Salary slips are documents issued monthly by employers to their employees. They contain a detailed breakdown of employee salary and deductions for a given period. The document can be a printed hard copy or mailed to the employees. Employees can also download salary slip format in PDF format. Additionally, companies are legally bound to issue payslips periodically as proof of salary payments to their employees and deductions made.
Salary slips consist of various components from the income/earnings and deductions part of the statement. Most people take advantage of salary slips when applying for a loan or a new credit card. However, there are advantages to understanding the salary slip format. You can:
- Smartly choose from competing offers when switching jobs
- Optimize tax liability by making full use of available deductions
- Understand the percentage of the salary that is forced savings
Salary slips also contain basic information such as company name, employee name, designation, and employee code.
What is a Salary Slip?
A salary slip is a formal document employers give you every month to inform you of the details of your pay package. This includes deductions and your take-home salary. Salary slips contain various elements of your wage such as the basic salary, house rent allowance (HRA), dearness allowance (DA), and performance-based incentives. Other segments showcased are the items deducted from your paycheck (provident fund-PF, professional tax, and tax deducted at source-TDS).
Why is a Salary Slip Required?
Salary slips are required for a variety of reasons. They are proof of your wage, and new employers, banks, credit card companies, and income tax departments often ask for them. They serve as income proof when applying for work permits and aid your job search. Salary slips can help in negotiation processes so that you can get a higher position and compensation based on your current designation and salary. Moreover, lenders and credit card companies can assess your creditworthiness from the previous three to six months based on salary slips. And components of your salary are present on salary slips, so you can reference salary slips when filing income tax returns.
Who Receives a Salary Slip?
Salaried employees receive salary slips. Employers are responsible for giving workers a copy of their payslips every month. Smaller companies may not regularly offer salary slips. In these cases, you can ask your employer for a salary certificate. Most employers provide digital payslips, but others may provide physical copies. While all jurisdictions do not view salary slips as mandatory, getting one should not be difficult.
When is a Salary Slip Issued?
Salary slips are issued to employees every month. They document everything from gross salary to the net take-home pay and deductions. After employers provide your pay, the salary slips are delivered each month. Keep in mind that salary slips are offered to full-time employees. Part-time and contractual workers do not receive these documents. Also, if an employee resigns from a company, they are not eligible to receive the salary slip that month.
What are the Benefits of Salary Slip?
Salary slips are official records serving as proof of payroll or information on tax deductions and income tax deposits for employees. There are various benefits to obtaining them.
- Salary Details: Knowing salary details is a significant plus of having a salary slip. Employees can see and understand the salary details, including the amount of overtime money that workers receive. People can see how much salary they receive, along with deductions like BPJS employment contributions, health BPJS, and income taxes. However, the information must be complete so that no industrial problems arise between the company and its employees.
- Credit Card Application: Payslips are a fundamental part of determining the credit limit to give customers. They also help the bank by providing evidence and guarantees as a tool to audit and check the health of customer money. It will affect the approval of the application for a credit card.
- Home Mortgages: Some individuals want to own a house, but do not have enough finances to achieve one. Along with choosing a cash payment method, people who have not had time to raise enough money in such a short period use mortgages or homeownership loans. It is good to meet several conditions to get approved, and one condition is to attach proof of the employees’ salary. Banks use proof of salary as collateral and gauge the number of interest rates charged to customers.
- Job References: Whenever you apply for a new job, sometimes you can attach a payslip from a previous job (even if the company did not ask). This action can help you earn a bigger salary for a new position. Additionally, the company is more trustworthy since the evidence you attach is authentic data from the previous company. The information will lead to negotiating salaries at a new company.
What are the Different Salary Slip Formats?
Salary slips can have various layouts. However, they all must include basic information such as names, contact information, and other financial data.
- Format 1: For this format, the company information is displayed above, along with the logo. Underneath, the employee information section is present. Then, at the bottom are the earnings and deductions. Other important details to include are who the salary slip was prepared by and who received it.
- Format 2: The second format displays the company’s name and logo at the top in small sections. The salary details, gross salary, and net salary are the main categories in the middle of the document. Then, the employer and employee signatures are required at the bottom.
- Format 3: For the third salary slip format, the employee section is underneath the company’s name and other information at the top. The earnings and deductions are visible towards the bottom, as is common with most salary slips. While salary slips have various formats, it does not impact the value they serve for employees. As long as there is space to provide crucial information needed for certain purposes, there is no one correct way to create a salary slip.
What are the Elements of a Salary Slip?
Employers usually generate salary slips every month. Many individuals deem these documents important when applying for a loan or a new credit card. While salary slips are useful for these instances, they are also beneficial for other things.
Salary slips break down your salary into constituents. The elements of salary fall under two primary categories: Income/Earnings and Deductions.
- Income: The income section of salary slips has a basic salary and allowances. Explore more below.
- Basic: Basic is the basic component of the salary. It makes up 35-50% of the salary and forms the basis of other forms of the salary. At junior levels, the basic level can be high. As employees continue to grow in an organization, other allowances tend to be higher. Organizations keep basics low so that allowance pay will not be topped. Salary is 100% taxable in the hands of an employee. Basic is the first element on the earnings side of a salary slip.
What are the Deductions on a Salary Slip?
The following are the top deductions visible on a salary slip.
Deductions
Deductions are expenses that can be subtracted from taxpayers’ gross income to reduce the amount of income subject to taxation. Most taxpayers who take standard deductions only file Form 1040, and individuals who want to itemize deductions must use Schedule A Form 1040 to record their allowable deductions. Claiming standard deductions is easier and requires less paperwork and record-keeping than itemizing deductions.
Provident Fund (PF)
Provident fund is the mandatory contribution companies deduct from your salary and deposit in your provident fund account (along with the employer’s contribution). You can bring your provident fund balance when you move to a new company. The amount of provident funds subtracted from your salary is exempt from income tax.
Professional Tax
Numerous states in India place a professional tax on salaried and self-employed professionals. Companies deduct this tax from your salary and deposit it with the government. The amount deducted depends upon the tax rates applicable on your income slab in your state.
Tax Deducted at Source (TDS)
TDS is the advanced tax deducted from your salary and deposited with the income tax department. If your annual income does not exceed taxable limits, you can submit Form 15G to your employer to avoid any tax deduction at the source. You should subtract the amount of TDS from your total tax liability and only pay the balance while filing your tax return. If the TDS result is more than your total tax liability, then you can claim a refund.
How Can a Salary Slip Help You Estimate Tax Savings?
Salary slips contain data such as Dearness Allowance (DA), House Rent Allowance (HRA), Medical Allowance, etc., that aids employees in saving income tax each year. Tax authorities allow organizations to structure their employees’ salaries to save tax through several allowances in their income. These allowances and tax deductions are stated in salary slips to help you save on income tax.
Salary slips have various types of components. They can all be classified into the following three categories:
Fully Taxable
Basic salary, DA, Medical Allowance, Special Allowance, Leave salary
Partially Exempt/taxable
HRA, Conveyance/Transport Allowance
Fully Exempt
Employer’s PF/NPS contribution, Employees contribution to PF/NPS
Salary slips can help you estimate your taxable income for the financial year. The amount you can save depends on your net taxable income and applicable tax slabs. To decrease your tax liability, you must reduce your total taxable income by investing in tax-saving options.
The best way to maximize your tax savings is to maximize your savings. To maximize savings, you need to follow a few old principles (invest first and spend later). Appraisals and annual bonus declarations can suddenly increase your taxable income. You can do little to plan for this growth, but you can increase your monthly savings and investment immediately.
How can I Check my Salary Slip?
You can ask your employer for a printed copy of your salary slip at any time of your employment. On the other hand, your employer may share a salary slip with you every month by email, which you can print. While companies are not required to give employees a salary slip, having one in your records is beneficial.
How to Create a Salary Slip?
Salary slips are legal proof of people’s income. In this era, many organizations provide a printed version or email the salary slip in PDF format for employees to access anytime. Salary slips can be created in various ways, and most organizations use payroll software to generate salary slip templates.
For salary slips:
- Company and employee information can be located at the top or bottom of the document
- Signatures are always required last
- Earnings and deductions are split into two categories
Are Handwritten Salary Slips Legal?
Yes, handwritten salary slips are legal and can be in electronic or paper form. They have the same value as electronically issued salary slips. Copies of handwritten salary slips can be produced when acquiring bank loans, as proof of employment, and for other reasons. Due to this, it is important to store salary slips in a safe place. However, for tax-related purposes, you need to have salary slips of at least 22 months from the end of the tax year they are related.
