There are more payroll mistakes than you think. Think about employees who are dependent upon their monthly salary. How about if the salary is not paid correctly or the salary is delayed? An irregularity may affect the morale of the employees and ultimately affect productivity.
Aside from adhering to the various laws and regulations relating to employee payroll, PF, PT, and other statutory compliance, it is important to ensure accurate and timely payment of salaries. These laws carry serious legal and financial consequences for non-adherence.
How do payrolls work?
It is a list of employees that get paid by the company. The payroll refers to all the wages an employer pays. This can include:
- Organization pay policies including flexible benefits, leave encashment policies, etc.
- Payslip components, like basic, variable pay, HRA, and LTA
- Obtaining other payroll management system inputs (e.g., the food distributor may supply information about the amount to be recovered from employees for meals consumed)
- The actual method of calculating gross salary, statutory and non-statutory deductions, and the net payment
- Getting salaries out
- Paying tax dues (TDS, PF, etc.) and filing return
How does payroll processing work?
Planning is crucial to a payroll officer. You have to stay on top of changes in withholdings, contributions to social security funds, and more. There are three basic stages of the process, pre-payroll, actual payroll, and post-payroll activities.
Laying out a Payroll Policy
Several factors influence the net amount to be paid. It is at that time that various corporate policies come into play, such as pay policy, leave policy, and attendance policy. For standard payroll processing, such policies must be well defined and approved by management.
payroll services involve interactions with several departments and personnel. Information like mid-year salary revisions or attendance data is common.
Process of actual payroll
Data from the validated input is fed into the payroll system for actual payroll processing. The total salary is the net salary after deductions for taxes and other obligations are made. After payroll is over, it is good practice to verify the accuracy of the values and reconcile them.
Process of post-payroll
The payroll process includes all statutory deductions like EPF, TDS, and ESI. These amounts are then submitted to government agencies. Frequency depends on the type of dues. Dues are frequently paid via challans. In the end, reports and/or returns are filed. ECR is used to file PF returns.
Financial records are kept by every organization. The cost of salaries is one of the major costs that go into the books. The purpose of payroll management is to ensure that all salary and reimbursement data goes into the accounting/ERP system correctly.
Cash, check, or bank transfer can pay Salary. Organizations usually set up payroll bank accounts. Payroll is complete once the company’s bank account is sufficient to pay salaries. Please send a salary bank advice statement to the concerned branch. It includes such details as employee id, bank account number, wages, etc. If you are opting for payroll software with employee self-service portals, employees can easily access their payslips when logging into their accounts.
The finance and high management team may request reports such as department- and location-specific employee costs after you complete payroll runs. The payroll officer’s role is to dig into data, extract the necessary information, and share reports.
Payroll compliance in India
Having statutory compliance means running payroll to the standards set by state and federal law. Businesses in India are required to pay minimum wages, pay overtime wages, deduct TDS, and contribute to social security schemes like ESI and PF. When computing salary, you must take into account all these deductions. This includes income tax. A tax declaration is made by the employee at the beginning of the year. It outlines his additional incomes, tax-saving investments, etc., and accordingly, TDS is deducted.
Outsourcing payroll means the payroll function is handled by an external agency. These services are popular with organizations that do not have a dedicated payroll person. In accordance with their pay cycle, they provide payroll service providers with payroll information and other details as well, such as employee attendance, leave, reimbursement details, etc. Afterward, the provider calculates payrolls and handles statutory compliance. Outsourcing payroll is often resisted by companies because payroll is a crucial function and they want complete transparency and control over it.