This section deal on creating the Variable and fixed salary component like Basic HRA, Conveyance, Special allowance, LTA, Bonus etc. Also existing components edit/alternations can be done.


Go to Employees >> Payroll Settings >> Salary Components and click on New.


Ø Name: Enter the name of the Salary Component

Ø Code: Enter the short form of the component. Example: “CONV” for Conveyance, “MEDALL” for Medical Allowance etc…

Note: There shouldn’t be any space or special character and it should be one word and should be within 7 characters.

Ø Effective Date: This is required to keep track from when the created component is effective. By default the date is shown as 1st April but there is an option to change the date if the component is created during the year.

Ø Paid Component: Select this option, if the component is part of employee salary / CTC and tax calculation and if this need to be shown in Payslip.This item to be unchecked while creating components like Employer PF / ESI, and any salary paid outside and part of tax calculations, like variable pay, commission, etc.

Ø Pay Type: There are 5 pay types namely

o Earnings: As name suggests, components like Basic, HRA, Conveyance, etc., are earning components

o Deductions: Select this type if the Component is a type of Recovery like Salary Advance Recovery, HRA Recovery, basic Recovery etc.,

o Reimbursement: Select this type if the Component is a Reimbursement in nature.

o Overtime: If it is Overtime, then select this option.

o Statutory Component: If the Component is PT, PF or ESI, then select this pay type.

Ø Taxable / Non-taxable: Select whether the Component is taxable or not. For example, if the Component is Basic, HRA, Conveyance, Special Allowance, etc., then select “Taxable” and if the Component is kind of reimbursement like Food Coupon, Salary Advance, etc., then select “Non-taxable”.

Ø Taxable As; Distributed across Year: This is an option to choose whether the tax arising out of this component has to be deducted in the same month or to be distributed / projected across the year. Example: Components like Basic, HRA, Conveyance, etc. has to be checked as they are compulsory for Tax Computation and tax is distributed across the year.

Ø Calculation Type: There are 3 types of Calculations i.e., Flat, Formula & Slab-based.

o Flat: Select this, if components should allow to manually key in amounts. Then enter “0” in the formula box.

o Formula: Select this option to enable the components to calculate on given formula

Click on Formula button to write a formula. It is very simple to define a formula, similar to any other software like MS-Excel etc. Select an appropriate function from Brackets, Abbreviation & Operators and click on Add and then click on Validate.

Sample Formula Syntax: If(A>B;A*40%;A*50%)

After clicking on validation and if the formula defined is correct, then a message appears as “Valid Expression”. If the formula defined is incorrect, then a message appears as “Invalid Expression”. Try to redefine the formula and validate it until a message appears as “Valid Expression”.

o Slab-based: Select this option to define figures based on slabs of that component

From Value: Enter the starting amount of the slab; it is “0” to start with.

To Value: Enter the maximum limit of that slab and Click on Add Row to add more slabs, in the 2nd slab and thereon, “From Value” field will display the maximum amount entered in the previous slab. Enter the maximum limit in “To Value”.

Ø Calculated On: This field can be seen only if Calculation Type is selected as Formulas, in the field two options can be seen.

o Deducted Amount: On selecting this option, in the given formula system fetches the PRORATED AMOUNT which is calculated based on attendance.

o Actual Amount: On selecting this option, in the given formula system fetches the FIXED AMOUNT.

Ø JV Code: Enter the JV code as per chart of accounts, if any. There is a ledger report available based on the JV code, to pass salary entries into financial accounting software.

Ø Map To: The created Components are to be mapped for a specific process. Example: While creating HRA, this has to be mapped to IT HRA. As per this mapping, HRA exemption shall be calculated. Another example is during creation of VPF Component, this has to be mapped to VPF so as to appear in the PF Report as well as to get exempted from 80C.

Ø Variable / Fixed Component: A component value which do not change every month are fixed component. Example: Basic, HRA, Conveyance, Medical Reimbursement, etc.,

Components like bonus, incentives, salary advance etc., which are paid once or change month after month are Variable Component.

Ø Round-off Values: Select from the Drop-down list as per process followed.

Ø Is an FBP component: Enable this option, if it is a Flexible Benefit Component.

Ø Attendance Dependent: Salary is prorated based on the attendance. This is again based on organization policy and configuration can be done based on the policy like payout can be full without considering attendance though employee has worked for 15 days during a month.

Ø Part of CTC: Check this field if the Component is part of the CTC

Ø Create Dependent Component: Whenever there are arrears / increments, the arrears component will automatically get created if this option is enabled.

Ø Is Active: If the Component is enabled as Active, then it appears in the pay register or else if it left unchecked, then created component shall not appear in the Pay Register even though it is created.


Reimbursement tab: Configure the reimbursement based on the company policy whether it needs to be Carry forward or not and enter the Maximum Reimbursement amount per month, it can be configured only if Pay Type is select as Reimbursement.


And this would not allow employees from applying more than the entered amount in their ESS login.

Overtime Tab: Select whether OT is calculated in Days or Hours & enter maximum OT unit, which is allowed to claim OT as per company policy. It can be configured only if Pay Type is select as Over Time. 

Note: After creating the component, you will need to assign it to employees by navigating to Employees tab > Payroll Settings > Salary Components and clicking on Pay Allocation so that this becomes a part of their salary. 

To know more about allocating salary components, please read How to allocate a pay component in salary structure of employees?