Payroll Processing
What is Payroll Processing?
Payroll processing is an essential business function carried out by the HR which involves the ‘net pay’ of the employees working in an organization after the adjustment of necessary taxes and deductions. Payroll management process needs to be carried out step-by-step by the payroll administrator for its efficiency.
Net pay= Gross income — Gross deduction
What does Payroll Processing encompass?
The tasks the payroll administrator needs to carry out are as follow:
To develop the organization’s pay policy which includes flexible benefits, leave encashment and more.
Define certain pay slip components such as basic and variable pay, HRA, LTA, etc.
Collect the required payroll inputs from the transport service provider or food/canteen vendor
Arrive at the net pay by further calculating the gross salary and deducting the statutory and non-statutory sums.
Release employee salary thereafter.
File returns and deposits dues such as TDS, PF and more, with respective authorities.
Step-by-step explanation of Payroll Processing in India
1. Defining payroll policy — This is the very first step of the process wherein you’re required to establish your policies to bank on during the payroll process. These policies need to be approved by the management to turn them into standards. Examples of such policies are — pay policy, attendance policy, leave and benefits policy and more.
2. Gathering inputs — The next step includes gathering inputs from various departments to ensure accurate calculation of payroll.
Payroll software needs to be incorporated in the organization’s which compromises of features such as leave and attendance management, ESS and more to make it hassle-free.
3. Input Validation — After gathering all the required data, one need to verify its validity. One single mistake can rui the entire payroll process.
To ensure that the list contains all the active employees and no records of inactive employees.
Check that data adheres to the company policy.
To ensure that the data is correct and present in the right format.
4. Payroll calculation — After verification of all the data, its time to feed it into the payroll system. A payroll software is setup which eases the work of the payroll management team. A payroll system is a software is a software to automate the process in the most efficient way. The systems can be integrated with leave and attendance tracking systems and employee self-service portal are sued to keep track of employee’s working hours, calculate taxes and deductions, print pay slip, calculate salaries, etc. It minimizes the employer’s effort so that more focus can be put on the problems of the business.
5. Statutory Compliance — Statutory Compliance is established by businesses to adhere to the rules and regulations of the state. Under Statutory Compliance comes all the labor and taxation laws of the state. Companies in India must endure both National and State-level laws. Therefore, all companies dealing with statutory compliance need to be well-versed with the labor regulations. Statutory deduction are EPF, TDS, ESI.
6. Payroll Accounting — An accurate book of accounts needs to be maintained by every organization. Therefore, as a step of the payroll process, all salary data must be fed into the accounting or ERP system.
7. Payout — After all the above steps, one can finally pay salaries via cash, cheque or bank transfers. It is recommended to have a salary accounts of employees for hassle-free transfers. For payment to salary accounts, one need to send salary bank account statements with particulars such as salary amount, account number, employee ID, etc., to the branch.
8. Reporting — The last and final step is to prepare accurate reports containing information such as department or location wise employee cost. These reports are sent to the finance department or the management team for further analysis.
