1: What is payroll?
The simple meaning of payroll is giving the salaries of employees and the process requires a lot of work like:
- Calculating the working hours of employees
- Their expenses
- Their leaves
After calculating all the above points, the salary gets credited in an employee’s account.
2: Steps of a successful payroll process
- Educate employees about the payroll process
- Define payroll policies
- Define the salary structure
- Collect payroll inputs from different departments
- Give salary on time
- Prepare tax worksheet
- File tax formalities on time like:
- Provident fund
- Labour welfare fund
- ESI (Employee’s State Insurance)
- TDS (Tax Deducted at Source)
3: Challenges in the payroll process
Coordinate with multiple teams:
- It takes a lot of time to coordinate with HR and finance especially when you are a small entrepreneur.
- You may take the help of an employee or a CA to process the payroll and it may consume a lot of time.
Adhering to compliances:
You will have to ensure if PF and ESI are taking place on time.
Accurate salary on time:
- Employees should get accurate salaries on time and of the right amount.
- If due to any mistake they get less salary, they feel unhappy.
Utilising technology:
- If you are not using technology and are registering all the information in a register, it is a very big challenge.
- You should have all the details at least on the Google Spreadsheet.
4: Stages of the payroll process
Pre-payroll phase:
- Make a standard payroll policy as it gives clarity to the employees.
- Your PAN and TAV (Tax Deduction and Collection Account Number) should be registered in your business profile.
- If you have offices in various locations, similar policies should be followed in all of them unless there are certain rules and regulations of that area.
- You will have to very clearly tell your employee about the number of sick leaves, casual leaves and privilege leave as these leaves plan an important role while calculating their salaries at the end of the month.
It is important to keep a check on the attendance policy either through biometric or attendance sheet that would include employee’s information like their:
- Week off
- Working hours
- Half-day
- On-duty requests
- As per the law of payroll, you will have to decide the offers that you would be giving to your employees like PF, ESI, or LWF (Labour Welfare Fund).
The structure of the salary should be such that the employee gets the satisfaction of getting a good in-hand salary that is known as cash in hand. The structure can include:
- House Rent Allowance (HRA)
- Reimbursements
- Deductions
- All the employees should know the dates on which you will be giving them salaries as they plan their finances accordingly.
You should have all the employee information including his:
- Name
- Address
- Phone number
- Date of joining
- Department
- Designation
Payroll calculation:
You will require inputs from the finance team that includes if any employee has a:
- Variable pay
- Special commission
- Bonus
- Incentives
You will require the inputs of attendance and leaves from the HR team that would include the employees:
- Leaves
- Attendance
- Salary
- Full and final settlement if an employee is making an exit
- Notice period of an employee making an exit
You can take the data of bills from the admin team that would include the employee’s:
- Transportation bills
- Expenses
You will require the following data from the employees:
- If they have claimed the expenses on time
- If they have given proof of investment once in a year as the tax is exempted from the salary till a level and therefore, they should be aware of such tax-saving investments.
- When you get all the inputs, you verify the data that you got because there is no room for any mistake.
- You have to ensure that the data is of active employees and it is as per the company’s policy.
- Now, you can calculate the salary either manually if you have 20-30 employees or through payroll software if there are more employees.
Post payroll phase:
- When you have done the calculation, it is time to give salaries as the payroll process is formed only because you can give the salaries to employees on time.
- When the payroll is calculated, you send the bank advice of that amount to the bank and the salary gets credited in the account of your employees.
- If you are using the payroll software, it has an in-build feature of direct deposit and it directly credits the salary in the account of your employees.
- You also have to make payslips and at the end of the month when the salary is credited, you have to give the payslips to the employees that work as a receipt.
- You have to make an entry in the book of accounting of the salary that you give every month to the employees as it is usually the biggest expense for a company.
- Submit the challans of PF to the government before the due date otherwise you might have to pay a fine. And, if you have got some penalty it means that you have not submitted your share of PF or ESI to the government on time.
5: Payroll methods
- Small companies can use easy methods like excel or spreadsheet as they can put all the details in them and can calculate the salaries.
- But, as your company and processes grow, there can be mistakes in the calculation that can lead to unnecessary delays and inconvenience.
- In this case, you need a payroll management system that is software that automates the process of payroll and keeps a track of all the attendance, leave, tax calculation, etc.
Some payroll software that is available in the market for both medium and big size companies are:
- Marg Payroll
- Keka HR Payroll
- HRM Payroll
- CompuTax
- Beehive
- Pocket HRMS
- Qandle Smart HR
All these processes can be installed in your company as per your convenience.
6: Benefits of Payroll Software
Increase efficiency:
- Your payroll staff can take hours to collect all the information and calculate payroll but with the help of payroll software, it is done automatically.
- Every department has its information about the employees and they feed it in the software.
- Therefore, you need to prepare any sheet as you get all the data in the software together along with a neat and clean interface.
Employee calendar:
It includes all the information of an employee like his leaves, overtime, etc.
Cost-effective:
It saves time by eliminating the need of hiring a large number of resources to collect, calculate, and compute the data and to give salaries.
Tax updates and deductions:
It helps you in tax management and also takes care of your compliances like PF, ESI, etc.
Generates payslips:
It generates the pay slips automatically and you don’t have to make payslips on excel.
Security:
The payroll software keeps the important details of your organisation secured as there is no need for any third-party to see these details.
Employee self-service:
Employee can see and access their leaves, attendance, etc. And, if there is an issue, they can rectify it by informing the department about it.
7: Payroll outsourcing
Another way to manage payroll is through outsourcing.
- You hire an external party who may charge you per employee, monthly or lump sum.
- It saves time as the third-party is an expert in such functions.
- You have to opt for this option as per the costing as if you have less employees, this party may be expensive for you.
8: Contractual labour/Contract employees
One more aspect of the payroll is contractual labour. The rules remain the same in their case but as they are not on the direct payroll, you will have to take care of 4 things while giving their salaries:
- Their salary should be more than minimum wages.
- Whenever the contractor fills the PF, you also submit its challan on time.
- When contractor having a salary up to Rs. 21,000 fills ESI, he should submit the challan to you.
- Do not hire child labour as it is a punishable offense.
When you make a process, the work is done efficiently.