Payroll Components

Payroll components are the building blocks of every salary calculation. They define what makes up an employee's pay — from base allowances like House Rent Allowance, to deductions like Provident Fund, to taxes like Income Tax. Each component has a type, a calculation method, and a default value.

You set up components once at the organization level. They are then assigned to individual employees through Salary Structures.

Component Types

Every payroll component belongs to one of three types:

Type	Purpose	Example
Allowance	Additions to the basic salary that increase gross pay	House Rent Allowance, Transport Allowance, Medical Allowance
Deduction	Amounts subtracted from gross pay	Provident Fund, Professional Tax, Loan Repayment
Tax	Tax amounts calculated on gross salary	Income Tax, Social Security Tax

How They Fit Into the Salary Calculation

Basic Salary
  + Allowances
  + Overtime Pay (if applicable)
  ─────────────────────
  = Gross Salary
  − Deductions
  − Taxes
  ─────────────────────
  = Net Salary (take-home pay)

Allowances are added to the basic salary to arrive at the gross salary. Deductions and taxes are then subtracted from the gross salary to determine the employee's net (take-home) pay.

Calculation Methods

Each component uses one of two calculation methods:

Fixed Amount

The component contributes a set monetary value regardless of the basic salary.

Example: Transport Allowance = 5,000. Every employee assigned this component receives exactly 5,000.

Percentage of Basic Salary

The component amount is calculated as a percentage of the employee's basic salary.

Example: House Rent Allowance = 40%. An employee with a basic salary of 50,000 receives 20,000 as HRA.

For taxes, the percentage is calculated on the gross salary (not the basic salary). This means taxes factor in allowances and overtime pay as well.

Creating a Payroll Component

1. Navigate to HRM > Payroll Components in the sidebar.

2. Click Create Payroll Component.

3. Fill in the form:

Field	Required	Description
Name	Yes	A descriptive name (e.g., "House Rent Allowance")
Code	Yes	A short unique code (e.g., "HRA"). Used internally for identification.
Type	Yes	Select Allowance, Deduction, or Tax
Calculation Type	Yes	Fixed or Percentage
Default Value	Yes	The default amount or percentage. This value is pre-filled when adding the component to a salary structure, but can be customized per employee.
Description	No	An optional explanation of what this component covers
Is Taxable	No	Whether this component's amount should be subject to tax calculations
Is Deductible	No	For deduction-type components — whether the deduction should actually be applied during payroll processing. Uncheck to temporarily disable a deduction without removing it.
Is Active	No	Whether the component is available for use. Inactive components cannot be added to new salary structures.
Display Order	No	Controls the order in which this component appears in lists and on payslips.

1. Click Create.

Editing and Deactivating Components

To edit a component, click on it from the Payroll Components list and modify the fields.

Changing a component's default value does not retroactively change existing salary structures. It only affects new assignments. To update values for employees who already have this component, edit their individual salary structures.

To temporarily disable a component without deleting it, uncheck the Is Active toggle. Inactive components remain on existing salary structures but cannot be added to new ones.

The Is Deductible Flag

Deduction-type components have an Is Deductible checkbox. When unchecked, the deduction is skipped during payroll calculation even if it appears in an employee's salary structure. This is useful when you need to temporarily suspend a deduction (such as a loan repayment pause) without modifying every affected salary structure.

Default Components

The system comes with a set of pre-configured components to get you started:

Component	Type	Calculation	Default Value
House Rent Allowance	Allowance	Percentage	40%
Transport Allowance	Allowance	Fixed	5,000
Medical Allowance	Allowance	Percentage	15%
Special Allowance	Allowance	Percentage	10%
Provident Fund	Deduction	Percentage	12%
Professional Tax	Deduction	Fixed	2,500
ESI (Employee State Insurance)	Deduction	Percentage	1.75%
Income Tax (TDS)	Tax	Percentage	10%
Social Security Tax	Tax	Percentage	6.2%

You can edit, deactivate, or delete these defaults and create your own to match your organization's compensation structure.

Filtering and Views

The Payroll Components list includes two pre-built views:

View	Description
All Components	Shows all payroll components
Active Components	Shows only components that are currently active

Use the filter panel to narrow results by type (Allowance, Deduction, Tax), calculation type, or active status.