What is Arrears?

Definition

Arrears are amounts owed for an earlier period and paid later, most commonly when a salary revision is backdated to a date before the month payroll first reflects it.

How it works

Arrears are wages relating to the earlier period, not a bonus in the month they are paid. That matters for how they are run through payroll, because contributions and tax on them relate to the period they were earned in.

What it means in India

Backdated revisions carry provident fund implications for the earlier months as well as the current one, and section 89 of the Income Tax Act 1961 allows relief where arrears push an employee into a higher slab in the year of receipt, claimed by filing the prescribed form. Pay arrears through payroll rather than as an ad hoc transfer, so the payslip shows the period they relate to.

What people get wrong

• Paying arrears as a bank transfer outside payroll. The contributions are missed and the payslip trail disappears.
• Omitting the arrears line from the increment letter, which leaves the employee unable to check the amount.

Terms this one depends on

More on pay and salary structure

Where this shows up in practice

Almost everything on this page ends up as a line on a payslip or a figure in a register. Shiftelio keeps attendance, leave, salary structure and the statutory deductions in one place, so the number in the letter and the number in the payslip come from the same record.