Back to Playbook
Act 2: Setting Up the Kingdom

11. Money Setup (Salary, Tax, Contributions)

Story

With attendance and employee structures now configured, Sarah moves on to setting up salary structures, tax rules, and statutory contributions so payroll calculations remain accurate and compliant.

She carefully defines payroll components and deduction policies because even small mistakes could affect employee trust, compliance reporting, taxes, employer liabilities, and monthly payroll accuracy across the organization.

Happy Path

Salary structures, tax policies, and contribution rules are configured successfully so payroll calculations can run accurately and consistently across the organization.

  • Define salary structures with Basic, Allowance, Deduction, Bonus, Tax, and Provident Fund components
  • Configure salary effective dates and payroll applicability
  • Set up tax rules using slab-based or flat-rate calculations
  • Configure tax thresholds, exemption limits, and percentages
  • Create statutory contribution rules with employer and employee shares
  • Apply contribution caps and payroll deduction policies automatically

What One Day Is Worth

Before Sarah touches any deduction rule, she sets two numbers on the payroll policy: standard hours per day, and standard days per month. The second one is the one people misread. It is not a count of the month — it is a divisor, saying how many working days one month's salary is treated as buying. Twenty-six is the usual answer: roughly thirty days less a rest day each week.

Salary is monthly and flat, so nobody earns less in February. The divisor exists only to price a single day when something has to be deducted, and holding it steady is the whole point — if it followed the calendar, one day of absence would cost more in February than in March for exactly the same behaviour.

  • Never create a separate policy for a short month. February needs nothing; the number is deliberately not the length of the month
  • The count of absent days is month-aware — the run walks the real weekends and holidays of that period, so a short month simply contains fewer working days. The count moves, the price of a day does not
  • Late deductions always divide by standard days per month. Absence and unpaid leave do too, unless the rule's basis is Calendar Days, which means a flat thirty
  • One deliberate exception: a mid-month joiner's pro-rata uses the real days in that month, so joining on the 11th costs ten twenty-eighths of salary in February and ten thirty-firsts in March

Overtime, In One Place

Sarah sets overtime up once, in the Overtime section of the payroll policy. It used to be split across this page and a separate Overtime Policy screen; that screen is gone.

Two things catch people out. There are two minimums and both apply — one gates a single day, the other gates the month's total. And with Requires Approval on, a weekly cap cannot be applied; a monthly one still is.

Moving overtime here did more than remove a screen: the old one was a single setting per company with no dates on it, so recomputing an old month used today's rates. It is effective-dated now, like everything else on a payroll policy.

  • Enable Overtime is the master switch. Off, and nothing is paid however the rest is configured
  • Requires Approval decides where the minutes come from: the approved total, or what attendance recorded
  • On a single day — the least overtime that counts, and any daily cap. Both are applied the moment attendance is saved, so a day under the minimum records no overtime at all
  • Across a period — weekly and monthly caps, applied when payroll runs
  • The rate — flat weekday, weekend and holiday multipliers, or steps that pay more the longer overtime runs. Add one step and the flat multipliers stop being used entirely; the section says so where both are visible
  • One overtime hour is the monthly basic ÷ (Standard Hours / Day × Standard Days / Month), both set near the top of the same page

Attendance Deduction Rules

Attendance records what happened; the payroll policy decides what it costs. Sarah opens the policy and finds four rules instead of a row of switches — one for each way a month can lose pay. They are grouped the way her payslips print them: Late arrivals, then Days missed, then Unpaid leave. Each rule can be turned off, given its own settings, and pointed at the whole company or at named departments. Within a group they are a list, not a sequence: each one looks at the month on its own, and the amounts are added up.

Two things are worth knowing before Sarah changes anything. A policy made before the rule list existed says its rules come from the policy's old fields — it is deducting exactly what it shows, and "Make these editable" turns that set into rules she can change one at a time without moving a single figure. And grace is not on the policy at all. It belongs to the shift, so every late rule starts from the same allowance and none of them can quietly forgive more than the shift already did. It is not subtracted from the bands either — those are counted from the shift's start time, so "2 hr" on a 9:00 shift means 11:00 and nothing else.

  • Late arrivals — by how late — part of a day's pay, based on how late the arrival was. The ranges are the Late Deduction Bands, in their own section: she sets where each band starts, it runs until the next one begins, and only the highest band an arrival reaches is charged
  • Late arrivals — when they add up — counts the arrivals no band covers. Every full set costs one day's pay, and what is left over is not charged
  • A band may charge 0, and Sarah uses one when she wants a stretch of lateness forgiven: those arrivals cost nothing and stop counting as marks. Leaving the stretch uncovered does the opposite — the arrivals still build marks, and enough marks cost a whole day
  • Absent days — one day's pay for every day missed: marked absent, no attendance at all, or half a day for each half day
  • Unpaid leave days — one day's pay for each day of approved leave that is unpaid, shown as its own payslip line
  • The two late rules never charge for the same day twice, and both land on one payslip line. Days missed and Unpaid leave get a line each
  • An absence waiver switches off Days missed for one employee for one month. It does not reach Unpaid leave
  • A day's pay is monthly pay ÷ Standard Days Per Month for both late rules, always. Absent days and unpaid leave each choose that or monthly pay ÷ 30, so the two can differ
  • A rule can be pointed at named departments instead of the whole company, and when Sarah does that it replaces the company-wide rule of the same kind for those departments rather than adding to it. Switching that department rule off exempts them entirely; it does not hand them back to the company rule. Two rules of one kind may not name the same department — there would be no way to say which applies, so the page refuses it as she saves

Benefits: Provident Fund & Gratuity

Beyond month-to-month pay, Sarah sets up the long-term benefits that follow an employee through their tenure. Provident Fund and Gratuity are configured once as policies, then accrued and tracked automatically by every payroll run.

These are not just line items — they carry balances over time, and the system reconciles them at withdrawal and at separation so the final number is never guesswork.

  • Define a PF scheme: contribution basis, employer/employee rates, vesting (immediate, cliff, or graded), and interest posting
  • Define a gratuity policy: basis, proration, and any cap
  • Each payroll run accrues PF contributions and updates the employee passbook (including the vested balance)
  • Employees view their own PF passbook and request advance or partial withdrawals, capped at their available balance
  • Admins clear withdrawal requests through an approval queue before any payout
  • At separation, accrued PF and gratuity flow into the final settlement automatically

Failure Modes

FailureWhat the user seesWhat happens next
Salary components do not equal total salary amountValidation rejects salary breakdownAdjust component totals to match overall salary
Negative salary component amount configuredValidation rejection shownEnter valid positive component values
Percentage-based salary component produces fractional valuesRounding rules automatically appliedReview generated rounded values if necessary
Overlapping salary structure effective dates for the same employeeConflict validation shownEnd previous structure or adjust effective dates
Salary structure updated after payroll already processedChange scheduled for next payroll cycleReview next payroll run for updated calculations
Overlapping tax slab thresholds configuredValidation rejects tax slab configurationAdjust slab threshold ranges
Negative tax rate configuredValidation rejection shownEnter a valid positive tax percentage
Contribution cap configured below minimum allowed valueSystem warning displayedReview statutory minimum contribution requirements

Edge Cases

ScenarioBehaviorWhy
Employee salary changes during the middle of a monthPayroll applies prorated salary calculation automaticallyEnsures accurate partial-month compensation
Payroll runs for February, a 28-day monthThe same policy applies unchanged; a day of absence costs exactly what it costs in any other monthStandard days per month is a divisor, not the length of the month — no per-month policy is ever needed
Two employees join on the 11th, one in February and one in MarchTheir pro-rata deductions differ — ten twenty-eighths against ten thirty-firstsMid-month joining is the one path priced on the month's real length
Every deduction rule on a policy is switched offNo late, absence or unpaid-leave amount is deducted at allAn empty rule set is a decision, so the older fixed fields are not consulted as a fallback
A rule is scoped to a departmentOnly employees in that department are deducted by itLets one policy carry a stricter rule for a site without a second policy
Tax exemption threshold configuredFirst portion of income remains tax-free before calculations applySupports legal tax compliance requirements
Statutory contribution percentages change during the yearRemaining payroll cycles apply prorated contribution calculationsMaintains fair and compliant contribution adjustments