A Complete Payroll Guide

Payroll plays a significant role in the smooth functioning of the business. It is a fragile topic and a minor error can have a tremendous effect on the organisation's operating. A delay or miscalculation of the salary can affect employees' morale, which will eventually take a toll on the company's productivity. Apart from processing accurate and on-time payroll, an organisation needs to adhere to the various laws and regulations such as labor law, PF, PT and other statutory compliance. The HR professionals need to have a proper understanding of the payroll to keep the employees happy and to be law compliant.

Let's start with the basics of payroll!

Payroll is the total amount of money an employer pays to the employees.

Its functioning involves:

• Structuring pay policy for the employees by including flexible benefits, leave encashment policy, etc.
• Settling payslip components like basic, variable pay, HRA, and LTA.
• Calculation of gross salary with statutory as well as non-statutory deductions.
• Processing employees' salary and depositing dues like TDS, PF, etc. with appropriate authorities and filing returns.

Components Of Payroll

Four important components to considering while preparing payroll are as follows:

Gross Wages
Gross wage is the salary of the employee before deduction of bonuses, commission, pension & retirement funds, health insurance, and tax.

Benefits
Employees get long-term benefits of gratuity, retirement plans, medical insurance and family insurance cover apart from PT and PF.

Tax
Automated calculation and deduction of taxes ease the employees of paying taxes manually to the government.

Social Security/Insurance
The company deducts social security and health insurance funds before income tax from the salary of the employees. Half of the amount is paid by the company, whereas the other half is deducted from the salary of the employee.

Payroll Process

The payroll-officer must be alert and careful while processing payroll. Constant monitoring and rechecking are essential to avoid errors. The payroll process can be divided into three stages pre-payroll, actual payroll and post payroll activities.

Pre-Payroll

Defining policy
The company must structure their policy as per their business needs. These policies should be easy for the employees to comply with as the complicated policies might become a problem in the future. All the factors such as the percentage of health insurance, funds, leave deductions and late arrival rules should be covered efficiently.

Collect inputs
It is necessary to gather relevant data and research thoroughly before processing the payroll. Effective communication with different departments can also help to gather precise data. In smaller organisations there are fewer employees and limited teams, so it becomes easy to accumulate data, whereas in a larger organisation it is much difficult due to the high number of employees.

Validating Inputs
It is necessary to check the validity of the gathered information. Employers must make sure that none of the people associated with the organisation is left out.

Actual Payroll Process

Process the information is the next step after collection and validation. It includes adjustments and deductions in the salary of the employees. This is the most important step while processing payroll and the in-charge officer must double check before transferring the money to the employees' accounts.

Post-Payroll Process

Legal Obligations
The company must deduct the amount form the salary to send it to the relevant departments of other organizations like insurance companies, government agencies, and social security services. There are different methods to transfer the amount but usually done by a challan form.

Payroll Accounting Treatment
Usually, companies maintain records of the payroll but maintaining it in a classified manner with specific accounting books is the key. Classified record keeping will ensure a smooth workflow.

Releasing Payment
Releasing payments is the last step in the payroll process, which can be done with bank transfer or cheque issuance. Bank transfer has become more popular in recent times as it is simple and easy that benefits employees and employers. It is necessary to check whether the branches have sufficient funds to complete the transactions from where the employees usually withdraw money failure to which you can send salary advice to the relevant branches.

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