How LOP, arrears, overtime and reimbursements affect payroll
LOP reduces earned salary for unpaid absent days. Arrears add money owed for past months. Overtime adds pay at twice the ordinary wage rate for hours beyond the limit. Reimbursements repay approved work expenses. LOP and arrears of basic pay change the PF wage base, while overtime and reimbursements are excluded from wages under the Labour Codes.
Four inputs change most payslips from one month to the next. Each one affects gross pay, the PF wage base, and taxable income differently. Definitions for these and other payroll terms are in the QkrHR HR glossary.
Loss Of Pay (LOP)
LOP is the deduction for days an employee was absent without paid leave. It reduces earned salary, so it also reduces the PF wage base and taxable income for the month.
LOP = Monthly gross ÷ Days in the month (your divisor) × LOP days
The divisor is a company policy: calendar days, a fixed 30, or a fixed 26. Pick one and use it every month, because switching changes the deduction. LOP should come from locked attendance, so a missed punch is regularised before it becomes a deduction. See how attendance feeds payroll on the leave and attendance page.
Arrears
Arrears are money owed for past months, such as an increment applied late or a correction to last month's pay. They are paid in the current run.
Arrears = (Revised monthly amount − Amount paid) × Months owed
Arrears of basic pay or DA are wages, so they normally attract PF in the month they are paid. Confirm the treatment with your PF adviser. For income tax, arrears are taxed in the year they are received. If that pushes the employee into a higher tax, they can claim relief under Section 89 by filing Form 10E before their return. Payroll software should calculate arrears from the effective date of the change.
Overtime
Overtime is pay for hours beyond 8 a day or 48 a week, at twice the ordinary rate of wages.
Hourly rate = Monthly wages ÷ (Working days × Daily hours)
Overtime = Hourly rate × 2 × Overtime hours
Overtime allowance is excluded from the definition of wages under the Code on Wages, so it is normally left out of the PF wage base. It is still taxable. Overtime should be worked out from punches, not from supervisors' sheets. See shift management software for how shift rules set it.
Reimbursements
Reimbursements repay employees for work expenses such as fuel, travel, or client meals, after a claim is approved. Conveyance and sums paid for special job expenses are excluded from wages, so reimbursements don't add to the PF wage base. They are generally not taxable when they repay actual official expenses backed by bills. Check how each claim type is treated in your salary structure. See expense management for how approved claims reach payroll.
Worked Example: All Four On One Payslip
An employee earns ₹31,200 a month: basic ₹15,600, HRA ₹6,240 and special allowance ₹9,360. The company uses a 26-day month. This month the employee has 2 days of LOP, 2 months of arrears from a ₹1,000 basic increment, 6 hours of overtime and a ₹1,500 fuel claim. These are example figures:
| Line | Gross pay | PF wage base | Taxable pay |
| Monthly salary | ₹31,200 | ₹15,600 | ₹31,200 |
| LOP: ₹31,200 ÷ 26 × 2 days | −₹2,400 | −₹1,200 | −₹2,400 |
| Arrears: 2 months × ₹1,000 basic | +₹2,000 | +₹2,000 | +₹2,000 |
| Overtime: ₹15,600 ÷ 208 h × 2 × 6 h | +₹900 | ₹0 | +₹900 |
| Fuel claim, with bills | +₹1,500 | ₹0 | ₹0 |
| Total | ₹33,200 | ₹16,400 | ₹31,700 |
The PF wage base is ₹16,400, above the ₹15,000 statutory wage ceiling. If you contribute on the ceiling, the employee's 12% share is ₹1,800. If you contribute on full wages, it is ₹1,968. Basic pay is half of total pay, so the structure meets the 50% wage rule.
How Each Input Flows Through Payroll
| Input | Comes from | Gross pay | PF wage base | Income tax |
| LOP | Locked attendance | Reduces | Reduces | Reduces taxable pay |
| Arrears | Salary change with an effective date | Adds | Adds, if basic or DA | Taxed when received; Section 89 relief possible |
| Overtime | Punches and shift rules | Adds | Normally excluded | Taxable |
| Reimbursements | Approved expense claims | Adds | Excluded | Generally not taxed with bills |
Common Mistakes
- Changing the LOP divisor between months. The same absence costs a different amount.
- Paying arrears without an effective date. The months owed become a guess.
- Adding overtime to the PF wage base. It is excluded from wages under the Labour Codes.
- Paying a claim twice because it was approved in one month and paid in two.
For the full set of checks before payday, see how to reduce salary calculation errors.