ERPNext Payroll: Handling One Time Allowances for an Employee

Managing Payrolls and handling the salary disbursement could go beyond just simple calculations. It does encounter situations like Payment handling outside the standard cycle - Performance bonuses to reward achievement, sales incentives to motivate teams, reimbursements for employee expenses like travel, or recoveries of salary advances. Handling these “Occasional” payroll items accurately, efficiently, and in compliance with tax regulations is crucial. Delays or errors can impact employee morale, while inefficient  manual processes drain valuable HR resources.

In every organisation, employees may sometimes receive payments outside of their regular salary - such as bonuses, Incentives, Arrears, or project based rewards. These are classified as Occasional salary components. In ERPNext, you can easily configure and manage these components while ensuring proper accounting entries are recorded.

 

 In this blog, we will guide you through the step by step process to add occasional salary components in ERPNext, link them to appropriate accounts, and ensure they are reflected in payroll processing.

 

Lets understand these Occasional Salary Components

 

●     Occasional salary components  may include non recurring payments that are not part of an employee’s fixed monthly salary.

●     They may include:

○     Performance Bonus

○     Annual Incentives

○     One time allowance

○     Festival Advance Adjustments

●  These can be added to the employee’s salary structure directly via Additional salary structure.

 

Step-by-step guide to handling one-time allowances for employees in ERPNext payroll

 

●     Lets take one scenario for an employee Rajat, a project coordinator.

●   Rajat was responsible for coordinating a critical client implementation scheduled for 45 days.

●     Due to proactive planning and effective team coordination, he managed to close the project 15 days ahead of schedule, which improved client satisfaction and earned repeat business.

●    To recognize his efforts , management approved a one time incentive of 20,000 which is not a part of his monthly salary structure.

●     Navigation in the system

○     The user will login in to the system using their login credentials.

○     From the main dashboard, navigate to the Payroll module.

○     You will see create Salary Component, click on it.

○     You can directly click on the Create Entry Button.

○   If you wish to view the already created list, Click on the show salary component list.

○    You will see the list of salary components, if created prior.

○  To create a new component click on the + Add Salary component button.

 

●     Fill out the details such as:

○    Name of the Salary component, in our case it will be Bonus.

○    You can also select the type of the component as Earning or Deduction. Since the employee is getting a bonus we will select it as Earning.

○   You can also add the description as well as you can link the company and the Account for the Salary component.

○  You can also Condition & Formula if you wish to calculate the amount based on a certain formula and condition.

○   You can directly add the amount inside the Condition & formula tab.

○   Once filled all the details click on Save to enable the component.

 

 

 

●     Once the Component is created we will create the additional salary and use this salary structure.

○     From the main dashboard, type additional salary in the awesome bar.

○     Then you will see the already created additional salary for employees.

○     To add a new click on + Add Additional Salary button.

 

 

 

●     Fill the details such as:

○     Enter the Employee Name.

○   Once the employee name is entered the company associated with the employee will automatically fetch.

○    Under the salary fill the salary component.

○   Enter the Payroll Date. If Payroll Date for Additional Salary is in the interval when the salary is processed, it will be added to the earnings/deduction.

○    Then after filling out complete information click on Save.

(Note: Select the 'Overwrite Salary Structure Amount' checkbox to overwrite the Additional Salary component on the Salary Structure amount, if any.)

 

 

●   Once the Additional Salary is created we will then create our payroll entry:

○   Write the company name.

○  You can also mention the Payroll Frequency such as monthly, fortnightly, bimonthly, weekly and daily.

○ The start date and end date will be fetched based on the payroll frequency.

○  Once filled, click on Save, you will see the Get Employee button on the top right corner.

○  Clicking on it you shall be able to link the employee with the payroll entry. You can link multiple employees for a single payroll entry.

○ You can also filter the employees based on their Branch, department, designation and number of employees.

 

 

○   As you click on the Get Employee Button you will fetch all the employees linked to the salary structure.

○   Now you will see Create Salary Slip Button on the top right corner.

○   Clicking on it will create a salary slip and Journal Entry will be created.

○   Then you will see the Make Bank entry button on the top right

Side.

○   You need to add a payment account in the Accounting & Payment tab in order to make the bank entry.

○  Clicking on the journal entry From connections you can view the journal entry and its ledger.

 

 

●  We have created the additional salary, we have created the Salary component so does the Journal entry.

●  But the ledger view of the journal entry will not give us a proper bifurcation of the salary component and the payment.

● So how should we view the proper accounting entries and the differentiation of the salary component of the employee?

 

Salary Register

 

●     We have the solution to properly view the salary bifurcation of the salary structure of the employee by viewing the salary register.

○     Type salary register in the awesome bar.

○     You will apply few filters such as:

■     Start date, end date

■     Company Name

■     Employee Name

○     You can even apply the filter based on their status such as:

■     Submitted

■     Draft

■     Cancelled

●     And the Report containing the salary details for employee will be visible

to you.

 

 

Conclusion

ERPNext makes it easy to manage occasional salary components transparently, with end to end traceability from HR entry to final accounting. By leveraging Additional Salary and properly setting up salary components, you can streamline one-off payments while ensuring compliance to handle irregular payouts like incentives and bonuses while maintaining accuracy, compliance and complete visibility.

 Want to learn more about ERPNext, Check out our other useful blogs:-

Configure Custom ERPNext Notifications

Frappe HR and Payroll Software