How does payroll software work?
15 minutes read

How does payroll software work?

In this blog, we will discuss what payroll software is, how payroll software work, its stages, benefits, features & why organisations use payroll software.


Have you ever thought that ”How overwhelming the payroll processing is in India which has vast financial components like – Salary, Net pay, Wages, leaves & Attendance, compliance, and others which all are the part of the employee within an organisation?”

For an organisation, the calculation of payroll manually is not easy.  We understand this. It is vast, time-consuming, and tedious because payroll is more than just salaries. It is a whole process starting from hiring of employees  to compliance maintenance to employee exit management.  

Payroll software plays a vital role in making this process go over smoothly. It is crucial to have a payroll system that is dependable and strong.  

What is payroll software?

Payroll software is a well-integrated cloud-based or on-premises solution that maintains the data of the employees and the company and automates the payment to the employees. And it helps to maintain compliance with tax laws, financial rules and regulations and others.  

How does payroll software work?

A payroll software work based on these key points –

  1. Collect employee details from biometrics 
  2. Maintain employees data and documents
  3. Create the processes of payroll
  4. Sends employee salary to bank
  5. Generate payslip
  6. Save data 

All these points help the employer to make the payment or transfer the amount to the employee. Reliable payroll software is helpful for all employers to minimise errors, make it hassle-free and keeps your business updated.

What are the Stages of Processing Payroll?

Under payroll processing, there are mainly three types of payroll processing and 8 stages of processing payroll –

  • Pre – payroll process
  • Actual payroll process 
  • Post payroll process 

Pre – payroll process

1.   Data collection of employees:

In the first step of payroll processing, organisations should collect the data of employees and prepare a list of employees to be paid.

2.   Define payroll policy:

In the second stage of payroll, an organisation should describe its policy, which covers the administrative salaries, payroll deduction, attendance and leaves policies, timekeeping, and the workweek of the employees of the organisation.

Ensure that the policies are well-described by your organisation’s management so that the standard payroll process can be performed. 

3.   Gather employee input:

In this stage gather employee inputs from different departments to ensure accurate information on payroll. These are the departments that give you more access to accurate information for salary revision and whole details.

Such as attendance and leave (presence of employees physically or opting for WFH and various leaves), salary details and deductions (statutory earning and deduction), recruitment details (date of joining), recurring data, compensations and benefits, and other inputs.

4. Validation of employee input:

When you receive your all inputs, then go through all the details with respect to company policy and confirm that all the active employees are included, and inactive employees are excluded for salary and compliance payment.

How does payroll software work

Actual payroll process 

5.   Calculation of payroll:

After the validation of employee input, you have to enter the data into the payroll system. Then the system will give you the entire result which is generated after adjusting necessary deductions or increments. 

Post payroll process 

6.   Distribute salaries and calculation sheets: 

Now, you can distribute the salary through bank transfer, cash or cheque. First, you ensure that the bank has sufficient funds to disburse the salary into the employee salary account. Because it will be better to transfer the payment into the employee’s salary bank account and make it hassle-free. For the credit of salary to the employee account, you need to transfer the bank statements with employees’ ID, account number, salary amount, and others, to the bank branch. All these are easily available with the one-click salary disbursement feature in Saral payroll software.

7. Pay statutory dues:

After all, during the payroll processing, all statutory deductions are deducted such as PT, EPF, TDS, and ESI. These deductions are then paid to the respective government bodies. 

8. Reporting :

The last stage of this process is to complete the payroll process for a specific month, such as department-wise, location wise employee costs, and others. As a payroll manager, it became your responsibility to collect all the data in-depth and accurately required information and send the reports to the finance department and top-level management team. 

Why do organisations use payroll software?

Organisations use payroll software to smooth the running of the business, maintain the employee compensation and ensure transparency, accuracy, flexibility, timeliness, level of task, and others.

  • Transparency in the business – payroll software provides transparency in the business with the accounting and finance that helps to create accurate and timely reports and budgets and helps in budget forecasts.
  • Flexibility to adapt – for a new business or changing your business, it is easy to modify according to your policy, taxes and rules and regulations. So, the software automatically integrates all data and new rules. You don’t have to enter the data of all employees or rules, again.
  • Accuracy and timeliness – accuracy and timeliness are the essential things during the mergers and acquisitions of the company,  payment of the employee, new hires employees, and new rules and regulations. All these things can be tricky and complicated as well as time-consuming. So, the payroll system can help you to make accurate payments to the right employee and on time. 

Benefits of a payroll software

There are many benefits of payroll software –

  • Time-saving and money – time and money are two things that are important for every business owner. Hiring a team to manage a payroll can be expensive and time-consuming, where you have to pay the monthly salary, benefits, and allowances. So, payroll software will be cost-reducing and time-saving. 
  • Error-free – usually, when you do the work manually, there will be some chance of human error that can be the reason for employee dissatisfaction and non-compliance. So, the payroll software will compete for all the complex payroll calculations and keep you error-free.
  • Automated payroll – you have to do the initial setup to run the payroll process once per click of a pay period. When you use it you can automate all aspects of the payroll process. 
  • Access from anywhere – nowadays, most of the payroll applications are available on cloud which will make your access to the software available from anywhere, no matter where you are staying, and you can do the work, this is applicable for both employee as well as employer.
  • Easy to use – payroll processing you can do easily without any hassle and time-consuming.

What features should organisations look for in payroll software?

Before choosing software, an organisation should analyse its own budget, policies, and features you need. There are various features to look at in payroll software, such as – 

    1. User-friendliness –

      Payroll software should be sensible and user-friendly to use without any hassle, with a secure interface accessible by employees and employers from different types of devices without manual user and training.

    2. ESS (Employee self-service)-

      Payroll provides access to employees for all their  personal information regarding income tax deduction, savings, declarations forms, payslips, leave details, TDS, and time-off requests. They can also automatically update and review the information instead of having to contact with the HR department.  

    3. Configured and integrated –

      Payroll should be configured without any help from the IT department and well-integrated for any third party service like attendance tracker, document manager, etc. In software, in-built formulas should be available and simple configuration steps. 

      4. Secure and sensitive –

      One of the most necessary things an organisation should look in software is that software is secure for all sensitive data from any cyber-attacks, internally or externally. 

      5. Reporting and intelligence –

      It should simplify the facilities, such as budgeting, work management, new hires, employee time-off, one-off project, remote employees, and all other processes with the support of business intelligence.

This is the end of our discussion on how payroll software work. Let’s know your other queries and opinions on this topic. Mention below the comment box.

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