Creating Pay Heads

The salary components constituting an employee’s pay structure is called a Pay Head. A Pay Head may be an earning to the employee, or a deduction, which is recovered from his/her salary. The value of these pay heads could be either fixed or variable, for each payroll period.

For example: Basic Pay is a fixed pay component whereas Variable Pay, Bonus are variable components.

Pay Head Type

Pay Head is categorised as EarningsDeductions or Reimbursements.

The preset Pay Head Types in Tally.ERP 9 are as shown below:

  • Earnings for Employees

  • Deductions from Employees

  • Employees’ Statutory Deductions

  • Employer’s Statutory Contributions

  • Employer’s Other Charges

  • Bonus

  • Gratuity

  • Loans and Advances

  • Reimbursements to Employees

Note: For International customers, Employees’ Statutory DeductionsEmployer’s Statutory Contribution and Employer’s other Charges Pay head Types are not applicable.

Statutory Pay Head Type

The Statutory Pay Head Type field is enabled when Employees’ Statutory DeductionsEmployer’s Statutory Contributions and Employer’s Other Charges Pay Head Types are selected in the Pay Head Type field.

The preset Statutory Pay Head Types in Tally. ERP 9 are as shown below:

  • Employee State Insurance

  • PF Account (A/c No. 1)

  • EPS Account (A/c No. 10)

  • Professional Tax

  • Income Tax

  • Voluntary PF (A/c No. 1)

  • Admin Charges (A/c No. 2)

  • EDLI Admin Charges (A/c No. 22)

  • EDLI Contribution (A/c No. 21)

  • National Pension Scheme (Tier – I)

  • National Pension Scheme (Tier – II)

Note: Statutory Pay Head Type will appear only when the Payroll Statutory Features are enabled.

Use for Gratuity

This parameter should be set to Yes, for the Pay Head components that will be used for the Gratuity calculation (For example: Basic Pay and DA etc.)

Calculation Types

The method of calculation of the Pay Head is based on its Calculation Type.

Note: The formula defined in Calculation Type will be used for computation only while using Payroll Auto Fill feature in the Payroll Voucher, and not in manual entry mode of Payroll voucher.

The following computation modes are supported in Calculation Types of Tally. ERP 9.

Flat Rate

Flat Rate is used where the value of the Pay head is a fixed amount for a period. Pro-rata calculation will not happen if this calculation type is selected in the pay head.

Examples of Flat Rate Calculation Type:

  • Conveyance Allowance of ` 800 per month

  • Fixed Loan Installment deduction amount

On Attendance

On Attendance type is based on the attendance data where the component will get pro-rated based on the actual days the Employee is present/absent in office for the selected period.  In Tally. ERP 9 the attendance can be recorded as positive days (Present) or loss of pay (Absent) type.

Example of On Attendance Calculation Type:

  • Basic Salary is calculated on Attendance

Attendance /  Leave with pay

If you want to calculate the Pay Head Value using the positive attendance (Present), then select the same against this field.

Leave without Pay

If you want to calculate the Pay Head Value using the negative attendance (Absent), then select Not Applicable in the Attendance/Leave with Pay field and select Absent in the Leave without Pay field.

On Production

On Production Calculation Type is used to calculate the pay value based on the Production/Work done. The production data can be entered in Attendance voucher against the Production type.

Example of On Production Calculation Type:

  • Overtime

As Computed Value

As Computed Value is used if the pay head value is dependent on another pay component. You will be able to define a pay component with this calculation type by specifying a formula/using current sub-total/on current earning/on deduction total.  You can also define the slab either by percentage or value or a combination of both.

Example of As Computed Value:

  • HRA as 40% of Basic Salary

As User defined Value

As User defined Value allows you to manually enter the value at the time of processing the salary. This Calculation Type is used when the value of the pay is not fixed and does not depend on any pay component.

Example of As User Defined Value:

  • Incentives

  • Variable Salary

Calculation Period

Calculation Period refers to the periodicity of Pay Head Calculation. There are four pre-defined calculation periods in Tally.ERP 9:

  • Days

  • Fortnights

  • Months

  • Weeks

Per day Calculation Basis

Per day Calculation Basis refers to the calculation of per day Pay Head value Computation.

As per Calendar Period

As per Calendar Period refers to the perpetual calendar month, i.e. if the payroll process is carried out for the month of March, then the attendance records will be entered for 31 days.

For example:

  • Employee’ Monthly Salary = Rs. 3000

  • Calculation Basis = As per Calendar Period

  • Per Day salary for Jan (31 days) = 3000/31 = 96.78

  • Leave Taken = 3 days in Jan

  • Salary Deductible = (3000/31)*3 = 290.32

  • Salary Payable = 3000 – 290.23 = 2709.67

User Defined

User Defined refers to the consistent payroll period irrespective of calendar month, i.e. if an employee’s salary is based on a standard month of 30 days irrespective of the calendar month, then you can select User Defined as the Calculation Basis and define the periodicity of the specified period or month.

For example:

  • Employee’ Monthly Salary = Rs. 3000

  • Calculation Basis = User Defined month of 30 Days

  • Per Day salary for Jan (30 days) = 3000/30 = 100

  • Leave Taken = 3 days in Jan

  • Salary Deductible = (3000/30)*3 = 300

  • Salary Payable = 3000 – 300 = 2700

User Defined Calendar Type

User Defined Calendar Type option will provide flexibility to the user to select user defined calendar days for every Calculation Period. Once this option is selected, the user can have different number of working days for every Calculation Period.

For example the user can enter the total number of working days after reducing the Saturdays or Sundays or even holidays, if any, as per requirement.

For example:

  • Employee’ Monthly Salary = Rs. 3000

  • Calculation Basis = User Defined Calendar Type

  • Working Days in Jan = 31- 4 (Sundays) – 2 (Holidays) =25 Days

  • Per Day salary for Jan (30 days) = 3000/25 = 120

  • Leave Taken = 3 days in Jan

  • Salary Deductible = (3000/25)*3 = 360

  • Salary Payable = 3000 – 360 = 2640

Note: The User defined Calendar days have to be entered while recording a Attendance Voucher using the Auto Fill feature in the Default Value to Fill field that needs to be filled for every Calculation Period.

Rounding Method

There are four methods of Rounding Off in Tally.ERP 9:

  • Not Applicable – The decimal points will be taken into consideration and the amount will not be rounded off.

  • Downward Rounding – The decimal points will not be taken into consideration and the amount will be rounded off to the lower value.

  • Normal Rounding – The amount will be rounded off to the nearest currency value.

  • Upward Rounding – The amount will be rounded off to the higher value.

Computation Info

If As Computed Value is selected as the Calculation Type, then you can select the Pay Head Computation as per one of the following options:

Compute On

  • On Current Deductions Total – This Calculation Type is used when the value of a pay head depends upon the total of the deduction pay heads already defined.

  • On Current Earnings Total – This Calculation Type is used when the value of a pay head depends upon the total earnings pay heads already defined.

  • On Current Sub Total – This Calculation Type is used when the value of a pay head depends upon the net total of earnings and deductions already defined.

  • On Specified Formula – This Calculation Type is used when the pay head value is computed on the basis of value of one or more pay heads already defined in the pay structure. (Tally. ERP 9 allows addition, subtraction, multiplication and also division  of pay heads already defined in the pay structure For example: HRA is computed on 40% of the basic salary).

Effective From

The Effective From date is by default taken as the financial year start date during which the Pay Head is created. In case of revision in pay computation, then such revision for the given pay head can be defined by altering the Effective From date.

From Amount

In case there are multiple slabs for computation of pay head, then the start value for each slab should be provided in this field. By default, this field is skipped and assumed to be 0 for the first slab.

Amount Up to

The upper stratum value for each slab is provided in this field.

Slab Type
  • Percentage – This slab rate is used when the amount is stated as a percentage of a whole

  • Value – This slab rate is used when the amount is stated as absolute value.

Value Basis

Value Basis for each slab is provided in this field, which can be either an Amount or Percentage based on the Slab Type selected the previous field.

Note: All Pay Heads created will appear under the List of Ledgers in the default Accounting reports.

Creating Earnings Pay Head

Based on the Calculation Type and the Calculation period selected, the Earnings Pay heads can be further divided into the following main types:  

  • Attendance based Earnings Pay Head

  • Computation based Earnings Pay Head

  • Flat Rate based Earnings Pay Head

  • Production based Earnings Pay Head

  • User Defined Earnings Pay Head

    Creating Attendance based Earnings Pay Head

    To create an Attendance based Earnings Pay Head (e.g. Basic Pay),

    Go to Gateway of Tally > Payroll Info. > Pay Heads> Create

    1. Enter the Pay Head name in the Name field.

    2. Select Earnings for Employees as the Pay Head Type from the List of Pay Head Types.

    3. Select the Income Type for the Pay Head

The two Income Types are Fixed and Variable.

  • Pay Heads categorized under the Income Type – Fixed, form a part of the employee’s Total Gross Salary. For example: Basic Pay

  • Pay Heads categorized under the Income Type – Variable, form a part of the employee’s Total Earnings only. For example: Overtime Wages

  1. Select Indirect Expenses from the List of Groups in the Under field.

  1. Set Affect Net Salary to Yes, if you want the Pay Head to affect the net salary.

  2. Name to appear in Payslip field is defaulted with the pay head Name entered. You can change the same, if required.

  3. Set Use for Gratuity to Yes, to consider this pay head for Gratuity calculation.

  4. Set the option  Set / Alter Income Tax Details to Yes

  5. In the Income Tax Details screen,

  • Select the required Tax component in the Income Tax Component field (e.g. Basic Pay)

  • In Tax Calculation Basis, select On Projection if tax computation has to be spread across the remaining period

  • Set the option Deduct TDS across Period(s) to Yes for Tax Calculation Basis as On Projection. It can be set to Yes or No for On Actuals

Note: Selecting Tax Calculation Basis as On Projection will project the income component for the remaining period, whereas if Deduct TDS across Period(s) is set to Yes, then the TDS amount  deducted will be spread across the remaining period and deducted every month.

  1. Select On Attendance in the Calculation Type from the List of Calculation drop down.

  1. If Attendance is selected as the required Calculation Type, select the required method of recording attendance.

    • To deduct salary for the number of days an employee is absent (Leave without Pay),

    • Select Not Applicable for Attendance / Leave with Pay field

    • Select Absent in the field Leave without Pay field

Note: You can select either one of the methods for Calculation Type for recording the Attendance. If Present  Days is selected then the option to select the Absent Attendance Type will not appear.

 For Present Attendance Type,

Select Present in the Attendance / Leave with Pay field and follow the remaining steps.

  1. Select the required Calculation Period from the List of Calculation Periods.

  1. Based on the Calculation Period, you can select and enter the details for Per Day Calculation Basis as User Defined or Calendar Period or User Defined Calendar Type.

  2. Select the Rounding Method from the list if applicable.

  3. In the Limit field, enter the required Rounding Off Limit.

Accept to save the Pay Head.