What is the formula used for arrear calculation?

Arrears are usually calculated an employee gets a salary revision for a payroll month that has already been processed. For example, consider in the month of May an employee receives a salary revision effective April where the April month payroll is already processed. In this case, based on component settings, the employee will receive arrears of the difference in the salary amount.

Arrears for Basic and HRA are calculated by default however for other components, you need to define it in the component settings. 

For components you want arrears to be calculated check the box, Include this component in the arrears calculation.

Now the difference in amount before and after the salary revision for each of the components where the box is checked is taken and calculated as arrears.

For example, the Basic amount of the employee before revision is 15000 and after the salary revision, it is 17000 then the arrear basic amount is 2000. The same is true for all other components including statutory compliances except ESI. There is no arrears for ESI.

Hope now you know how arrears are calculated. Need more help? You can refer to the other articles or Contact us!