What Salary Components Do
Salary Components are the building blocks of payroll. They define the earnings and deductions that can appear in payroll calculations and on payslips.
Examples include:
- Basic salary
- Pension
- NHI
- Social Security
- Payroll Tax
- Allowances
- Deductions
- Benefits
- One-time or recurring payroll items
Salary Components tell BoviHR how a payroll line should behave: whether it is an earning or deduction, whether it is fixed or percentage based, and how it affects taxable pay.
When To Use Salary Components
Use Salary Components when you need to:
- Add a new allowance or deduction.
- Define a recurring payroll line.
- Set how an item affects tax.
- Separate employee and employer values.
- Prepare salary groups for employee assignment.
- Support statutory items such as pension, NHI, Social Security, or payroll tax.
Key Fields To Understand
Component Name
The label shown to users and on payroll records. Use names that are clear to payroll and finance users.
Example: Pension, NHI Benefit, Christmas Bonus.
Component Type
Usually identifies whether the component is an earning or deduction.
Example:
- Earning: Car Allowance
- Deduction: Pension Contribution
Component Value
The amount or percentage used for the component.
Example:
- Fixed value:
$500.00
- Percentage:
2%
Value Type
Defines whether the component is a fixed amount or percentage.
Tax Treatment
Tax treatment controls whether the component affects taxable income.
Common concepts:
- Before tax: Applied before tax is calculated.
- After tax: Applied after tax is calculated.
- Taxable: Adds to taxable income.
- Non-taxable: Does not add to taxable income.
- Taxable deduction: Deduction that affects taxable income.
Practical Example: Taxable Car Allowance
An employee receives a $150 car allowance every pay period. The allowance should be taxable.
Create a Salary Component:
- Component Name:
Car Allowance
- Component Type:
Earning
- Value Type:
Fixed
- Component Value:
150.00
- Tax Treatment:
Taxable
If the employee's regular pay is $2,000, the taxable income becomes $2,150 before applicable taxes are calculated.
Practical Example: Pension Deduction
An employee contributes 2% of eligible salary to pension.
Create a Salary Component:
- Component Name:
Employee Pension
- Component Type:
Deduction
- Value Type:
Percentage
- Component Value:
2
- Tax Treatment: choose based on the country's pension rules and company setup.
If the employee earns $2,000, a 2% pension deduction is $40.
Common Mistakes
- Creating a deduction as an earning.
- Using a fixed value when the item should be a percentage.
- Setting an allowance as non-taxable when it should increase taxable income.
- Reusing vague names like
Deduction 1 instead of meaningful names.
- Forgetting that employer and employee values may be different.
Related Articles
- Salary Groups
- Component History
- Payroll Item Tax Behavior
- Employee Salary Profile
- Payroll Time Setup