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Salary slip › Net pay calculation
Net pay calculation, step by step
Net pay is simple once you follow the order: work out what was earned for the days paid, add the lines, then take away the deductions. Here are three examples a small business meets every month.
The order to follow
- Earned amount of each line = monthly amount × paid days ÷ days in the month.
- Gross pay = total of the earned lines, plus overtime or bonus.
- Deductions: PF on earned basic, ESI on gross, professional tax by state slab, TDS, advances.
- Net pay = gross pay − total deductions.
Some employers divide by 30 for every month or by working days only. Use one method for everybody and write it in the appointment letter.
Example 1: full month, above the ESI limit
Basic ₹15,000, HRA ₹6,000, conveyance ₹1,600, special ₹2,400. Paid all 31 days of October.
| Line | Amount |
|---|---|
| Gross pay | ₹25,000 |
| PF: 12% of ₹15,000 | − ₹1,800 |
| ESI: gross above ₹21,000 | ₹0 |
| Professional tax (a state that charges ₹200) | − ₹200 |
| TDS (no tax expected for the year) | ₹0 |
| Net pay | ₹23,000 |
Example 2: ESI applies
Basic ₹10,000, HRA ₹4,000, special ₹4,000 = gross ₹18,000. Full month, in a state with no professional tax.
| Line | Amount |
|---|---|
| Gross pay | ₹18,000 |
| PF: 12% of ₹10,000 | − ₹1,200 |
| ESI: 0.75% of ₹18,000 | − ₹135 |
| Net pay | ₹16,665 |
Example 3: three days loss of pay
Same employee as example 2. November has 30 days; the employee took 3 days unpaid leave, so paid days are 27.
| Line | Monthly | Earned (× 27 ÷ 30) |
|---|---|---|
| Basic | ₹10,000 | ₹9,000 |
| HRA | ₹4,000 | ₹3,600 |
| Special | ₹4,000 | ₹3,600 |
| Gross | ₹18,000 | ₹16,200 |
PF 12% of ₹9,000 = ₹1,080. ESI 0.75% of ₹16,200 = ₹121.50, rounded up to ₹122. Total deductions ₹1,202. Net pay ₹14,998 (Rupees Fourteen Thousand Nine Hundred Ninety Eight only).
Doing it in the maker
- Set Days in the month 30 and Paid days 27. The slip prints loss of pay as 3 days.
- Type the earned amounts (₹9,000, ₹3,600, ₹3,600). The maker does not cut the lines for loss of pay on its own, so you stay in control of the method.
- Press Work out PF, ESI, professional tax and TDS: it fills ₹1,080 and ₹122 from the basic line and the gross.
- Check that the net pay in words matches the amount you will transfer.
Overtime or bonus in the month
Add them as their own earning lines, for example "Overtime 10 hours ₹1,500". They raise gross pay, so check ESI again: if the employee is covered for the period, ESI is cut on the overtime too. PF is usually worked on basic + DA only, so overtime does not change it.
Common mistakes
- Working PF on the full monthly basic when there was loss of pay.
- Rounding ESI down. It is rounded up to the next rupee.
- Recovering a large advance in one month without the employee's agreement. Spread it and show it as its own line.