What is Payroll Management?
The term ‘Payroll’ is associated with several meanings and is interchangeably used as an umbrella term for:
- A group of people employed by an organization and the accounting of their earnings
- The total number of employees working with a company or an economy
- The process of onboarding, and accounting for the total money spent on an employee
- The complete chain of tasks for managing the money paid to the employees
Simply put; it either is A) the total amount of money that a company pays to its employees. It consists of the company’s records of its employee’s salaries and wages, bonuses, and withheld taxes.
From a management perspective – B) It refers to the process by which employees receive their salary. The payroll department deals with wage deductions, record keeping, and verifying the reliability of pay data.
Functions of Payroll
Payroll could also mean the total amount of money the employer pays to the employees. The following are the functions of a Payroll:
- Developing organization pay policy including flexible benefits, leave encashment policy, etc.
- Defining payslip components like basic, variable pay, HRA, and LTA
- Gathering other payroll inputs (e.g., the organization’s food vendor may supply information about the amount to be recovered from the employees for meals consumed)
- The actual calculation of gross salary, statutory as well as non-statutory deductions, and arriving at the net pay
- Releasing employee salary
- Depositing dues like TDS, PF, etc. with appropriate authorities and filing returns
3 Stages of Payroll
The payroll management process is nothing but a set of regulated steps that are performed in the same order every month to form a payroll cycle. In other words, the payroll process is all about arriving at what is due to the employees, i.e., the Net Pay after making the necessary tax adjustments and other deductions.
The Three stages of payroll process includes:
- Pre-payroll process
- Actual payroll process
- Post-payroll process
Pre-Payroll Process
Delineating Payroll Policies: The final amount paid to every employee depends upon various factors. The company’s different policies come into play at the time of payout. To begin with, these policies need to be properly defined and approved by the management to ensure standard payroll processing and administration. The primary company policies that are considered while processing payroll include:
- Time & Attendance Policy
- Employee Pay Policy
- Leave and Benefits Policy
- Reimbursement Policy
Collecting Inputs: The payroll process includes interacting with multiple departments and professionals to gather relevant information. In MNCs and large organizations, the task of gathering data can be a little overwhelming. However, in SMEs, inputs are received from a consolidated source or fewer teams. A little tip is to use a smart payroll software having integrated features like leave & attendance management and employee self-service portal so that the input collection process does not remain a problem. Information that needs prior attention if payroll is to be processed includes:
- New Joiner Salary Structure
- Mid-year Salary Revisions
- Variable Payouts
- Attendance Inputs like paid days for the month, overtime, shift allowances and leave encashments
- Ad hoc Deductions like EMIs or Recoveries like replacement of ID card, or clearance recoveries
- Employee Joining Date
- Month on Month Pre-processing
- Investment Declarations – collected from employees
- Bills for Reimbursements
- Old & New Tax Regimes
- Previous Employer Income/ Tax Declaration
- Previous Company Relieving Details
Validating Inputs: Once the information is gathered, it’s time to ensure adherence of the inputs to company policies, verifying investment declaration bills and reimbursement proofs, variable payout inputs. The most imperative thing is to ensure that all the new joins have been included in the payroll cycle, previous employment salary declaration has been considered, and CTC break-up has been done as per the company policies. Before processing the payroll, it should also be ensured that any employees expected to be relieved in the payroll cycle are also updated.
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 the payroll process is over, it is always a good practice to reconcile the values and verify for accuracy to avoid any errors.
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 returns/reports are filed. E.g., for filing PF returns, ECR is generated and filed.
- 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 the accounting/ERP system.
- Payout
You can pay your 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 payroll software that has an employee self-service portal, you can easily publish the payslips, and employees can log in to their accounts and access the payslips.
- Reporting
Once you complete the payroll run for a particular month, the 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 the required information and share the reports.
Statutory Compliance in Indian Payroll – Compliance Management
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 an ‘income tax declaration.’ Accordingly, the employee’s tax liability is calculated, and TDS is deducted.
What are the Components of Payroll?
The disbursement of monthly salary and employee wages have several prime components structured together in the form of payroll. Amidst the gross and net salary, there are multiple ‘components’ that collectively form a salary package. These are imperative for the employers & employees to calculate taxes, EPF, medical expenses, benefits, travel allowances, and other elements.
The Salary Break up:
- CTC
- Earnings
- Allowances
- Deductions
- Other Statutory Compliances
- Reimbursements
Payroll management & Outsourcing
Outsourcing payroll means you want an external agency to take care of your payroll function. While payroll management is a complimentary service that Staffing outsourcing companies provide, along with staffing outsourcing – especially in cases of Contract Staffing. Payroll management serves to be one of the best options, for companies that want to hire the payroll of their C2H Employees/Contract to Hire Employees or Contract Employees.
