Salary Processing
(Or: "How to pay people correctly so they don’t unionize against you.")
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3.3.1 Payroll Calculation
The Minefield of Compensation
"Get this wrong, and you’re not just facing disgruntled employees—you’re breaking the law."
💡 Salary Components Demystified
Component What It Is Legal Requirement Pro Tip
Basic Core salary (40-50% of CTC) Must be fixed Keep ≥50% of CTC for PF calculation
HRA House Rent Allowance Tax-exempt if rent paid Employees should submit rent receipts
PF Provident Fund (12% of basic) Mandatory for ₹15k+ basic salary Always deposit by 15th or 1% penalty
ESI Health insurance (0.75-3.25%) Mandatory for ₹21k+ gross salary Register within 15 days of eligibility
🔥 Horror Story:
A Noida startup delayed PF payments by 3 months. Employees couldn’t get loans, and the founder faced criminal charges under EPF Act.
Self-Assessment:
✅ PF/ESI thresholds tracked for each employee?
✅ HRA claims validated with rent receipts?
✅ Employer contribution calculated correctly?
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3.3.2 Salary Slips
(Your Legal Shield Against Labor Disputes)
Mandatory Salary Slip Fields
1. Gross Salary (Breakup of all components)
2. Deductions (PF, TDS, loans, etc.)
3. Net Pay (In words and numbers)
4. Bank Details (Account number + UPI ID)
💀 Danger Zone:
• Forgetting to include PF account number = Employees can’t claim benefits
• Missing ESI details = Potential ₹10k fine per slip
Pro Formats:
• For Startups: Use Zoho Payroll (Free <10 employees)
• For Scaleups: GreytHR (₹30/employee/month)
• For the Paranoid: Tally-compliant formats
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🛡️ Payroll Health Check
"How lawsuit-proof are you?"
Component 😱 Labour Court 🛠️ Survivable 🛡️ Bulletproof
Calculations "Approx. math" Excel formulas Automated payroll software
Salary Slips Verbal confirmation Email PDFs Digital + physical copies
Compliance "We’ll register PF later" Partial compliance All filings done on time
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🚨 Crisis Protocols
"When payroll goes to hell:"
Disaster Emergency Fix Prevention
Missed PF deadline Pay with penalty before 15th Set calendar alerts + auto-debits
Wrong TDS deduction Issue revised slips + refund Use ClearTax payroll checker
Salary shortfall Pay cash + document as advance Maintain 1-month payroll reserve
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📌 Pro Tips for Founders
1. The 25th Rule: Process salaries 5 days early to account for errors
2. The Paper Trail:
o Keep signed salary acceptance letters
o Maintain 3-year archives of all slips
3. The Nuclear Option:
For disputes, always have employee-signed copies of:
o Appointment letters
o Policy acknowledgments
o Past salary receipts
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🎯 Final Thought
"Employees forgive product failures, but they never forget salary screw-ups. Get this right, or get ready for mutiny."
