Payroll errors might happen far more quickly than you anticipate. Consider the employees whose sole source of money is their monthly salary and if the money is not paid on time how they are going to survive. Such inconsistencies can have a negative impact on staff morale and, as a result, on corporate efficiency. This is where good payroll management comes in.
While it is crucial to ensure correct and timely salary payment, compliance with numerous rules and regulations such as labor law, PF, PT, and other statutory compliance is also essential. Noncompliance with these regulations can result in significant legal and financial ramifications.
To ensure that your employees are pleased and that you comply with the law, you must have a thorough grasp of payroll and how to operate it efficiently. We’ll begin with the fundamentals of payroll.
What do you mean by payroll?
Payroll includes the list of all the employees of the company who are to be paid. Payroll is also the entire amount of money paid to employees by an employer. It involves several tasks to be performed.
- Developing the organization’s compensation policy, which includes flexible benefits and leave encashment policies, among other things.
- Identifying the various elements of a payslip, such as basic, variable, HRA, and LTA
- Obtaining additional payroll inputs (for example, the organization’s food provider may provide data on the amount to be recovered from employees for meals consumed)
- The process of calculating gross compensation, statutory and non-statutory deductions, and determining net pay.
- Paying employees’ salaries
- Returns are submitted and TDS, PF, and other dues are deposited with the appropriate authorities.
In a nutshell, the payroll process is calculating what is owed to employees, often known as ‘net pay,’ after deducting appropriate taxes and other deductions.
The formula through which you can compute the net pay is:
Gross income minus gross deductions equals net compensation
All sorts of recurring income + allowances + any one-time payment or benefit =gross income or salary
All sorts of recurring deductions + statutory deductions + any one-time deductions =gross deduction
The following are some of the responsibilities of a payroll management business:
- On schedule and through the proper channels, process biweekly employee payroll payments.
- All HR reporting paperwork must be completed and submitted to a senior management for approval.
- Calculate and deduct relevant amounts from payroll checks, such as tax withholdings and garnishments.
- Before sending payroll checks, double-check all overtime hours with the proper management people.
- Employees’ direct deposit banking details should be obtained and verified.
- On a semi-annual basis, supervise internal payroll and accounting audits.
- Keep track of payroll transactions in a general ledger.
- Provide the papers that the HR Manager has asked.
What are the stages of payroll processing?
A payroll officer must plan meticulously. There are constantly tasks to do, as well as the necessity to keep track of changes in withholdings, social security contributions, and so on. The three phases of the process are pre-payroll, actual payroll, and post-payroll activities.
Defining Payroll Policy
The net amount to be paid is influenced by a number of factors. At that point, the company’s numerous policies, including salary, leave and benefits, attendance, and so on, come into play. To achieve regular payroll processing, such policies must first be clearly stated and authorized by management.
Communication with a range of departments and individuals is required during the payroll process. Data such as mid-year wage changes, attendance figures, and so on may be available.
Sources of payroll data
All these inputs are derived from the single source or from small teams in case of small businesses. In a bigger firm, however, the work of acquiring data may appear to be onerous. The collection of inputs is not an issue if you use a smart payroll system with integrated features like leave and attendance management, employee self-service portal, and so on.
Validation of input
Once you’ve received the data, double-check it for accuracy, including adherence to business policy, authorization/approval matrix, and proper formats, among other things. You must also ensure that no current workers are forgotten about and that no inactive employee information is included in the salary payment process. To guarantee correct payroll, read the top 6 payroll validations.
Actual Payroll Process
Calculation of payroll
The confirmed input data is then entered into the payroll system for real payroll processing at this point. The net pay is the result of adjusting for proper taxes and other deductions.To avoid any problems, it is usually a good habit to reconcile the data and verify for accuracy after the payroll process is completed.
While processing the payroll, all the deductions that are needed are EPF, ESI and TDS (in a few cases). After that, the corporation sends the money to the appropriate government agencies. Depending on the sort of dues, the frequency might vary. In the vast majority of cases, challans are used to pay dues. After all dues have been paid, the return/report is sent. To file a PF return, for example, an ECR is produced and filed.
Every company keeps a record of all financial transactions. One of the primary operating expenditures that must be disclosed in the books of accounts is salary paid. Checking that all salary and reimbursement data is input appropriately into the accounting/ERP system is an important element of payroll administration.
Cash, cheque, or bank transfer may be used to pay salary. Employers frequently provide employees with a salary bank account. Double-check that the company’s bank account has enough money to meet the salary payment once you’ve concluded payroll. Following that, send a salary bank advice statement to the relevant branch. This includes the employee id, bank account details, amount to be paid in form of salary and more. You can quickly publish payslips and employees may log in to their accounts and see the payslips if you use payroll management software with an employee self-service portal.
Finance and senior management may request data such as department-by-department employee costs, location-by-location employee costs, and so on when you finish a payroll run for a given month. It is your obligation as a payroll officer to delve into the data, pull necessary information, and distribute reports.
Statutory Compliance in Indian Payroll
When it comes to payroll, statutory compliance means adhering to the appropriate employment standards established by federal and state legislation. The supply of minimum wages, payment of overtime payments to workers, TDS deduction, and contribution to social security systems such as PF, ESI, and so on are all standard regulatory obligations that apply to Indian enterprises.
All of these deductions and contributions must be taken into account when calculating pay. One such deduction is income tax. The employee is expected to produce a ‘income tax declaration’ at the start of the year, detailing his increased incomes, tax-saving investments, and so on. As a consequence, the employee’s tax burden is calculated, and TDS is deducted.
Methods that are used to do payroll for the business:
- Payroll management in Excel
- Outsourcing payroll
- Making use of payroll software
Excel-based Payroll Management
Many small firms who are just getting started and just have a few employees rely on excel-based payroll administration.
Payroll calculation is done on excel sheets using standard payroll calculation templates in Excel-based payroll administration. The mathematical formulae are established to assist the payroll officer in doing the calculations. While this approach is free of charge, it does have certain drawbacks, such as:
- Because data is input manually, there is a high risk of clerical and mathematical mistakes.
- Adding and deleting employees from the payroll list is difficult.
- It is possible to have duplicate data or omit entries.
- It’s important to stay on top of tax changes as well as other law changes like PF, PT, and so on.
Payroll outsourcing is the process of delegating your payroll function to top payroll outsourcing companies in India. This is the alternative used by many firms who do not have a professional payroll specialist. Employee salary information, as well as other data such as attendance, leaves, reimbursement details, and so on, are sent to the payroll service provider every month depending on their pay cycle. The service provider then calculates payroll and ensures that all legal requirements are met. Payroll is a critical job, and businesses are typically reluctant to outsource it because they want complete transparency and control.
As previously said, you must ensure that payroll inputs are received in a timely and smooth way from all sources in order to conduct a successful payroll. The goal of employing software is to minimize the amount of time it takes to collect data. Advanced payroll administration software is available on the market that not only automates payroll computation but also functions as a leave and attendance management system, HR management system, and employee self-service portal. You may choose a suitable payroll software for your business based on the size of your company and its use cases.
Payroll is a big responsibility and if all the employees are getting paid on time you become a great organization. So why not find the best payroll management companies in India for your business.