Salary Components

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  • Last Post 03 April 2020
tismail posted this 03 October 2019 - Last edited 4 weeks ago

This section allows the management of salary components contained in an employee’s pay package. Salary components can be viewed as building blocks with which simple and complex pay packages can be built. From this screen you can add, edit and delete salary components

Creating Salary Components

To create a Salary components, navigate to Admin > Job > Salary Components, Click on “Add” and fill in the necessary fields using the information below

  • Component Name: This is the unique name of the salary component
  • Country: This specifies which country the component applies to. If this is set to “All” then it will apply to all countries otherwise it only applies to the selected country
  • Type: This specifies the component type as detailed below
    • Income: This component will increase the employee’s pay package
    • Deduction: This component will decrease the employee’s pay package
    • Calculation: This component will derive its value from the summation of selected calculation components. Use this component type to calculate sub totals where required. Note: Calculations do not directly increase or decrease the employee’s pay package and are not shown on the payslip.
    • Calculation Item: This component can be used for any value which is part of a calculation but does not need to be shown on the payslip. Note: If the value type for this component is “Amount”, it will be editable from the “Earning History” screen and will be pro-rated same way as income. This value is used as is and not cumulated for YTD calculation purposes
    • Progressive Tax: This component is used for calculating income tax and other taxes.
    • Tax Refund: This component is used for refunding over paid tax back to an employee, it can also be used to deduct underpaid tax from an employee by providing a negative value for the component.
    • Tax Allowance: This component is used for tax allowances / deductions which can be used in calculating income tax. Note: Tax allowances do not directly increase or decrease an employee’s pay package but instead used to decrease an employee’s taxable income.
  • Cost to Company: This specifies whether a deduction is partly or wholly paid for by the company
  • Company Percentage: This specifies the portion of the deduction amount that is payable by the company
  • Proration excluded: This specifies if an income item will be subject to proration where applicable or not
  • Value Type: This specifies the method by which the component derives its value
    • Amount: The value of the component will be typed in
    • Percentage: The value of the component will be derived by applying the specified percentage to the selected base component’s value
    • Approved Leave Count: The value of the component will be the total approved leaves which are “eligible for leave allowance” in the current month (or payroll period)
  • Base Component: This is an existing component to which a specified percentage is applied to derive the value of a “Percentage” type component or whose value is added to derive the value of a “Calculation” type component.
  • Minimum Tax (%): This determines the minimum tax percentage for “Progressive Tax” components
  • Minimum Tax Basis: This is the component to which the minimum tax percentage will be applied to determine the minimum tax value for “Progressive Tax” components
  • Minimum Monthly Wage: This applies only to Nigeria and determines the monthly wage on on below which tax payable will be zero
  • Calculation Components: This contains the components whose values will be summed up to derive the value of a “Calculation” type component.
  • Add Component Button: Adds the currently selected base component to the calculation components list.
  • Remove Component Button: Removes the currently selected calculation component from the list.
  • Tax Band Type: This specifies the current band position when creating a progressive tax component
    • First: Use this for the very first tax band
    • Next: Use this for all tax bands except the first
    • Above: Use this after all “Next” bands have been entered
  • Band Value: This is the amount to be taxed in the current band
  • Band Percentage: This the percentage to be applied to the current band
  • Add Tax Band Button: Adds the current tax band to the list of tax bands
  • Clear Tax Bands: Clears all tax bands on the list
  • Save Button: Click this button to save changes.
  • Cancel Button: Click this button to cancel changes.
  • Reset Defaults for all Employees: Click this button to reset the value for this component to the set default across all employees
Editing Salary Components

To edit a salary component, navigate to Admin > Job > Salary Components. Click on a salary component and change the information as required (See Creating salary component). When done, click the “Save” button to save changes or the “Cancel” button to discard changes.

Deleting Salary Components

To delete a salary component, navigate to Admin > Job > Salary Components. Select the checkbox beside the salary component(s) you want to delete and the click the “Delete” button. Note: You cannot delete “Basic Earnings”, “Project Pay” and “Income Tax” as they are system components.

 

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tismail posted this 03 October 2019 - Last edited 4 weeks ago

Employee pay package explained

An employee’s pay package generally contains Income and deduction items the net of which he/she is paid. Using the salary components screen and a combination of component types, it is possible to create the most basic pay package or the most complex pay package.

 There are usually 3 main elements to a pay package namely; Earnings / Income, deductions and tax and below is an explanation of the 3 main elements.

Earnings / Income: An income component directly increases the employee’s pay package and it can be an “Amount” where a value is typed directly on the “Earning History” screen (See the PIM section) or it can be a “Percentage” where the value is derived by multiplying a typed percentage with the value of a base component which can be of any type. A default value can be entered which will be shown for all employees by default, it can be an amount or a percentage depending on the component’s “value type”.

Deduction: A deduction component directly reduces the employee’s pay package. It can be an “Amount” where a value is typed directly on the “Earning History” screen (See the PIM section) or it can be a “Percentage” where the value is derived by multiplying a typed percentage with the value of a base component which can be of any type. It can be set to be a full deduction or a part deduction depending on whether it is a cost to the company and the percentage thereof. A default value can be entered which will be shown for all employees by default, it can be an amount or a percentage depending on the component’s “value type”.

Tax: The tax component contained in an employee’s pay package is usually the least understood item in terms of how it is calculated. A tax component can be as basic as just multiplying a value by a certain percentage (i.e. Gross Income * 20%) or in most cases it can be progressive which means the tax rate is charged in bands and the employee’s tax increases as the income rises. It is also usually the case that “tax allowances” (a reduction in the amount on which tax is charged) are given to an employee to reduce the tax burden. It is typical to find the following terms being used in terms of calculating an employee’s income tax

Gross Income: This is the total of all income items that the employee is entitled to (i.e. Basic Earnings, Housing Allowance, and Transport Allowance etc.), it should also include any overtime or project specific payment.

Taxable Income: This is the portion of an employee’s total income which is subject to taxation. It is derived by removing tax exempt items and tax allowances from the gross income (i.e. Personal Allowance, Pension payments etc.), the exact items which are removed are dependent on the applicable country’s taxation laws.

Income Tax: This is the actual amount of tax that the employee pays on the income he/she has earned. It is usually applied to the taxable income in bands i.e. First 10, 000 @ 10%, Next 20, 000 @ 15% above 30, 000 @ 20%.

Creating a pay package using salary components

This section describes how to use the “Salary components” screen to create the various components required in an employee’s pay package. Note: The example given below is just an example and will differ depending on the applicable tax laws and practices of the relevant country.

Example

If the Income Tax of a country (let’s call it Country A) is calculated by applying a tax table to the total taxable income detailed as follows;

  • Gross Income
    • Basic Earning
    • Housing Allowance
    • Transport Allowance
    • Leave Allowance
  • Deductions
    • Pension Contribution
    • Staff Loan
    • National Housing Fund Contribution (NHF)
    • Life Assurance
    • National Health Insurance Scheme (NHIS)
  • Tax Exempt Items
    • Pension Contribution (7.5% of Basic, Housing and Transport)
    • NHF contribution (2.5% of Basic, Housing and Transport)
    • NHIS (5% of Basic, Housing and Transport)
    • Life Assurance
  • Tax Allowances
    • Consolidated Relief: 1% of gross income or N16, 666.67 per month (N200, 000 per annum) whichever is higher.
    • Consolidated Income Relief: 20% of gross income
  • Tax Table (Monthly Values)
    • First 25000 @ 7%
    • Next 25000 @ 11%
    • Next 41666.67 @ 15%
    • Next 41666.67 @ 19%
    • Next 133333.33 @ 21%
    • Above 266666.67 @ 24%

In the above scenario, the taxable income will be Gross Income less Tax Exempt Items less Tax Allowances. While the Net Earnings (take home pay) will be Taxable Income less Income Tax less deductions.

 

admin posted this 03 April 2020

Below is the steps to follow to create the required components for the an employee in Country A

Create Income Components

  • Navigate to Admin > Job > Salary Components
  • Click on Add and fill in the following information
    • Component Name: Basic Earnings (Country A)
    • Country: Country A
    • Type: Income
    • Value Type: Amount
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Housing Allowance (Country A)
    • Country: Country A
    • Type: Income
    • Value Type: Amount
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Transport Allowance (Country A)
    • Country: Country A
    • Type: Income
    • Value Type: Amount
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Leave Allowance (Country A)
    • Country: Country A
    • Type: Income
    • Value Type: Amount
  • Click Save

Create Subtotal Components

  • Click on Add and fill in the following information
    • Component Name: Gross Income (Country A)
    • Country: Country A
    • Type: Calculation
    • Add the following components by selecting them from “Base Component” and clicking Add Component.
      • Basic Earnings (Country A)
      • Housing Allowance (Country A)
      • Leave Allowance (Country A)
      • Transport Allowance (Country A)
    • Click Save
    • Click on Add and fill in the following information
      • Component Name: Basic, Housing and Transport (Country A)
      • Country: Country A
      • Type: Calculation
      • Add the following components by selecting them from “Base Component” and clicking Add Component.
        • Basic Earnings (Country A)
        • Housing Allowance (Country A)
        • Transport Allowance (Country A)
      • Click Save

Create Deductions Components

  • Click on Add and fill in the following information
    • Component Name: National Housing Fund Contribution (Country A)
    • Country: Country A
    • Type: Deduction
    • Default Value: 7.5
    • Cost to Company: No
    • Value Type: Percentage
    • Base Component: Basic Housing and Transport (Country A)
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Pension Contribution (Country A)
    • Country: Country A
    • Type: Deduction
    • Default Value: 2.5
    • Cost to Company: No
    • Value Type: Percentage
    • Base Component: Basic Housing and Transport (Country A)
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Life Assurance (Country A)
    • Country: Country A
    • Type: Deduction
    • Cost to Company: No
    • Value Type: Amount
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: National Health Insurance Scheme (Country A)
    • Country: Country A
    • Type: Deduction
    • Default Value: 5
    • Cost to Company: No
    • Value Type: Percentage
    • Base Component: Basic Housing and Transport (Country A)
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Staff Loan (Country A)
    • Country: Country A
    • Type: Deduction
    • Default Value: 5
    • Cost to Company: No
    • Value Type: Amount
  • Click Save

Create Tax Relief Components

  • Click on Add and fill in the following information
    • Component Name: Consolidated Relief Percentage (Country A)
    • Country: Country A
    • Type: Tax Allowance
    • Default Value: 1
    • Value Type: Percentage
    • Base Component: Gross Income (Country A)
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Consolidated Relief (Country A)
    • Country: Country A
    • Type: Calculation
    • Add the following components by selecting them from “Base Component” and clicking Add Component.
      • Consolidated Relief Percentage (Country A)
    • Maximum Value: -16666.67
  • Click on Add and fill in the following information
    • Component Name: Gross Income Relief Percentage (Country A)
    • Country: Country A
    • Type: Tax Allowance
    • Default Value: 20
    • Value Type: Percentage
    • Base Component: Gross Income (Country A)
  • Click Save
  • Click on Add and fill in the following information
    • Component Name: Gross Income Relief (Country A)
    • Country: Country A
    • Type: Calculation
    • Add the following components by selecting them from “Base Component” and clicking Add Component.
      • Gross Income Relief Percentage (Country A)

 

Create Income Tax Components

  • Click on Add and fill in the following information
    • Component Name: Taxable Income (Country A)
    • Country: Country A
    • Type: Calculation
    • Add the following components by selecting them from “Base Component” and clicking Add Component.
      • Gross Income (Country A)
      • Pension Contribution (Country A)
      • National Housing Fund Contribution (Country A)
      • Life Assurance (Country A)
      • National Health Insurance Scheme (Country A)
      • Consolidated Relief (Country A)
      • Gross Income Relief (Country A)
    • Click on Add and fill in the following information
      • Component Name: Income Tax (Country A)
      • Country: Country A
      • Type: Progressive Tax
      • Base Component: Taxable Income (Country A)
      • Add the following bands by following the steps below
        • Tax Band Type: First
        • Band Value: 25000
        • Band Percentage: 7
        • Click “Add Tax Band”
        • Tax Band Type: Next
        • Band Value: 25000
        • Band Percentage: 11
        • Click “Add Tax Band”
        • Tax Band Type: Next
        • Band Value: 41666.67
        • Band Percentage: 15
        • Click “Add Tax Band”
        • Tax Band Type: Next
        • Band Value: 41666.67
        • Band Percentage: 19
        • Click “Add Tax Band”
        • Tax Band Type: Next
        • Band Value: 133333.33
        • Band Percentage: 21
        • Click “Add Tax Band”
        • Tax Band Type: Above
        • Band Percentage: 24
        • Click “Add Tax Band”

 

With the above steps completed, it is now possible to generate a pay package for employees working in Country A

Note: Bizsoft HRM comes with the necessary salary components for calculating a Nigerian employee’s pay package but components can also be modified, deleted or created to suit particular needs or create other calculations.

BizsoftHRM Administrator