Salary Components in ERPNext

In ERPNext, Salary Components are the items that factor in with the total salary of the employee. These are the possible income and deductions that may be applicable in an employee. These components will be assigned to a Salary Structure, then that structure will be assigned per employee depending on what is applicable to them.

To create Salary Components:

  1. Login to ERPNext
  2. Go to Human Resources. Under Payroll, click Salary Component.
  3. There will be default Salary Components in ERPNext. But this does not apply to all organizations. To add, click New.
  4. Enter the required information:
    • Name - Salary Component Name (ex. Rice Allowance)
    • Abbr - Abbreviations
    • Type - Select if Earning (income) or Deduction
    • Description

Some of the additional attributes of the Salary Component that can be enabled using checkboxes are as follows:

    • Is Payable: Enable this box if the Salary Component type is payable.
    • Depends on Payment Days: If this checkbox is enabled then the Salary Component will be calculated based on the number of working days.
    • Is Tax Applicable: By selecting this checkbox, it will allow you to apply tax on this Salary Component.
    • Deduct Full Tax on Selected Payroll Date.
    • Round to the Nearest Integer: If selected, salary component will be rounded up to the nearest whole number
    • Statistical Component: If selected, the value specified or calculated in this component will not contribute to the earnings or deductions. However, it's value can be referenced by other components that can be added or deducted.
    • Do Not Include in Total: When selected, salary component will not be included in total salary
    • Disabled: Select this to disable the salary component. Once disabled, this salary component cannot be used in salary structures.

5. Go to Condition and Formula section. On the Amount Field, enter how much will be the deduction or earning for this salary component. This is if the amount is fixed for all. In case amount is based on condition or formula, tick the Amount based on Formula box.

6. On the account section, select the account where the salary component will be logged.

7. Click Save to create the Salary Component.

The computation of a Salary Component may also be based on formula. This feature must be enabled and set up first before assigning the salary component in the salary structure.

To enable this feature:

  1. Go to a Salary Component
  2. On the Condition and Formula section, check the “Amount Based on Formula” box.
  3. On the Condition field, enter the parameter that the employee must meet to get the applicable amount. (Condition line 1 applies to Formula line 1). In this example, we select the field “Employment Type = Regular”.
  4. On the Formula field, enter the computation. This formula will take in effect if Condition on line 1 is met. In this example, we use the “Base * .1”.

5. Click Save to Apply the changes. This computation will take in effect once Payroll has been processed.

Note: If a Salary Component is pre-defined and not based on condition and formula, simply disable the “Amount based on formula” checkbox. Instead, you may directly enter the amount on the Amount field.