24. 24. Payroll Management
  25. 25. Payroll Management <ul><li>Payroll refers to the administration of employees' salaries, wages, bonuses, net pay, and deductions. </li></ul><ul><li>It consist of the employee ID, employee name, date of joining, daily attendance record, basic salary, allowances, overtime pay, bonus, commissions, incentives, pay for holidays, vacations and sickness, value of meals and lodging etc. </li></ul><ul><li>There are some deductions such as PF, taxes, loan installments or advances taken by employee. </li></ul>
  26. 26. Sample type of Salary Break
  27. 27. Overview <ul><li>The Basic is Calculated as per 40% of the total Gross CTC </li></ul><ul><li>HRA is calculated as 50% (metro cities) or 40% (non metro cities) on the Basic </li></ul><ul><li>Medical and Conveyance are fixed at Rs. 1250/- and 800/- per month under non- taxable deduction. </li></ul><ul><li>The Spl Allowance is the rest of the remaining amount in the gross CTC, which is taxable. </li></ul><ul><li>Certain organizations provide DA( Dearness allowance) its is normally 40% of basic for metro and variable for other cities, This DA is taxable and PF will be deducted as from basic. </li></ul><ul><li>Provident fund is deducted from the Basic salary ( BASIC + DA) of employee on the monthly basis as per the employment law, which is provided later to the employee. </li></ul><ul><li>Organizations also contribute the same amount to the provident fund of the employee. </li></ul><ul><li>Deductions such as tax and loan/advances taken by the employee from organizations are deducted only where applicable. </li></ul>
  28. 28. Annual Payroll <ul><li>What is Annual Payroll? </li></ul><ul><li>Annual payroll consists of leave travel allowances, incentives, annual bonuses, meal vouchers/reimbursements, and medical reimbursements, shares etc. </li></ul>
  29. 29. Sample Annual Pay out
  30. 30. Some Important Act – Check list <ul><li>APPRENTICES ACT, 1961 </li></ul>Object of the Act Promotion of new manpower at skills. Improvement/refinement of old skills through theoretical and practical training in number of trades and occupation Applicability of the Act Areas and industries as notified by the Central Government Sec. 1 Industry Industry means any industry or business or in which any trade, occupation or subject/field in engineering or technology or any vocational course may be specified as a designated trade Sec. 2(k) Contract of Apprenticeship To contain such terms and conditions as may be agreed to by the apprentice, or his guardian (in case he is a minor) and employers. Sec. 4 Termination of Apprenticeship On the expiry of the period of Apprenticeship training. On the application by either of the parties to the contract to the Apprenticeship Advisor Sec. 6 Payment to Apprentices The employer to pay such stipend at a rate of not less than the prescribed minimum rate as may be specified. Sec. 6 <ul><li>Obligations of Apprentice </li></ul><ul><ul><li>To learn his trade conscientiously, diligently. </li></ul></ul><ul><ul><li>To attend practical and instructional classes regularly. </li></ul></ul><ul><ul><li>To carry out all lawful orders. </li></ul></ul><ul><ul><li>To carry out his contractual obligations. </li></ul></ul><ul><li>Health safety & Welfare measures for Apprentices </li></ul><ul><li>As per Factories Act or Mines Act as the case may be when undergoing training. </li></ul><ul><li>Hours of work </li></ul><ul><ul><li>42 to 48 in a week while on theoretical training. </li></ul></ul><ul><ul><li>42 in a week while on basic training. </li></ul></ul><ul><ul><li>42 to 45 in a week in second year of training. </li></ul></ul><ul><ul><li>As per other workers (in the third year). </li></ul></ul><ul><ul><li>Not allowed to work between 10 PM to 4 AM unless approved by Apprenticeship Advisor. </li></ul></ul><ul><li>Leave and Holidays </li></ul><ul><ul><li>Casual leave for the maximum period of 12 days in a year. </li></ul></ul><ul><ul><li>Medical leave for the maximum period of 15 days and the accumulated leave upto 40 days in a year. </li></ul></ul><ul><ul><li>Extraordinary leave upto a maximum period of 10 days in a year. </li></ul></ul><ul><li>Sec. 15 </li></ul>
  31. 31. EMPLOYEES’ PROVIDENT FUNDS & MISC. PROVISIONS ACT, 1952 <ul><li>Eligibility : Any person who is employed for work of an establishment or employed through contractor in or in connection with the work of an establishment. </li></ul><ul><li>Benefits : Employees covered enjoy a benefit of Social Security in the form of an unattachable and unwithdrawable (except in severely restricted circumstances like buying house, marriage/education, etc.) financial nest egg to which employees and employers contribute equally throughout the covered persons’ employment. This sum is payable normally on retirement or death. Other Benefits include Employees’ Pension Scheme and Employees’ Deposit Linked Insurance Scheme. </li></ul><ul><li>Provident Fund Scheme : Employee contribution : 12.36 % + Employer : 13.61% </li></ul>
  32. 32. EMPLOYEES’ STATE INSURANCE ACT, 1948 <ul><li>Applicability : Is extended in area-wise to factories using power and employing 10 or more persons and to non-power using manufacturing units and establishments employing 20 or more person upto Rs.7500/- per month w.e.f. 1.4.2004. It has also been extended upon shops, hotels, restaurants, roads motor transport undertakings, equipment maintenance staff in the hospitals. </li></ul><ul><li>Coverage :Drawing wages Upto Rs.10000 </li></ul><ul><li>Rate of Contribution : Employers’ 4.75% - Employees’ 1.75% </li></ul><ul><li>Benefits : Medical, sickness, extended sickness for certain diseases, enhanced sickness, dependents maternity, besides funeral expenses, rehabilitation allowance, medical benefit to insured person and his or her spouse. </li></ul><ul><li>Contribution period : 1st April to 30th September or 1st October to 31st March </li></ul>
  33. 33. MATERNITY BENEFIT ACT, 1961 <ul><li>Objective: To protect the dignity of motherhood and the dignity of a new person’s birth by providing for the full and healthy maintenance of the woman and her child at this important time when she is not working </li></ul><ul><li>Benefits : Women indulging temporary of unmarried are eligible for maternity benefit when she is expecting a child and has worked for her employer for at least 80 days in the 12 months immediately proceeding the date of her expected delivery </li></ul><ul><li>10 weeks before the date of her expected delivery, she may ask the employer to give her light work for a month. At that time she should produce a certificate that she is pregnant. </li></ul><ul><li>She should give written notice to the employer about seven weeks before the date of her delivery that she will be absent for six weeks before and after her delivery. She should also name the person to whom payment will be made in case she can not take it herself. </li></ul><ul><li>She should take the payment for the first six weeks before she goes on leave. </li></ul><ul><li>She will get payment for the six weeks after child-birth within 48 hours of giving proof that she has had a child. </li></ul>
  34. 34. <ul><li>She will be entitled to two nursing breaks of fifteen minutes each in the course of her daily work till her child is fifteen months old. </li></ul><ul><li>Her employer cannot discharge her or change her conditions of service while she is on maternity leave. </li></ul><ul><li>Cash Benefits </li></ul><ul><li>Leave with average pay for six weeks before and after the delivery( 6 +6 weeks). </li></ul><ul><li>A medical bonus of Rs.25 if the employer does not provide free medical care to the woman. </li></ul><ul><li>An additional leave with pay up to one month if the woman shows proof of illness due to the pregnancy, delivery, miscarriage, or premature birth. </li></ul><ul><li>In case of miscarriage, six weeks leave with average pay from the date of miscarriage. </li></ul><ul><li>Non Cash Benefits/Privilege </li></ul><ul><li>Light work for ten weeks (six weeks plus one month) before the date of her expected delivery, if she asks for it. </li></ul><ul><li>Two nursing breaks in the course of her daily work until the child is 15 months old. </li></ul><ul><li>No discharge or dismissal while she is on maternity leave. </li></ul><ul><li>No change to her disadvantage in any of the conditions of her employment while on maternity leave. </li></ul><ul><li>Pregnant women discharged or dismissed may still claim maternity benefit from the employer. </li></ul><ul><li>Exception : Women dismissed for gross misconduct lose their right under the Act for Maternity Benefit </li></ul>
  35. 35. MINIMUM WAGES ACT, 1948 <ul><li>Objective : To provide for fixing minimum rates of wages in certain employments </li></ul><ul><li>Minimum Rates of Wages : Such as Basic rates of wages etc. Variable DA and Value of other concessions etc. </li></ul><ul><li>Government fixes Minimum Wages based on: Time work ,Piece work at piece rate ,Piece work for the purpose of securing to such employees on a time work basis, Overtime work done by employees for piece work or time rate workers. </li></ul><ul><li>Payment of Minimum Rates of Wages : Employer to pay to every employee engated in schedule employment at a rate not less than minimum rates of wages as fixed by Notification by not making deduction other than prescribed </li></ul><ul><li>The employer is to pay the min wages on a daily or monthly basis other than the overtime.` </li></ul>
  36. 36. BONUS ACT, 1965 <ul><li>Applicability : Every factory where in 10 or more persons are employed with the aid of power or An establishment in which 20 or more persons are employed without the aid of power on any day during an accounting year </li></ul><ul><li>Payment of Minimum Bonus : 8.33% of the salary or Rs.100 (on completion of 5 years after 1st Accounting year even if there is no profit) </li></ul><ul><li>Eligibility : An employee will be entitled only when he has worked for 30 working days in that year </li></ul><ul><li>Components : Salary or wages includes dearness allowance but no other allowances e.g. over-time, house rent, incentive or commission </li></ul><ul><li>Eligible Employees : Employees drawing wages upto Rs.3500 per month or less. For calculation purposes Rs.2500 per month maximum will be taken even if an employee is drawing upto Rs.3500 per month </li></ul><ul><li>Time Limit for Payment of Bonus : Within 8 months from the close of accounting y ear. </li></ul>
  37. 37. GRATUITY ACT, 1972 <ul><li>Applicability : Every factory, mine, oil field, plantation, port, railways, company, shop, establishment or educational institutions employing 10 or more employees </li></ul><ul><li>Qualifying requirement : All employees irrespective of status or salary, Entitlement On completion of five years’ service except in case of death or disablement </li></ul><ul><li>Calculation : @ 15 days’ wages for every completed year as if the month comprises of 26 days at the last drawn wages. </li></ul><ul><li>Maximum Ceiling : Rs.3,50,000 </li></ul><ul><li>Mode of payment : Cash or Bank Draft or Cheque </li></ul><ul><li>Forfeiture: On termination of an employee for moral turpitude or riotous or disorderly behavior. Wholly or partially for willfully causing loss, destruction of property etc. </li></ul>
  38. 38. Thank You Happy Learning while Enjoying work 