In this blog, we will discuss payroll processing, steps to execute payroll process, challenges, various methods and the best payroll software for your organisation.
- What is payroll?
- What is payroll processing?
- Steps to execute payroll process
- Pre payroll
- Actual payroll
- Post payroll
- Challenges in handling payroll management process
- Various payroll processing methods
- Best Payroll Software for your Organisation ( Featured required)
Payroll processing is a vast and crucial part of the organisation. That includes the processes of not only salary calculation and disbursement but also related processes such as statutory compliance, taxes and deductions, and more. So, for an effective & efficient payroll management process, the payroll manager needs to follow the steps of the payroll process.
What is Payroll?
Payroll is the total amount of wages paid by the employer to the employees on a given date. This shall also be the amount to be received by the employee for their work performed for a defined time.
It can also refer to a company’s records of the payments that were made to the employee, including salaries, bonuses, wages, deductions, increments, and all the other taxes.
Generally, it is handled by the human resource department or finance and accounting department in a business, and in small business payroll is managed by the owner or any associates of that business.
What is payroll processing?
Payroll processing is a periodic cycle which is between two payment disbursements dates. Usually, organisations opt to pay the salaries on a monthly, bi-monthly or on a weekly basis.
Steps to execute payroll process –
Under payroll processing, there are mainly three steps of payroll process –
Pre – payroll process
1. Data collection of employees:
In the first and most essential step of payroll processing, organisations need to collect the data of employees and prepare a full 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 policy, Timekeeping, and the work period of the employees of an organisation.
Ensure that the policies are well-described by your organisation’s management so that a standard payroll performance is in place.
3. Gather employee input:
In this stage, gather employee inputs from different departments to ensure accurate information on the payroll. These are the departments that give you detailed 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 (variable pay components and related deduction), recruitment details (date of joining), recurring data, compensations and benefits, and other inputs.
4. Validation of employee input:
When you receive all inputs, then go through all the details concerning company policy. And, confirmed that the all-active employees are included, and inactive employees are excluded for salary and compliance payment.
Actual payroll process
5. Calculation of payroll:
After the validation of the employee input, you have to put the data into the payroll system. That system will give you the entire result in net pay, which is generated after adjusting necessary deductions or increments. And, one of the better practices is to reconcile the values and identify accuracy to avoid errors.
Net Salary = Gross Deductions – Gross Salary
Gross Salary = Basic + DA + HRA + All types of Allowances + Reimbursements + Arrears + Bonus + Any other payments
Gross Deductions = PT + EPF + ESI + Income Tax + Insurance + Loan repayments + any other deductions
Post payroll process
6. Statutory Compliance:
Above all, during the payroll processing, all statutory deductions are deducted, such as – PT (Professional Tax), EPF, TDS, and ESI. These deductions are then paid to the respective government bodies within the given due time.
Every organisation maintains the entire records of books of accounts. The salary paid to the employees is one of its notable entries, including all compensations such as gross pay, commission, PF, ESI, PT, health insurance and others.
Under this step, you can distribute the salary through bank transfer, cash or cheque. First, you need to ensure that the bank has sufficient funds to disburse the salary into the salary account. Because without any errors, it will be better to transfer the payment into the employee’s salary account. For the payment, you need to transfer the bank statements with employees’ ID, account number, salary amount, and others to the Payer branch. All these could be easy with the one-click salary disbursement features of automated Saral payroll software.
9. Reporting :
This process is to complete the payroll process for a particular month, such as department-wise, location wise employee costs, and others. As a payroll manager, it became your responsibility to record all the data in-depth and accurate information and send the reports to the finance department and top-level management team. That is what goes into the making of an effective and efficient payroll process in India.
Challenges in handling payroll management process
There are numerous legal frameworks that every organisation has to follow during the salary disbursing to the employees.
This legal framework is made based on four components –
- Provident Fund,
- Professional Tax,
- Employee State Insurance,
- Income Tax / Tax Deducted at Source
All these processes are complex to calculate in the right way because compliance is complicated. Therefore, each component is calculated differently based on the salary of the employee. After all, the employer has to file returns to authorised government bodies through an online portal. So, for that reason, many organisations use spreadsheets or external agencies to work on this, which is not an easy and effective way to be compliant, even though it is a lengthy, time-consuming, and tedious process along with there are lots of chances for errors. And time to time, laws also change, so the main challenge in handling the payroll management system is
- Time consumed
- Spreadsheet complications
- Data security
- Formulas calculation
- Frequent changes in the system
- Availability of skilled resource
Various payroll processing methods
There are some methods to run the payroll process
- Insource payroll – Excel Based
- Outsource payroll – external agency
- Software-based payroll
Insource payroll – Excel Based
At the inception of the business, some businesses tend to work on Excel based payroll management because of less number of employees to be managed.
As you know, this technique involves a set of accounting and mathematical formulas. That is using excel spreadsheets for the calculation of payments and compliance.
While this technique doesn’t have more cost to manage, it also has some limitations, such as the chance of more errors, fear of duplicate data, and the need to know formulas. Also, the chance cost of using a conventional system over automated techniques is very high.
Outsource payroll – External agency
Outsourcing means you need an external source (agency) to take care of your payroll and, for that, you need to provide all essential data to others on a monthly basis, such as employee details, – employees’ salary details, recruitments details, attendance, leaves and other service related details. This may lead to data leak and in turn may create security issues for the organisation. Since payroll is a key function, businesses should have full transparency and control over it.
Nowadays, many options are available in the market. But you should ensure that is whether all organisation required options are available or not, such as – leave encashment, HR, salary heads, TDS, ESI, report generation etc. And, also you need to self-automate computation with less time consumption, without any hassle. This time of yours can be utilised over some other work. So, you can opt for software based on the size of your business.
Best Payroll Software for your Organisation
Here is one of the best payroll software for your business where you can save more time and easily move manual to automated payroll without any errors and human intervention.
Firstly, you will see the features of saral software.
- User-friendliness – It is sensible and user-friendly to use without any hassle.
- Transient processing-Ensure that it is not time-consuming.
- Automation – It is fully automated software where no need to set anything such as time or date.
- ESS (Employee self-service)-The software will give the employees all information regarding income tax deduction, investment, savings, deletion forms, TDS, flexible benefits, and all updates.
- Time, leave management, and attendance – The software will provide you with all tracking time, attendance, and leave management facilities.
So, you can go through the Saral payroll software that will help you to meet the goal of your organisation and yours.
Can I pay in cash to the employee?
Yes, you can pay in cash, but the limit of Rs 10000 has to be taken into consideration
before paying the net amount. And keep all records of the transactions for future use. Such as, cash voucher and payslip which the government, auditor or any senior authorities can ask for proof.
Document required for payroll process
There are some of these documents that you need for the payroll process and also for government purposes. Such as –
- Form 5: Employee Provident Fund (for new joinees) which is filed by the employee and submitted by the employer.
- Form 16: Annual TDS Certificate for the TDS deduction done.
- Details of Bank Account
- Medical Insurance Form (ESI)
- Job application
- Documents for Retirement plan.
How to categories the employee?
As per the order, you need to categories your employees, such as – contractors, employees, interns and others. And then follow these steps.
- Evaluate the nature works which are done by the employees.
- Direct the payroll deduction
- Include all the taxes and compensations
This is the end of our discussion on a guide to payroll process. Let’s know your other questions and opinions on this topic. Mention below the comment box.