How to Do Payroll Entries in TallyPrime: Step-by-Step Guide to Manage Salary, PF, ESI & Payslips (2026)

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Payroll is one of the most important monthly activities for any business. A well-managed payroll system ensures that employees are paid correctly and on time, statutory deductions are calculated properly, and salary expenses are captured accurately in accounts. Many businesses still use Excel for payroll, but this often creates errors, duplication, and compliance risks.

TallyPrime includes a robust Payroll module that can handle employee masters, salary structures, attendance, salary processing, payslips, and statutory compliances such as PF, ESI, and Professional Tax (PT). This guide explains a complete, practical, step-by-step process to do payroll entries in TallyPrime and manage payroll smoothly.

Note: Menu names may vary slightly based on your TallyPrime release and configuration, but the overall workflow remains the same.

Who Should Use Payroll in TallyPrime

TallyPrime payroll is suitable for:

• Small businesses paying monthly salaries to staff
• Retailers and wholesalers with sales teams and office staff
• Manufacturing units with attendance-based wages
• Service companies (IT, consultancy, agencies)
• Organizations that want PF/ESI/PT structured reporting

If you only pay 1–2 people occasionally, a simple voucher entry can work. But for regular payroll with deductions, payslips, and statutory compliance, use Payroll in TallyPrime.

Before You Start: Keep These Details Ready

Collect and verify the following data before setting up payroll:

• Employee list with joining date, department, designation, and contact details
• Basic salary and allowance breakup (HRA, conveyance, special allowance, etc.)
• Deductions (PF, ESI, PT, TDS if applicable, advances/loan recovery)
• Attendance or leave policy (present days, overtime, leaves)
• Statutory registration details (PF & ESI numbers, PT state rules)
• Pay period (monthly/weekly) and salary payment mode (cash/bank)

Step 1: Enable Payroll Features in TallyPrime

First, turn on payroll in your company:

1. 1. Open your company in TallyPrime.
2. 2. Go to: Company (or F11: Features) → Accounting Features / Statutory & Taxation (as per your screen).
3. 3. Enable: Maintain Payroll (set to Yes).
4. 4. If you plan to use attendance-based payroll, enable Attendance/Payroll (if shown).
5. 5. Save the configuration.

Tip: If you do not see the payroll options, ensure you are in the correct company and have sufficient user rights.

Step 2: Create Pay Heads (Earnings & Deductions)

Pay Heads define the components of salary. You will typically create two categories: Earnings and Deductions.

Common Earnings Pay Heads: Basic, HRA, Conveyance, Special Allowance, Bonus, Overtime.
Common Deductions Pay Heads: PF, ESI, Professional Tax, TDS, Salary Advance, Loan Recovery.

To create Pay Heads:

1. 1. Go to: Masters → Create → Payroll Masters → Pay Heads.
2. 2. Select Pay Head Type: Earnings (for income components) or Deductions (for deductions).
3. 3. Set the calculation type: Flat Rate / As Computed Value / On Attendance / On Production (depending on your requirement).
4. 4. Link the pay head to the appropriate ledger or follow Tally’s default payroll accounting mapping.
5. 5. Save and repeat for each pay head.

Best practice: Keep pay head names standardized (e.g., “Basic”, “HRA”, “PF Employee”, “ESI Employee”, “PT”).

Step 3: Create Employee Groups and Categories

Employee Groups help you classify employees (e.g., Admin, Sales, Factory, Accounts). Employee Categories can be used for separate salary structures (e.g., Staff, Worker, Management).

1. 1. Go to: Masters → Create → Payroll Masters → Employee Groups (create groups such as Sales, Accounts, Factory).
2. 2. Go to: Masters → Create → Payroll Masters → Employee Categories (create categories like Staff, Worker).

Step 4: Create Employee Masters

Create an Employee master for each employee so that salary processing becomes structured and report-friendly.

1. 1. Go to: Masters → Create → Payroll Masters → Employees.
2. 2. Enter Employee Name (and optionally Employee Code).
3. 3. Select Employee Group and Category.
4. 4. Enter Date of Joining, Department/Designation (if available), and other details.
5. 5. If you maintain statutory details, enter PF/ESI details as per your policy.
6. 6. Save the Employee master.

Tip: If your team uses attendance, ensure the employee master is mapped correctly to attendance/leave tracking.

Step 5: Create Salary Structure (Salary Details) for Employees

Salary structure defines how much an employee earns and what deductions apply. You can define salary details for each employee individually or by category (depending on your setup).

1. 1. Go to: Masters → Alter → Payroll Masters → Employees (or Salary Details, as per your screen).
2. 2. Select an employee and open Salary Details.
3. 3. Set the effective date (important for appraisals or changes).
4. 4. Add Earnings Pay Heads (Basic, HRA, etc.) with amounts or calculation rules.
5. 5. Add Deductions Pay Heads (PF, ESI, PT, etc.) with applicable rules.
6. 6. Save.

Best practice: Always maintain effective dates to keep audit clarity and historical accuracy.

Step 6: Set Up Attendance (Optional but Recommended)

If your payroll depends on attendance (present days, overtime, leaves), configure attendance:

1. 1. Go to: Masters → Create → Payroll Masters → Attendance/Production Types.
2. 2. Create types like Present (P), Absent (A), Overtime (OT), Leave (L).
3. 3. For each employee, record monthly attendance using Attendance Voucher (if enabled).

This step is especially useful for factories, manpower-based businesses, and organizations with overtime.

Step 7: Process Payroll (Create Payroll Voucher / Salary Voucher)

Once masters and salary details are ready, you can process payroll for the month.

1. 1. Go to: Vouchers → Payroll Vouchers (or Gateway → Payroll → Transactions).
2. 2. Select Payroll Voucher / Salary Voucher.
3. 3. Choose the payroll period (month) and the employee(s).
4. 4. Tally will auto-calculate earnings and deductions based on salary details and attendance (if used).
5. 5. Verify amounts (gross, deductions, net salary).
6. 6. Save the voucher.

At this stage, salary expense entries are recorded in accounts, which helps in Profit & Loss reporting.

Step 8: Record Salary Payment (Bank/Cash)

After payroll is processed, record the payment to employees.

1. 1. Go to: Accounting Vouchers → Payment Voucher.
2. 2. Select Bank or Cash ledger as the payment account.
3. 3. Select Employee (or Salary Payable ledger, depending on your accounting flow).
4. 4. Enter net salary amount and narration (e.g., “Salary for Jan 2026”).
5. 5. Save the payment entry.

Tip: If you pay salaries via bank transfer, you can keep bank narration and reference details for reconciliation.

Step 9: Generate Payslips and Payroll Reports

TallyPrime can generate payslips and payroll reports once payroll vouchers are recorded.

• Payslip: Employee-wise payslip for a month with earnings/deductions
• Payroll Statement: Summary of salary processed for all employees
• Pay Head Report: Component-wise totals (e.g., total PF, total HRA)
• Attendance Register: Present/absent/leave summary (if used)
• Outstanding Salary Payable: If salary is processed but not fully paid

Use these reports for internal review, audit support, and month-end closing.

Managing PF, ESI & Professional Tax in TallyPrime

If your organization is registered under PF/ESI and your state has PT rules, configure statutory settings correctly. This allows Tally to compute deductions and generate compliance-friendly reports.

Recommended approach: Have an expert configure these settings once, then your team can process payroll monthly with confidence.

• PF: Define employee/employer contribution structure as per policy
• ESI: Maintain eligibility, wage limits (as applicable) and contribution logic
• Professional Tax: Configure state-wise slab rules (varies by state)

Important: Statutory rules can change. Always follow the latest official notifications and ensure your Tally configuration is updated.

Common Payroll Entry Mistakes and How to Avoid Them

• Not maintaining effective dates for salary structure changes (leads to wrong calculations).
• Incorrect pay head type (Earnings vs Deductions) causing report mismatch.
• Missing attendance entry when payroll is attendance-based.
• Processing payroll but forgetting to record salary payment vouchers.
• Incorrect statutory setup (PF/ESI/PT) leading to wrong deductions.
• Using inconsistent employee naming conventions, making reports difficult to read.

Tip: Create a monthly payroll checklist and follow the same process every month for consistency.

Best Practice Workflow for Monthly Payroll in TallyPrime

A simple monthly sequence that works well for most businesses:

1. 1. Confirm attendance and overtime (if applicable).
2. 2. Verify any salary changes (new joiners, resignations, increments).
3. 3. Process Payroll Voucher for the month.
4. 4. Review Payroll Statement and Pay Head totals.
5. 5. Generate and share payslips.
6. 6. Make salary payments via Payment Voucher.
7. 7. Close the month after confirming salary payable is zero (or properly tracked).

How Binarysoft Technologies Helps You Implement Payroll in TallyPrime

Payroll setup is not only about entries—it requires correct masters, correct salary structures, and correct statutory configuration. Binarysoft Technologies helps businesses implement TallyPrime payroll in a structured and professional way, including:

• Payroll enablement and configuration in TallyPrime
• Employee masters and salary structure setup
• PF/ESI/PT configuration as per your requirements
• Attendance setup (optional) and workflow training
• Payslip format guidance and reporting support
• Ongoing support and troubleshooting

Powered by Binarysoft Technologies – Authorized Tally Partner

Location : 1626/33, 1st Floor, Naiwalan, Karol Bagh, New Delhi – 110005, INDIA

Contact us : +91 7428779101, 9205471661, 8368262875

Email us : tally@binarysoft.com

Working Hours : 10:00 AM – 6:00 PM (Mon–Fri)

Conclusion

Yes—payroll entries in TallyPrime can be managed smoothly when you follow a proper step-by-step workflow: enable payroll, create pay heads, set up employees and salary structures, process payroll vouchers, record payments, and use reports to review and control payroll costs.

If you want error-free payroll with correct statutory deductions and clean reports, it is best to get your initial setup done by an expert. With the right implementation and monthly routine, TallyPrime becomes a reliable payroll system for your business.

Frequently Asked Questions