While most people just rely on their employers for their salary calculations, some wiser employees learn how to calculate their salary. This helps them in the longer run, be it handling finances or dealing with financial crunches. However, not everyone knows how to calculate gross salary. Although it is a simple process, people often make certain common errors while calculation.
Today, we aim to point out the common errors and find solutions to fix them. This will enable each reader to know how to calculate gross salary properly. Therefore, let us get down straight to business.
Error 1: Mistaking Net Salary as the Gross Salary
Gross salary is the total amount of money that a company pays to its employees before calculating the deductions like provident fund, income tax, life and medical insurances. It is the complete package an employee receives per annum including several benefits such as incentives, bonuses, leave travel, and other allowances.
Net salary is the in-hand salary that one takes home after deductions. This error of judgment can be fixed simply by calculating your gross salary taking into consideration the deductions along with the in-hand amount.
Error 2: Not Knowing About the Components of Gross Salary
If you wish to know how to calculate gross salary, you must learn about the components that make up your gross salary. To fix this major confusion, we have listed the components down below:
- Direct benefits include the basic salary, leave travel allowance (LTA), house rent allowance, mobile phone allowance, vehicle, and other special allowances. These are generally paid on a monthly basis and thus, the monthly amount needs to be multiplied by 12.
- Indirect benefits include either those allowances that are not monthly or directly paid by the employer. Incentives, bonuses, meal coupons, arrears of salary, and electricity bills paid by the employer are some examples.
- Savings contributions include superannuation benefits and the part of the provident fund paid by the company.
Error 3: Entering Wrong Details
Handling so many numbers can be difficult. It is no surprise that people often make mistakes while calculation. Therefore, make sure that you have entered all the numbers correctly and double-check the prior calculations before entering the amount.
Also, be careful about segregating the monthly allowances and basic salary from those that are paid once a year, bi-monthly or quarterly. Companies often provide a detailed sheet of annual income which comes with already calculated values. It is best to refer to that while calculating your gross salary. Otherwise, you must be extremely careful.
Error 4: Deducting Income Tax, Provident Fund, and Insurances
Since the company does not hand over the money for tax, provident funds, and insurances to you, it can be easily overlooked. You must consider those for they are a part of the entire package your employer spends to retain you as an asset to the company.
Besides, it is also important to know the amount of money that goes into taxes and PF. This could help you save some more money. Knowing how to calculate gross salary will help you save some of your taxes.
Error 5: Getting Confused Between the Provident Fund Percentage
Your provident fund is a collective accumulation of the amount of money you save over the years of your service, it is mostly payable by the end of your service. You transfer a certain percentage of your basic salary to the fund and the company also contributes to that. Thus, while you are calculating, you must take into consideration both the amounts i.e. the percentage being deducted from your salary as well as the amount your company pools in.
We hope with these clarifications, you have no doubt left regarding how to calculate gross salary. It is a good habit to keep oneself updated about the financial status. It makes handling expenses and investments more wisely.