How to Calculate Employee Salary in India, Step by Step

The calculation in eight steps

1. Take the employee's current salary structure: monthly amount of each earning.
2. Fix the per-day rate using your chosen divisor.
3. Count paid days from attendance and approved leave; the rest are loss of pay (LOP).
4. Pay each earning for paid days to get earned salary.
5. Add extra pay: weekly-off or holiday duty, overtime, incentives, bonus, arrears.
6. The total is gross salary for the month.
7. Work out statutory deductions: PF, ESI, professional tax, TDS.
8. Subtract those and any recoveries (advances, loan EMIs, fines) to get net salary.

If you are still deciding the structure itself, read CTC vs gross vs net salary first.

Step 1: choose a per-day rate method

Unpaid days are deducted at a per-day rate, so the divisor matters. Indian employers use three common methods.

• Calendar days: monthly salary ÷ days in that month (28, 29, 30 or 31). The per-day rate changes every month.
• 26 days: monthly salary ÷ 26, treating four weekly offs as paid. Common in factories and establishments with a six-day week.
• Fixed 30 days: monthly salary ÷ 30 for every month. Simple and predictable.

One day of LOP therefore costs this employee anything from ₹967.74 to ₹1,153.85 depending on method and month. None is wrong in itself, but it must match your appointment letters and be applied consistently. Swastik Payroll uses the fixed 30-day basis: per-day rate = monthly base salary ÷ 30 for all months. Minimum wage notifications and state rules sometimes specify how daily rates are derived, so check them for your sector.

Step 2: paid days, loss of pay and half days

Weekly offs, paid holidays and approved paid leave (casual, sick, earned) count as paid days. Unauthorised absence and approved unpaid leave are LOP.

A half day is 0.5 LOP day, whether it is a half-day absence or half-day unpaid leave. Decide in advance how late arrival and early exit are treated: some employers mark a half day after a set number of late marks, others deduct from leave balance. Record the rule so it is not settled case by case at month end.

With a 30-day divisor, deduct at the per-day rate even in a 31-day month; do not pay 31 days. With calendar days, paid days can be 31.

Step 3: weekly-off and holiday duty, overtime

Weekly-off or holiday duty. An employee who works on a paid weekly off or a festival holiday is usually paid an extra day's wage, given a compensatory off, or both, as company policy and state law require. Some state shops and establishments rules and the National and Festival Holidays Acts prescribe double wages or a substitute holiday, so check your state.

Overtime. Under the Factories Act, and carried into the OSH Code, workers get twice the ordinary rate of wages for work beyond the daily or weekly limit. The ordinary rate includes basic and allowances but excludes bonus and overtime itself. A common way to get the hourly rate is monthly wages ÷ 26 ÷ 8.

Limits and state rules are covered in overtime pay rules in India.

Step 4: allowances, advances and loan EMIs

Fixed allowances such as HRA and special allowance are normally pro-rated for paid days just like basic. Reimbursement-type or conditional allowances (a night-shift allowance, a per-day food allowance) are paid for the days they apply. Incentives and bonus are added as approved.

Salary advances and loans are recovered from net pay, either in one go or as monthly EMIs. Keep a running balance per employee, and record skipped or reduced instalments so the balance stays correct. Under the Code on Wages, total deductions are capped at 50% of wages, so check the cap in a month with heavy LOP.

Step 5: PF, ESI, professional tax and TDS

• PF: employee 12% of earned basic + DA. The employer also pays 12%, of which 8.33% goes to EPS on wages up to ₹15,000. Many employers restrict both shares to the ₹15,000 ceiling, so the maximum is ₹1,800 each. See the PF calculator for the full split.
• ESI: for employees whose gross wages are ₹21,000 a month or less, 0.75% of the month's gross wages from the employee and 3.25% from the employer.
• Professional tax: a state levy, maximum ₹2,500 a year, deducted according to the state's monthly slabs. Some states have no PT.
• TDS: the employer estimates the employee's annual taxable salary under the chosen regime, calculates annual tax and spreads it over the remaining months. Under the new regime slabs announced in Budget 2025, taxable income up to ₹12 lakh bears no tax after rebate.

Worked example 1: ₹18,000 a month, ESI-covered, 2 LOP days

Worked example 2: ₹45,000 a month, PF on capped wages

Common errors to check before approving salary

• Mixing divisors: 26 days for LOP in one month, 30 in the next.
• Counting weekly offs next to long absences inconsistently (sandwich rules must be written down).
• Calculating PF on gross instead of basic + DA, or on monthly rate instead of earned basic.
• Checking ESI eligibility on this month's reduced gross rather than the wage rate and contribution-period rules.
• Forgetting to carry forward an advance balance after a skipped EMI.
• Entering arrears without a note, so the employee cannot tell why net pay jumped.

Doing this for every employee, every month

For a handful of employees a spreadsheet works. As headcount grows, attendance imports, revisions and EMI balances become the error-prone part. Swastik Payroll's salary management reads paid days, half days, Sunday and holiday duty and overtime from attendance, applies your salary components at the 30-day per-day rate, recovers advances and loan EMIs, and calculates PF and ESIC from the same run. Salary moves from Draft to Calculated, Approved and Paid, and approved months can be locked. TDS is entered as a deduction amount; the software does not compute income tax.

For a quick one-off check, the free salary calculator gives gross, deductions and take-home for a single employee.

Frequently asked questions

This guide is general information for employers and employees in India, not legal or tax advice. Statutory rates, limits and forms change; confirm the current position with EPFO, ESIC, the Income Tax Department or your CA before acting on it.