India HR & Payroll Glossary
Clear definitions of every term you need to know when hiring employees in India.
Basic Salary
Basic salary is the core fixed component of an Indian salary structure, typically 40-50% of CTC, that determines PF contributions, gratuity, HRA exemption, and other statutory calculations.
Co-employment
A workforce arrangement where two or more entities share employer responsibilities and liabilities for the same worker.
Cost to Company (CTC)
CTC is the total annual expenditure an employer incurs on an employee, including salary, allowances, benefits, and statutory contributions.
Dearness Allowance (DA)
Dearness Allowance is a cost-of-living adjustment paid to employees to offset the impact of inflation, linked to the Consumer Price Index (CPI).
Employee State Insurance (ESI)
ESI is a mandatory social security and health insurance scheme for Indian employees earning up to ₹21,000 per month, funded by employer and employee contributions.
Employer of Record (EOR)
An EOR is a third-party organization that legally employs workers on behalf of another company, handling payroll, taxes, benefits, and compliance in the worker's country.
Fixed Term Employment
A time-bound employment contract where the employee receives all statutory benefits from day one, with the relationship ending automatically on the specified date.
Form 16
Form 16 is an annual TDS certificate issued by an employer to each employee, summarizing salary paid and income tax deducted during the financial year.
Full and Final Settlement (FnF)
Full and final settlement is the comprehensive financial settlement an employer must complete when an employee exits, covering all pending dues, benefits, and recoveries.
Gratuity
Gratuity is a lump-sum payment an employer must pay to an employee who has completed five or more years of continuous service, calculated based on last drawn salary and tenure.
Gross Salary
Gross salary is the total compensation an employee earns before any deductions for taxes, provident fund, or other statutory contributions.
House Rent Allowance (HRA)
HRA is a salary component provided to employees to cover rental housing expenses, partially or fully exempt from income tax based on a prescribed formula.
Labour Welfare Fund
Labour Welfare Fund (LWF) is a statutory contribution collected by state governments from employers and employees to finance welfare activities for workers.
Leave Encashment
Leave encashment is the cash payment an employee receives for unused earned leave, either during employment or at the time of retirement, resignation, or termination.
Leave Travel Allowance (LTA)
Leave Travel Allowance is a salary component that provides tax-exempt reimbursement for domestic travel expenses incurred by an employee during leave.
Maternity Benefit
A statutory entitlement under Indian law providing female employees with 26 weeks of paid leave and medical benefits during pregnancy and childbirth.
Minimum Wage
The legally mandated lowest compensation an employer must pay workers, set by central and state governments in India based on skill level, sector, and geography.
Net Salary / Take-Home Pay
Net salary is the actual amount an employee receives after all statutory and voluntary deductions are subtracted from gross salary.
Notice Period
A notice period is the mandatory duration between an employee's resignation or termination and their last working day, during which the employment relationship continues.
Payment of Bonus
A statutory annual bonus mandated under the Payment of Bonus Act 1965, requiring employers to pay between 8.33% and 20% of qualifying wages to eligible employees.
Payroll Tax
The collective employer-side taxes and statutory contributions deducted or contributed alongside salary payments in India, including PF, ESI, professional tax, and TDS.
Permanent Establishment
A fixed place of business in a foreign country that triggers corporate tax liability for the parent entity under tax treaty provisions.
Probation Period
A probation period is a trial employment phase during which an employer assesses a new employee's suitability for the role before confirming them as a permanent employee.
Professional Employer Organization (PEO)
A Professional Employer Organization (PEO) is a firm that provides HR services through a co-employment arrangement where both the PEO and client company share employer responsibilities.
Professional Tax
Professional tax is a state-level employment tax in India deducted from employee salaries, with rates varying by state up to a constitutional maximum of ₹2,500 per year.
Provident Fund (PF)
PF is a mandatory retirement savings scheme in India where both employer and employee contribute 12% of basic salary plus dearness allowance each month.
Shops and Establishments Act
The Shops and Establishments Act is a state-level labor law governing working conditions, hours, leave, and wages for all commercial establishments in India.
Tax Deducted at Source (TDS)
TDS is the income tax an employer withholds from an employee's salary each month and deposits with the government on their behalf.
Universal Account Number (UAN)
UAN is a unique 12-digit number assigned to every EPF member that remains the same throughout their career, linking all PF accounts across employers.
Worker Misclassification
Worker misclassification is the illegal practice of categorizing an employee as an independent contractor to avoid statutory obligations like PF, ESI, gratuity, and labor law protections.
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