A payroll is an important compliance for businesses. It is imperative that a business maintain a steady and regular financial process by which they can pay their employees on time. Payroll is a list of employees who get paid by the company. Payroll also refers to the total amount of money employer pays to the employees. As a business function, it involves:
(a) Developing organization pay policy including flexible benefits,
(b) Leave encashment policy, etc.
(c) Defining payslip components like basic, variable pay, HRA, and LTA
(d) Gathering other payroll inputs.
(e) The actual calculation of gross salary, statutory as well as non-statutory deductions, and arriving at the net pay.
(f) Releasing employee salary
(g) Depositing dues like TDS, PF, etc. with appropriate authorities and filing returns
In short, we can say that payroll process involves arriving at what is due to the employees also called as ‘net pay’ after adjusting necessary taxes and other deductions. Not being able to pay salaries on time, or any unnecessary delays can cause employees to question the financial stability of the company. Moreover, it may even affect the morale of the company’s workforce. Apart from this, you also have to consider the fact that a payroll management system is mandated by law.
(i) Defining payroll policy The net amount to be paid is affected by multiple factors. The company's various policies such as pay policy, leave and benefits policy, attendance policy, etc. come into play at that time. As a first step, such policies need to be well defined and get approved by the management to ensure standard payroll processing.
Payroll process involves interacting with multiple departments and personnel. There can be information like mid-year salary revision data, attendance data, etc.
(ii) Actual payroll process : Payroll calculation - At this stage, the validated input data is fed into the payroll system for actual payroll processing. The result is the net pay after adjusting necessary taxes and other deductions. Once payroll process is over, it is always a good practice to reconcile the values and verify for accuracy to avoid any errors.
(iii) Post-payroll process : Statutory compliance : All statutory deductions like EPF, TDS, ESI are deducted at the time of processing payroll. The company then remits the amount to the respective government agencies. The frequency can vary depending on the type of the dues. In most cases, payment of dues is made via challans. After all dues are paid return/report are filed. E.g., for filing PF return, ECR is generated and filed.
(iv) Payroll accounting : Every organization keeps a record of all its financial transactions. Salary paid is one of the significant operating costs which has to be reported in the books of accounts. As part of payroll management, it is essential to check that all salary and reimbursement data is fed accurately into accounting system.
(v) Payout : You can pay salary by cash, cheque or bank transfer. Typically organizations provide employees with salary bank account. Once you complete payroll, you need to ensure that company’s bank account has sufficient funds to make the salary payment. Then you need to send a salary bank advice statement to the concerned branch. This statement is issued with particulars like employee id, bank account number, amount of wages, etc. If you are opting for a payroll software that has employee self-service portal, you can easily publish the payslips and employees can log-in to their account and access the payslips.
(vi) Reporting : Once you complete payroll run for a particular month, finance and high management team may ask for reports such as department wise employee cost, location wise employee cost, etc. As a payroll officer, it becomes your responsibility to dig into the data and extract required information and share the reports.
Statutory compliance in Indian payroll:
When you run payroll, being statutory compliant means that you are paying as per the applicable employment norms set by the central and state legislation. The common statutory requirements that apply to Indian businesses include the provision for minimum wages, payment of overtime wages to workers, TDS deduction, contribution to social security schemes such as PF, ESI, etc.
While computing salary you need to consider all these deductions and contributions. Income tax is one such deduction. At the beginning of the year, the employee is asked to make a declaration about his additional incomes, tax saving investments, etc. called as ‘income tax declaration.’ Accordingly, employee’s tax liability is calculated, and TDS is deducted.
We can assist you in taking care of your Payroll Management requirements. You can mail us on: info@nexuspune.com