Payroll Terms: Here’s What You Need to Know


Think of the employee who has a family to cater to. This person has three dependents, one mother and two children. Every day, this employee comes to the office, works for 9 hours, and executes every task with efficiency. Sometimes, this employee also becomes the employee of the year because of their high performance. 

But what if the salary is delayed? This person would not be able to pay the school fees of children, or maybe this person would face a severe cash crunch. Isn’t it?

The reason for starting the article with this story is to realize that payroll mistakes are real. There is no way of avoiding these mistakes if you are not careful; if you don’t have apt knowledge of payroll terms.

Hence, to help you dispatch the salaries on time and avoid payroll errors, we have explained payroll and payroll terms in India in detail. Read on to explore important payroll terms. 

Understanding Payroll

Payroll is a bracket term that includes several things. It is the salary that is paid to the employees every month, and it is also the additional deductions that the employer has to do.

Here are the things involved in the payroll:

        • Creating payroll policies such as benefits, encashment, flexible terms, etc. 
        • Defining inclusions in payslip such as HRA, variable pay, basic pay, LTA, etc.
        • Collecting other payroll inputs such as pantry expenses, etc.
        • Calculating the gross salary of employees after deductions from the full amount.
        • Releasing salaries of the employees.
        • Submitting PF, TDS, and other taxes related to employees.

In simple words, payroll is the amount of money that the employer owes to the employees after all the above processing, deductions, and calculations

Payroll Processing

There are multiple ongoing tasks that the HR managers or the payroll officer have to take care of during payroll processing. We have explained everything in detail below. 


Before any other step, you should define the payroll terms policy. When you dispatch the net pay to employees, multiple other aspects impact the final pay of the employees. This includes leave policy, benefits policy, attendance policy, etc. So, the first step is to develop these policies and get approval from the management on the same.

Then, you need to gather inputs from various departments such as leave data, attendance data, incentives, salary revision data, etc. In a small organization, this task is simple because one source can offer this information, and the involved elements are less. However, in a large organization, this can be a hassle which can be reduced with advanced technology such as leave management system or employee portal.

Once you have received the inputs from different stakeholders, you need to ensure that these inputs are correct. For example, every employee is covered; company policy is being followed, etc. Once you have validated and approved this data, we can move to the actual payroll process. 

Payroll Process

The input which is collected at the previous stage is utilized to calculate the salaries of the employees. This includes several deductions, leave calculations, incentives, etc. 

However, manually, this can be a daunting task. With hundreds of employees, salary calculations can take forever. Further, you won’t even get enough time to recalibrate or reconcile salaries. 

Using a payroll system or payroll outsourcing for this payroll term in India is a feasible option. You won’t have to spend a lot of time in calculations, machines will do that for you – and a lot faster. 

Post Payroll

There are various statutory compliance requirements under payroll terms in India. Every organization has to follow these requirements, such as EPF, ESI, TDS, etc. Firstly, all these deductions are made from the salary of the employees accordingly, then these are submitted to the relevant departments. Secondly, the return of these deductions is also filed, such as EPF return, TDS return, etc. 

Once the salaries are dispatch, the payroll manager or the HR manager has to check if the salaries are correctly dispatched and every employee has received the correct amount or not. This payroll term also includes resolving employee-related payroll issues that are raised every once in a while.

When you have finally completed every task related to the payroll of the employees, you have to create reports. These reports are related to the payouts, salaries dispatched, employee costing, incentives offered, etc. 


While we have already covered compliance in the previous section, there are several other compliance requirements of the payroll.

Calculation of TDS, EPF, etc. are all on behalf of the employer, which are deducted automatically from the salary of the employee. However, another requirement of compliance is the declaration.

At the starting of the fiscal year, every employer asks the employees to declare their investments, tax savings, etc. to receive an amount of tax back during return.

Payroll Terms

Payroll Terms

1. Gross Pay

Gross pay payroll term is the total salary that is dispatched to the employee in every pay period. It depends on the type of payment, hourly, or annual. 

For salaried employees, this is calculated by dividing the total yearly or annual pay of the employee by a number of pay periods such as 12. 

For hourly employees, this is calculated by multiplying hourly pay with the number of hours, including overtime.

Gross pay is the pay on which the employee pays taxes.

2. Net Pay

Net pay is the amount of salary which the employee receives after the deductions. This is the actual paycheck that reflects in the bank account of the employee.

However, net pay can only be calculated with the total gross pay. This is because, based on the gross pay, the salary deductions and statutory compliance are decided. This helps in coming to the final paycheck.

3. Overtime

This is one payroll term which is known but rarely acknowledged. Whenever an employee works more hours than the usual hours of work, the employer has to pay an extra amount of money to compensate for these hours. The overtime payment is more than the average salary or gross pay of the employee. 

4. Pay Period

The pay period is the period during which the employer pays the employees. This matters because the pay period can differ according to the type of employees. For example, a salaried employee will naturally have a one-month pay period and a total of 12 pay periods in a year. However, a freelance may have a bi-weekly pay period or 24 pay periods in a year.

5. Compensation

One of the most essential payroll terms is compensation. Every employer offers some additional benefits to the employees. These are:

      • Stocks
      • Company cabs
      • Bonus
      • Transportation benefits
      • Educational benefits 

6. Exempt Employees

Exempt and non-exempt employees of the organizations are also defined. Exempt employees don’t get paid extra for the overtime. This is because their job roles necessarily require some overtime. For example, the team manager may have to spend extra time in the office to manage the team and other work. 

7. Hourly or Salaried Employees

Hourly employees get paid for the hours of work they deliver. It is calculated through technology if the employee is working remotely. This type of employment is rather beneficial for the employer as well as the employee.

Salaried employees work on a regular basis, and they have to attend the office daily for a fixed amount of hours. When they take leaves, some of these are paid, and some are deducted from the salary. 


Payroll terms in India are consistently evolving. This means that you may have to keep changing your methods, policies, structure, etc. to match the requirements of the new payroll terms. To reduce the hassle incurred due to payroll processing and payroll terms, you can outsource payroll tasks to a relevant provider. Check the services of Paysquare and gain help from skilled and experienced payroll professionals.