Skip to content
Payroll in Tally Prime

Payroll in Tally Prime

Employee management, salary processing, attendance, deductions and payroll reporting

1. Concept of Payroll

Payroll is the process of calculating and recording employee salaries and related deductions for a particular pay period.

Payroll in Tally Prime can help businesses maintain employee records, define salary structures, record attendance, calculate payroll components and generate payroll-related reports.

EMPLOYEES

Employee Records

Maintain employee information such as name, department, designation, joining date and relevant payment details.

SALARY

Salary Processing

Define salary components such as Basic, HRA, DA, Bonus and applicable deductions.

ATTENDANCE

Attendance

Record attendance, leave and other attendance or production information used for payroll processing.

In simple words: Payroll converts employee information + attendance + salary structure into a salary calculation and related accounting records.

2. Payroll Process Flow

A typical payroll cycle can be understood as the following sequence:

Employee
Master
→
Pay Heads &
Salary Structure
→
Attendance
→
Payroll
Calculation
→
Salary
Payment
→
Payroll
Reports
Memory trick:
Employee → Salary Structure → Attendance → Payroll → Payment → Reports

3. Enabling Payroll

Payroll-related features need to be enabled in the company before setting up employee payroll masters and processing salary.

  1. Open Gateway of Tally → F11 (Features) .
  2. Open the relevant Accounting Features section.
  3. Turn Maintain Payroll to Yes/ON, if the option is available in your Tally Prime configuration.
  4. Enable the required Statutory Features for applicable payroll-related compliance such as PF, ESI, Professional Tax or Income Tax.
Important: Statutory applicability, thresholds, rates and configuration can depend on the employee, establishment and applicable law. Do not assume that every statutory deduction applies to every employee.

4. Creating Payroll Masters

Payroll masters provide the basic structure required for salary calculation and employee management.

Payroll Master Purpose Example
Employee Groups Classify employees according to department, branch, location or other business requirements. Accounts Department
Employees Stores individual employee information. Ravi Kumar
Pay Heads Define salary earnings and deductions. Basic, HRA, DA, PF, ESI, Bonus
Salary Structure Determines which pay heads apply to an employee and how salary is calculated. Basic + HRA + DA − PF − ESI
Attendance / Production Types Defines the units used to record attendance or production. Days, Hours, Pieces

5. Employee Groups

Employee Groups are useful for organizing employees into logical categories.

Example

Employee Group Employees
Accounts Department Ravi Kumar, Sita
Sales Department Arjun, Neha, Rahul
Administration Priya, Manoj
Why use employee groups? They make it easier to organize employees and analyze payroll information department-wise or group-wise.

6. Creating an Employee

An employee master contains the basic information needed to identify and process payroll for an employee.

Example: Ravi Kumar

Field Example
Employee Name Ravi Kumar
Date of Joining 01-Aug-2026
Designation Accountant
Department Accounts Department
Bank SBI
Practical tip: Keep employee master information accurate because employee details are used throughout payroll processing and reporting.

7. Pay Heads

A Pay Head represents a component of an employee’s earnings or deductions.

Pay Head Type Example
Basic Salary Earning ₹20,000
HRA Earning ₹5,000
DA Earning ₹3,000
Bonus Earning ₹2,500
PF Deduction 12% of applicable PF wage
ESI Deduction Applicable employee contribution
Income Tax Deduction As applicable
Important distinction: Earnings increase gross salary, while deductions reduce the amount payable to the employee.

8. Salary Structure

A salary structure specifies the pay components applicable to an employee and the rules used to calculate them.

Example Salary Structure

Component Amount Nature
Basic ₹20,000 Earning
HRA ₹5,000 Earning
DA ₹3,000 Earning
Gross Salary ₹28,000 Total Earnings
Gross Salary = Basic + HRA + DA + Other Earnings Example: = ₹20,000 + ₹5,000 + ₹3,000 = ₹28,000

9. Attendance / Production Types

Attendance or production types define how employee attendance or production is measured.

DAYS

Attendance Days

Example: Employee worked 26 days during the month.

HOURS

Working Hours

Useful when employee wages depend on hours worked.

PRODUCTION

Pieces

Useful when employees are paid according to units produced.

10. Recording Attendance

Attendance information can be recorded for employees before payroll is processed, where the salary structure uses attendance information.

  1. Open the appropriate Attendance Voucher.
  2. Select the relevant employee or employee group.
  3. Enter attendance such as days worked, leave or other applicable attendance details.
  4. Save the attendance transaction.
Example:
Ravi Kumar worked 26 days during August. The attendance record can reflect the applicable attendance information for the month.

11. Processing Salary

The Payroll Voucher is used to process salary based on the defined salary structure, attendance and applicable pay heads.

  1. Open the Payroll Voucher.
  2. Select the relevant employee or employee group.
  3. Select the applicable salary period/date.
  4. Verify earnings such as Basic, HRA, DA and Bonus.
  5. Verify applicable deductions such as PF, ESI or tax.
  6. Check the resulting net salary.
  7. Save the payroll transaction.

12. Salary Calculation Example

Consider the following salary structure for Ravi:

Component Amount
Basic ₹20,000
HRA ₹5,000
DA ₹3,000
Gross Salary ₹28,000
PF ₹2,400
Other deductions ₹0
Net Salary ₹25,600
Gross Salary = ₹20,000 + ₹5,000 + ₹3,000 = ₹28,000 PF = ₹20,000 × 12% = ₹2,400 Net Salary = ₹28,000 − ₹2,400 = ₹25,600
Note: This is a learning example. Actual statutory deductions may be subject to applicable rules, wage ceilings, eligibility conditions, exemptions and other configuration requirements.

13. Recording Salary Payment

After payroll is processed, the actual payment to employees can be recorded through the appropriate payment transaction.

Salary Payable A/c Dr. ₹25,600 To Bank A/c ₹25,600

The exact accounting treatment can depend on how payroll and salary payable ledgers are configured in the company.

14. Bonus Example

Suppose Arjun has a gross salary of ₹25,000 and receives a bonus of ₹2,500.

Component Amount
Regular Gross Salary ₹25,000
Bonus ₹2,500
Total Earnings before deductions ₹27,500

A suitable Bonus pay head can be created and configured as an earning component, subject to the applicable payroll and accounting requirements.

Remember: Bonus is an earning. It increases gross earnings before applicable deductions.

15. Statutory Deductions

Depending on the employee and establishment, payroll may involve statutory components such as PF, ESI, Professional Tax or Income Tax.

Component General Purpose Example
PF Provident Fund contribution where applicable. Example: employee contribution calculated on applicable PF wage.
ESI Employee State Insurance contribution where applicable. Example: applicable employee contribution on eligible wages.
Professional Tax State-specific professional tax where applicable. Depends on applicable state rules.
Income Tax Tax deducted from salary as applicable. Depends on applicable tax rules and employee circumstances.
Important compliance note: Do not use the illustrative rates in a training example as a substitute for current statutory rates or eligibility rules. Payroll compliance should be configured using the applicable rules for the relevant period and employee.

16. Payslip

A payslip provides an employee-wise summary of salary earnings, deductions and net salary for the selected pay period.

Sample Payslip Structure

Employee: Ravi Kumar
Basic ₹20,000
HRA ₹5,000
DA ₹3,000
Gross Earnings ₹28,000
PF ₹2,400
Other Deductions ₹0
Net Salary ₹25,600

17. Payroll Reports

Report Purpose
Payslip Shows employee-wise earnings, deductions and net salary.
Payroll Statement Provides consolidated payroll information for the selected period.
Attendance Report Shows attendance, leave and related information.
Statutory Reports Provides applicable payroll statutory information such as PF, ESI, Professional Tax and Income Tax.

18. Practice Questions

Question 1: Employee Creation

Create an employee group named Accounts Department.

Create employee:

  • Name: Ravi Kumar
  • DOJ: 01-Aug-2026
  • Designation: Accountant
  • Bank: SBI

Assign:

  • Basic = ₹20,000
  • HRA = ₹5,000
  • DA = ₹3,000

Generate the August payslip.

Show Answer / Expected Result
Component Amount
Basic ₹20,000
HRA ₹5,000
DA ₹3,000
Gross Salary ₹28,000

The final net salary will depend on applicable deductions.

Question 2: Attendance Recording

Ravi Kumar worked 26 days in August.

  1. Record his attendance.
  2. Process the salary in the Payroll Voucher.
  3. Generate the payslip.
  4. Determine the net salary after applicable deductions.
Show Guidance

First record the attendance for the relevant pay period. Then process payroll using the employee’s salary structure.

The exact net salary cannot be determined from attendance alone unless the salary calculation rules and all applicable deductions are known.

Question 3: Statutory Deductions

Sita earns:

  • Basic = ₹15,000
  • HRA = ₹4,000

For this illustrative exercise only, assume:

  • PF = 12% of Basic
  • ESI = 0.75% of Gross

Calculate gross salary, PF, ESI and net salary.

Show Answer
Gross Salary = ₹15,000 + ₹4,000 = ₹19,000 PF = ₹15,000 × 12% = ₹1,800 ESI = ₹19,000 × 0.75% = ₹142.50 Total Deductions = ₹1,800 + ₹142.50 = ₹1,942.50 Net Salary = ₹19,000 − ₹1,942.50 = ₹17,057.50

These figures are for the exercise only; actual statutory applicability and calculation must be determined using the applicable rules.

Question 4: Bonus Entry

Arjun earns a gross salary of ₹25,000. A bonus of ₹2,500 is declared.

  1. Create a Bonus Pay Head.
  2. Configure it as an earning component.
  3. Include the bonus in the payroll transaction.
  4. Generate the payslip.
Show Answer
Regular Gross Salary = ₹25,000 Bonus = ₹2,500 Total Earnings = ₹25,000 + ₹2,500 = ₹27,500

Net salary will depend on any applicable deductions.

Question 5: Multiple Employees

Create three employees under the Sales Department.

Give each employee a different salary structure.

  1. Record attendance for all three employees.
  2. Process payroll for August.
  3. Generate individual payslips.
  4. Generate the consolidated Payroll Statement.
Suggested Workflow
Sales Department ↓ Create Employees ↓ Create Pay Heads ↓ Assign Salary Structures ↓ Record Attendance ↓ Process Payroll ↓ Verify Deductions ↓ Generate Payslips ↓ Generate Payroll Statement

Question 6: Calculate Net Salary

An employee has the following monthly salary:

Earnings Amount
Basic ₹30,000
HRA ₹8,000
DA ₹4,000
Bonus ₹2,000

Assume, only for this exercise, that PF deduction is 12% of Basic and there are no other deductions.

Show Answer
Gross Earnings = ₹30,000 + ₹8,000 + ₹4,000 + ₹2,000 = ₹44,000 PF = ₹30,000 × 12% = ₹3,600 Net Salary = ₹44,000 − ₹3,600 = ₹40,400

19. Common Payroll Mistakes

  • Incorrect employee master: Wrong joining date, department or bank details.
  • Wrong pay head: Treating a deduction as an earning or vice versa.
  • Incorrect attendance: Processing salary before verifying attendance and leave.
  • Incorrect salary structure: Assigning the wrong salary components to an employee.
  • Ignoring statutory applicability: Applying a statutory deduction without checking whether it applies.
  • Not checking the payslip: Failing to verify gross salary, deductions and net salary before payment.

20. Quick Revision

Topic Remember
Payroll Process of calculating and recording employee salary.
Employee Group Organizes employees into departments or other categories.
Employee Master Stores individual employee information.
Pay Head Represents an earning or deduction.
Salary Structure Defines the employee’s salary components and calculation rules.
Attendance Voucher Records attendance/leave information.
Payroll Voucher Processes salary.
Payment Voucher Records payment of salary through cash/bank as applicable.
Payslip Employee-wise salary statement.
Payroll Statement Consolidated payroll report.
Final Memory Trick:

Employee → Pay Head → Salary Structure → Attendance → Payroll → Payment → Reports

If you understand this sequence, you understand the basic payroll workflow.

Tally Prime Learning Module • Payroll