Loss of pay, mid month joiners and arrears: getting proration right in Indian payroll

Most months, most people are paid their full monthly salary. The exceptions are where payroll errors cluster: someone joins on the 18th, someone leaves on the 9th, someone takes three days of unpaid leave, or a raise approved in July is backdated to April. Each needs part of a salary worked out, and each depends on the same choice of how a month is divided into days.

Rules as at October 2026. PF, ESI and wage payment rules are being aligned with the labour codes, so confirm current requirements before you change a policy.

Three ways to count a month

• Calendar days: divide by the days in that month, 28 to 31. A day's pay changes from month to month.
• A fixed 30 days: every month is treated as 30 days. Simple, and a day's pay is constant, but it needs a rule for 31 day months and for February.
• Working days: divide by the days the employee was scheduled to work, excluding weekly offs and holidays. Closest to the work actually done, but a day's pay changes with the roster.

The difference is real. For a salary of ₹45,000 and three unpaid days in February, which has 28 days and, say, 20 working days, the deduction is ₹4,821 on calendar days, ₹4,500 on a fixed 30 days and ₹6,750 on working days. None is wrong, but the method should be written into policy, used for every case, and never let pay for days worked fall below the applicable minimum wage.

Joiners and leavers

A joiner is paid for days from the joining date, and a leaver for days up to the last working day, using the same divisor as loss of pay. Many employers set a cut off, such as the 20th, after which a joiner's first month is paid with the next month's salary. That is allowed as long as wages still go out on time: under the Code on Wages, monthly wages are due by the 7th of the following month, so the delay can only be short.

Whatever the timing, PF and ESI are due on the wages for the month they were earned, and the TDS projection for a joiner should start from their actual start date and any earlier salary they declare.

Loss of pay

Loss of pay days come from attendance: unapproved absence, leave taken beyond the balance, or leave without pay that was agreed in advance. The days have to be final before the run, because they change more than net pay.

• PF on actual wages falls with the reduced wage, though not if it is calculated on the ₹15,000 ceiling and the reduced wage is still above it.
• ESI is calculated on the reduced gross for the month.
• Professional tax can drop to a lower slab, or to nil, if the month's gross falls below a slab boundary.
• The TDS projection changes because the year's salary is now lower.

Arrears

Arrears arise when pay is revised with effect from an earlier date, or when a loss of pay day is reversed after a punch correction. The arrear is the difference between what should have been paid and what was paid, for each month it covers.

• PF is due on arrears of wages, and the pension share still respects the ₹15,000 ceiling for each month the arrears relate to.
• ESI contributions are payable on arrears, but arrears are not counted when deciding whether someone is covered, so they cannot push an employee out of ESI.
• For tax, arrears count as salary in the year they are paid. If they relate to earlier years, the employee can claim relief for the higher slab in their return.
• Show arrears as a separate line on the payslip, with the months they cover, so the employee can see why this month is different.

Where it usually goes wrong

• Using calendar days for loss of pay and a fixed 30 days for joiners, so the same day is worth two different amounts.
• Running payroll before attendance is closed, then reversing loss of pay as arrears every month.
• Paying arrears as one gross figure with no PF or ESI, because the arrear line was set up without a statutory treatment.
• Forgetting that a lower gross can change the professional tax slab for that month.

How PayLoom does it

Unpaid absence reaches payroll from Attendance already approved, so the loss of pay days on a payslip are the days a manager signed off. Joining and leaving dates sit on the employee record, and corrections and arrears are pay elements with their own treatment that land on the same record and year to date figures, either in the next run or in an off cycle run.