Salary Slips & Payroll Processing

Payroll is the most time-sensitive function in any manufacturing organization. Workers expect their salary to be credited on a fixed date every month. Delays or errors — a wrong deduction, a missed allowance, an incorrect net salary — erode trust and create compliance risks. Udyamo ERP Lite's salary slip module brings structure and accuracy to this critical process by computing earnings, applying statutory deductions, and tracking the payment lifecycle from draft to paid.

This chapter covers the payroll processing concept, explains the salary slip structure in detail, and walks you through creating, processing, and finalizing salary slips.

What You Will Learn

• How the monthly payroll cycle works in Udyamo ERP Lite
• The earnings breakdown: basic salary through gross salary
• The deductions breakdown: PF, ESI, Professional Tax, TDS, and other deductions
• How net salary is calculated
• Working days versus days worked and pro-rata salary calculation
• The salary slip lifecycle: draft, processed, and paid
• Step-by-step: creating a salary slip, processing it, and marking it as paid
• Tips for efficient bulk payroll processing

Prerequisites

• Employee records created with complete salary structures (see Employee Management)
• Statutory enrolment details (PF, ESI, PAN) recorded in employee records
• Knowledge of the applicable Professional Tax slab for your state
• Working days and attendance data for the month

The Payroll Processing Cycle

In a typical manufacturing setup, the monthly payroll cycle follows a predictable rhythm:

1. Attendance compilation -- At the end of the month (or a defined payroll cut-off date), the HR or admin team compiles attendance data: how many days each employee worked, leaves taken, and any loss-of-pay days.
2. Salary slip creation -- For each employee, a salary slip is created for that month. The system pulls the default salary structure from the employee master and allows adjustments for the specific month.
3. Deduction calculation -- Statutory deductions (PF, ESI, Professional Tax, TDS) and any other deductions are applied. The system computes gross salary, total deductions, and net salary.
4. Review and processing -- The HR manager or accounts team reviews the draft salary slips for accuracy and processes them. Processing locks the slip against casual edits.
5. Payment -- Net salary is credited to each employee's bank account via NEFT or IMPS. The salary slip is marked as paid with the payment date.

Earnings Breakdown

The earnings side of a salary slip in Udyamo ERP Lite consists of the following components, pulled from the employee master as defaults:

• Basic Salary -- The fixed core component. This is the base for PF and gratuity calculations.
• HRA (House Rent Allowance) -- Compensation for housing expenses.
• Conveyance Allowance -- Compensation for commuting expenses.
• Medical Allowance -- Compensation for medical expenses.
• Special Allowance -- A flexible component that absorbs differences between structured components and the target gross salary.
• Other Allowance -- Any additional component such as shift allowance, overtime, or performance incentive.

The sum of all these components equals the Gross Salary:

Gross Salary = Basic Salary + HRA + Conveyance Allowance
             + Medical Allowance + Special Allowance + Other Allowance

Tip: If an employee earns overtime or a one-time bonus in a particular month, add the amount to the Other Allowance field on that month's salary slip. This keeps the regular salary structure in the employee master unchanged while correctly reflecting the actual payout.

Deductions Breakdown

The deductions side captures all amounts withheld from the employee's gross salary:

• PF Deduction -- The employee's contribution to the Provident Fund, typically 12% of basic salary (subject to the PF wage ceiling of Rs 15,000). See Statutory Deductions for detailed calculation.
• ESI Deduction -- The employee's contribution to the Employee State Insurance scheme, currently 0.75% of gross salary for employees with gross wages up to Rs 21,000 per month.
• Professional Tax -- A state-level employment tax deducted monthly. Rates vary by state — for example, Rs 200 per month in Maharashtra for employees earning above Rs 10,000.
• TDS Deduction -- Tax Deducted at Source on salary under Section 192 of the Income Tax Act. The monthly TDS amount is the estimated annual tax liability divided by 12, based on the employee's declared investments and tax regime.
• Other Deduction -- Any additional deduction such as loan recovery, advance adjustment, canteen charges, or salary advance repayment.

The Total Deductions is the sum of all deduction components:

Total Deductions = PF Deduction + ESI Deduction + Professional Tax
                 + TDS Deduction + Other Deduction

Net Salary Calculation

The Net Salary — the amount actually credited to the employee's bank account — is simply:

Net Salary = Gross Salary - Total Deductions

This is the figure that matters most to the employee and the figure that must match the bank transfer amount.

Required: Always verify that the net salary on the salary slip matches the amount you are transferring to the employee's bank account. Any mismatch indicates an error in earnings or deductions that must be corrected before payment.

Working Days and Days Worked

Not every employee works every day of the month. The salary slip captures two fields to handle this:

• Working Days -- The total number of payable days in the month. For most manufacturing units, this is the number of days the factory was operational (e.g., 26 days if Sundays are off, or 30 days for a continuous process plant).
• Days Worked -- The actual number of days the employee was present or on paid leave.

When days worked is less than working days, the salary is calculated on a pro-rata basis. For example, if the working days for a month are 26 and the employee worked only 20 days:

Pro-rata factor = Days Worked / Working Days = 20 / 26 = 0.769

Each earning component is multiplied by this factor:
Basic Salary (pro-rata) = 12,000 x 0.769 = 9,228
HRA (pro-rata) = 6,000 x 0.769 = 4,614
... and so on for all components

Tip: Ensure attendance data is finalized before creating salary slips. Late corrections to days worked after a slip has been processed require the slip to be recreated, which adds unnecessary effort.

Salary Slip Lifecycle

A salary slip in Udyamo ERP Lite progresses through three statuses:

Draft. The slip has been created but not yet finalized. All fields are editable. Use this stage to review earnings and deductions, make corrections, and get approvals. Draft slips have no financial effect.

Processed. The HR manager or accounts team has reviewed the slip and confirmed that all figures are correct. Use the Process Slip action to move a slip from draft to processed. Processed slips are locked for editing — this prevents accidental changes after approval. If a correction is needed after processing, the slip must be returned to draft first.

Paid. The salary amount has been credited to the employee's bank account. Use the Mark Paid action to record the payment. This action also records the Payment Date, which is important for compliance reporting and employee queries. Once marked as paid, the slip represents a completed payroll transaction.

Slip Number

Each salary slip is assigned a unique Slip Number that serves as a reference for the employee, the accounts team, and audit purposes. The slip number is auto-generated by the system when you create a new salary slip. It typically follows a sequential pattern that includes the month and year for easy identification (e.g., SS-202602-001 for the first slip of February 2026).

Step-by-Step: Creating and Processing a Salary Slip

This example creates a February 2026 salary slip for Ramesh Jadhav (FAC-0078), the machine operator added in the previous chapter.

Creating the Salary Slip

1. Navigate to HR > Salary Slips from the main menu.
2. Click New Salary Slip.
3. Select the employee:
   • Employee: Ramesh Jadhav (FAC-0078)
4. Set the pay period:
   • Month: 2 (February)
   • Year: 2026
5. The system auto-fills earnings from the employee master:
   • Basic Salary: 12,000
   • HRA: 6,000
   • Conveyance Allowance: 1,600
   • Medical Allowance: 1,250
   • Special Allowance: 3,150
   • Other Allowance: 1,000
   • Gross Salary: 25,000 (auto-calculated)
6. Enter attendance:
   • Working Days: 24 (February 2026, Sundays off)
   • Days Worked: 24 (full attendance)
7. Enter deductions:
   • PF Deduction: 1,440 (12% of basic salary Rs 12,000)
   • ESI Deduction: 188 (0.75% of gross salary Rs 25,000)
   • Professional Tax: 200 (Maharashtra slab for salary above Rs 10,000)
   • TDS Deduction: 0 (below taxable threshold after deductions)
   • Other Deduction: 0
   • Total Deductions: 1,828 (auto-calculated)
8. The system calculates:
   • Net Salary: 23,172 (Gross Rs 25,000 minus deductions Rs 1,828)
9. Review all figures and click Save.

The salary slip is created in Draft status.

Processing the Salary Slip

1. Open the draft salary slip for Ramesh Jadhav, February 2026.
2. Review all earnings and deductions one final time.
3. Click the Process Slip action button.
4. The status changes from Draft to Processed. The slip is now locked for editing.

Marking as Paid

1. Once the bank transfer is complete, open the processed salary slip.
2. Click the Mark Paid action button.
3. The system records the current date as the Payment Date and changes the status to Paid.

Bulk Payroll Processing Tips

Processing salary slips one by one is manageable for a unit with 10 employees but impractical for a factory with 100 or more workers. Here are practical strategies for efficient bulk processing:

Tip: Create all salary slips for the month before processing any of them. This allows you to review the entire payroll run at once — spotting outliers, verifying totals, and catching errors before any slips are locked.

Tip: Maintain a payroll calendar with fixed dates: attendance cut-off on the 25th, salary slip creation on the 26th-27th, review and processing on the 28th, bank transfer on the 30th. Consistency reduces last-minute rushes and errors.

Warning: Never mark a salary slip as paid until the bank transfer has actually been completed and confirmed. The paid status and payment date are used for compliance reporting. Marking slips as paid prematurely creates a false record.

Tip: For employees with partial attendance, double-check the pro-rata calculations before processing. Pay particular attention to employees who joined or left mid-month — their first or last salary slip should reflect only the days actually worked.

Quick Reference: Salary Slip Fields