Payroll Glossary

Simplified payroll terms to help you quickly grasp the concept of payroll.

 
 
 
 
 
 
weekly team

Term of the week

Income tax

It is a direct tax levied by the government on the income earned by individuals, businesses, or other entities.

 
 
 
 
 
 

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A

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

S

T

U

V

W

X

Y

Z

A

Advance tax

This is the tax paid in advance for income earned during a financial year instead of at the end of the year. People with income from more than one source whose tax liability exceeds ₹10,000 after TDS can opt to pay tax in advance.

Artificial Juridical Person (AJP)

They are a public corporation established under the legislature with their own juristic principles. Universities and institutes are examples of an artificial juridical person.

Association of Persons (AOP)

AOP is a group of people or entities (which includes LLPs, firms, and companies) who come together to achieve a common objective.

Articles of association

It is a document that explains the company's goal and their rules and regulations of operation. It is usually prepared during the formation of a company.

Attrition rates

Employee attrition rate indicates the rate at which employees are leaving the organization during a certain period.

B

Basic pay

This is the fixed amount paid to an employee by an employer in exchange for their work during the wage period. It constitutes 40 to 60% of the individual's CTC.

Body of Individuals (BOI)

BOI are individuals who come together with the intention of earning income. Entities like companies and firms cannot join to form a BOI.

Bonus

This is a one-time payment made by an employer to an employee in addition to their salary. It is usually paid out as a reward for an employee's good performance.

C

Conveyance allowance

It is a type of allowance given by employers to employees to cover their daily commuting expenses from home to the workplace. It is a fixed amount paid monthly and is a part of the employees' CTC.

Cost to Company (CTC)

CTC is the cost a company incurs in a year by employing a given individual. It includes gross salary and the cost of all benefits. Learn more about CTC structure here.

Cost-per-hire

This is a metric used to measure the total cost associated with hiring a new employee for an organization. It includes recruitment advertisement costs, onboarding, relocation expenses, and other costs related to hiring.

D

Deductions

This is money taken from an employees’ monthly pay for tax purposes and to pay for their benefits. There are two types of deductions: Pre-tax and post-tax deductions.

Dearness allowance

This is a fixed amount paid by the government to public sector employees and pensioners as a part of their monthly salaries or pension to mitigate the impact of inflation on the cost of living.

Direct deposit

It is a payment method in which an employer deposits an employee's salary directly into their bank account electronically, rather than issuing a physical check.

E

Employees' Deposit Linked Insurance scheme (EDLI)

This is an insurance cover provided by the EPFO for registered employees. The nominee or legal heir will receive the lump sum in case of a worker's death during service.

Employees' Pension Scheme (EPS)

It is a social security scheme that provides a monthly pension to employees and their dependents once the employee retires from work.

Employees' Provident Fund Organisation (EPFO)

The EPFO is a statutory body that provides social security to employees and helps them build their retirement chest.

EPF wages

A person's EPF wage is the sum of their basic pay, dearness allowance, and other allowances, excluding house rent allowance. If their monthly basic pay exceeds ₹ 15,000, only their basic pay is considered as EPF wages. Learn more about EPF wages here.

EPF-ECR challan

Electronic Challan Cum Return Challan is the challan used to file EPF returns. It should contain employee-wise salary details and provide a high-level summary of the contributions made by the employer and the employees.

F

Form 16

It is a document that contains the details of taxes deducted at the source by the employer from the salary income earned by the employee during a financial year. Learn more about Form 16.

Form 24Q

It is a form used to file TDS returns on salary payments. It contains details of employees' salaries and the tax amounts deducted from them; it should be filed once every quarter.

Fiscal year

A fiscal year, or financial year, is a continuous period of 12 months used to track a business's earnings and expenses, and prepare financial statements. In India, it starts from the 1st of April and ends on the 31st of March of the following year.

Full and Final settlement (FnF)

FnF is the process of settling dues between an employer and an employee who is leaving the organization. It includes the payment of the employee's final salary, gratuity, leave encashment, and other payments. Read more about FnF here.

G

Gratuity

It is a lump sum amount provided by employers as a reward for their long-serving employees. Employees who have completed five years of continuous service with the same employer are eligible for gratuity. Learn more about gratuity.

Gross wages

It refers to the total amount of wages earned by an employee before any deductions are made, such as taxes, EPF, and others.

Gig workers

Freelancers, independent contractors, and other workers who engage in hourly or temporary work and share a nontraditional employer-employee relationship are grouped as gig workers.

H

Hindu Undivided Family (HUF)

This is a legal term used in India to describe a family consisting of all persons lineally descended from a common ancestor, including wives and unmarried daughters.

Human Resources Management System (HRMS)

An HRMS is a software used to manage all activities related to human resources. It automates repetitive HR operations such as attendance tracking, performance evaluation, and others.

House Rent Allowance (HRA)

HRA is a component of salary paid by employers to cover the accommodation expenses of employees. It is calculated based on the employees' basic pay and work location.

I

Incentive

This refers to the bonuses or rewards given to employees for achieving certain performance goals. These incentives may be in the form of cash, gift cards, time off, or other benefits.

Income tax

It is a direct tax levied by the government on the income earned by individuals, businesses, or other entities.

Income tax declaration

It is a document that an employee submits to their employer at the beginning of the fiscal year to receive tax benefits. Based on the declaration, the employer calculates the employee's tax liability and deducts TDS from their salary accordingly.

J

Joining bonus

This is a sum of money offered to a new employee by a company as an incentive to accept the job offer and join the organization.

Journal entry

It is a record of all business transactions in a company's accounting system. It contains the date of the transaction, the amount debited and credited, and a unique reference number of the transaction.

K

Know Your Customer (KYC)

KYC is a process financial services companies use to verify the identity of their customers to prevent identity theft, fraud, and other illegal activities.

Key Performance Indicators (KPIs)

KPIs are metrics used to measure the company's overall success and individual employee performance over a specific time.

L

Limited Liability Partnership (LLP)

LLP is a corporate business vehicle formed by at least two partners. It contains elements of both a corporate structure and a partnership firm and allows flexibility in operation.

Layoff

It refers to the temporary or permanent termination of employment by the employer for reasons related to the business such as business slowdown or lack of work in the domain.

Leave encashment

It is the amount received by an employee in exchange for unused paid leave provided by the organization. Learn more about leave encashment.

M

Memorandum of association

It is a legal document written during the registration of a company which outlines their business scope and liabilities, and defines a company's relationship with their shareholders.

Minimum wage

It is the lowest amount of compensation an employer is required to pay to their employees for their work, as determined by law. The minimum wage in India varies depending on the state, sector, and skill level of the worker.

Maternity leave

This is paid leave an employer has to provide their female employees for a period before and after childbirth.

N

National Pension Scheme

It is a voluntary savings scheme introduced by the Indian government to provide retirement income to individuals from the organized and unorganized sectors.

Net salary

Net salary, or take-home salary, is the amount an employee receives after all deductions and taxes have been subtracted from the gross salary.
Net salary = Gross salary - Deductions

Notice period

It refers to the period an employee is required to continue working for their employer after submitting a resignation letter. During this time, the departing employee must complete their pending tasks and submit company assets.

O

Offer letter

It is a formal document an employer sends to a candidate selected for a job role. It includes details of the salary package, designation, and other terms and conditions of the employment.

Onboarding

It is the process of integrating new employees into an organization and familiarizing them with company policies, procedures, and culture.

Overtime allowance

It is an additional compensation provided to employees for the extra hours worked beyond the normal working hours, as defined by the organization.

P

Pay cycle

It is the regularized time period for which employees are paid and payroll is calculated in an organization.

Pre-tax deductions

These are the amounts of money taken out of the employee’s pay before income tax is calculated. These deductions reduce the employee’s net taxable income and thereby reduce their tax liabilities.

Post-tax deductions

These are the amounts of money deducted from employees’ pay after income tax has been calculated. This does not affect the net taxable income of the employee.

Portuguese Civil Code

A law applicable only in the state of Goa and union territories of Daman and Diu, and Dadra and Nager Haveli. The code is also called the Goa Family Law as it dictates regulations related to property inheritance and marriage.

Presumptive taxation scheme

Presumptive taxation is a relaxation given to small taxpayers. Those who opt for this scheme can declare income at a prescribed rate and are not required to maintain a book of accounts.

Q

Quarterly returns

This refers to the periodic filings of tax returns that businesses are required to make to the government on a quarterly basis. Employers in India must file TDS returns on salary once every quarter using Form 24Q.

R

Reimbursement

It is the payment made by an employer to an employee for expenses incurred by the employee while carrying out business-related activities on behalf of the company. These include travel expenses, meal expenses, and others.

Relieving letter

This is a formal document issued by an employer to an employee who resigned from their job. It confirms the employee's resignation and specifies their last working day at the company.

Recruitment

It is the process of actively seeking, interviewing, and hiring qualified candidates for job vacancies in an organization.

S

Salary

It is the compensation or payment an employer provides to an employee for the work they have done. It is usually a fixed amount paid on a regular basis, such as weekly or monthly.

Self-assessment tax

This refers to the income tax calculated and deposited to the government by the assessee on their own. Individuals filing this tax must consolidate their earnings, utilize eligible exemptions, and adjust the amount with deductions.

Statutory compliance

It is the process of ensuring an organization adheres to the legal framework put in place by the central, state government, and statutory bodies. Learn more about payroll statutory compliance here.

T

Tax Deducted at Source (TDS)

TDS is a part of the income tax, where the person making specific payments, such as salaries, is required to calculate and deduct tax before making the payment. The deducted amount must be deposited with the government.

Time and Attendance Management

This is a process of tracking employee work hours, attendance, and leaves. This helps  in calculating employee salaries, bonuses, and other benefits accurately.

Transport allowance

It is a type of allowance paid by an employer to an employee to compensate for their daily commute expenses, such as fuel or public transportation costs.

U

Universal Account Number (UAN)

UAN is a 12-digit unique number allotted by the Employees' Provident Fund Organisation to everyone contributing to the Employees' Provident Fund.

Unpaid leave

Unpaid leave or loss of pay leave refers to the time taken off by an employee from work, where they are not paid their regular salary or wages for that duration. Learn more about unpaid leave.

V

Variable pay

It is a part of the compensation an employee receives from their employer for their contribution towards the company's growth. It includes one-time payments such as bonuses, commissions, and incentives.

Voluntary Provident Fund (VPF)

VPF is a scheme that allows employees to contribute an additional amount to their Provident Fund account voluntarily. Employees can choose the contribution amount; employer's contribution to the VPF account is optional.

W

Wage period

This is the period for which wages are calculated and paid to employees, typically on a weekly, bi-weekly, or monthly basis.

Withholding tax

It is the amount deducted from an employee's salary or wages by their employer to cover the employee's tax liability. The withheld amount is then remitted to the Indian government.

Workmen Compensation Act

An Act that requires employers to compensate employees in the event of an injury or death that occurs during the course of employment.

Y

Year-to-Date (YTD)

It refers to the period of time from the beginning of the current year up to the present day. It is often used in payroll to calculate an employee's earnings and deductions for the current year.

Z

Zero-hour contract

This is a type of employment contract where an employer is not obligated to provide a fixed number of working hours to the employee. The employee is only paid for the hours they have worked.