Payroll Processing Services is basically accurate and timely processing of salaries and related compliance. Filecrat is a one stop solution to fulfill all your payroll management process.
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Payroll processing is very crucial for any organisation to manage payroll with effective controls and full transparency. As payroll is one of the key functions of the management, delay in processing payroll can lead to major constrains in operations of management’s processes. Irregularities in payroll processing can damage the morale of employees and this ultimately affects the business and its productivity.
Not only payroll processing ensures ensuring accurate and timely payment of salary but also compliance with various statutory requirements such as Labour law, EPF Act, ESI Law, Professional tax etc. Non-compliance of these laws can attract legal penalties and financial consequences.
Advantages of Payroll processing
- Ease of operations related to processing of salary
- Automate payroll process
- Employee self-service module
- Integration with time management
- Integration with the accounting system
- All Statutory updates such as TDS, PF, ESI, PT, etc.
- Secure and authenticated
- Lesser clerical mistakes
- Cost effective
- Integration with leave and attendance management with accounting and payroll
- Avoid statutory penalties and fines as all returns and compliance made on due dates
- Secure storage of data such as pay-slips and annual reports with easy accessible system
Payroll Management Methods
Excel based payroll management system: It involves payroll calculation on excel sheets using standard payroll calculation template. The excel formulas and mathematical formulas help to calculate the payroll. This excel based payroll management system have some inherent limitations such as:
- High chances of mathematical and clerical errors;
- Difficulty in addition and removal of employee from payroll list;
- Chances of duplicity of data;
- Chances of omission of any record;
- Need to monitor all the updates manually, like deductions of Provident Fund and Professional Tax
By using payroll software: The limitations faced in the excel based payroll system can be significantly eliminated by using a payroll software. There are several packages available in the market. Some companies develop their own payroll software as per their requirements. For better payroll management, inputs must be obtained from authorized sources and should be available in a timely and uninterrupted manner. Advanced payroll software not only automates the payroll computations but also integrates and automates attendance management system & human resource management with Finance & Accounting System. Payroll software requirement may vary on the basis of size and structure of the organization.
Payroll outsourcing: Many organisations do not employ personnel specifically to handle the payroll functions, so they outsource their payroll functions to any external agency. Outsourcing of payroll function is the best option to ensure an effective payroll management. At the end of every month Filecrat, as the service provider, obtains details of the employees such as attendance, reimbursement claims, allowances, deductions etc. and compute payroll. Apart from ensuring timely payments of salary, Filecrat also takes care of all the statutory compliance related to payroll activity such as timely deduction and deposit of professional tax, filing of returns, etc. This way the company can solely focus on its activities and leave the burden of payroll management and related statutory compliances to Filecrat.
Stages of Payroll Processing
- Setting a payroll policy: It is very important for an organisation to set up an efficient human resource policy which would include pay policy, leave policy, benefit policy, attendance policy, etc. These policies should be well defined and approved by the board so that standard payroll processing can be smoothly managed.
- Gathering all Inputs: Gathering of inputs involves interaction with various departments and personnel of the organization. As in smaller organisations, inputs can be collected from consolidated sources or from the HR team, but in large organisations the task of collecting data is too difficult.
- Validation of Input: Once the input data is received, responsible personnel should check the validity of such data. The inputs received should be as per company’s policy through approval matrix and in right formats.
The inputs collected are processed through the payroll processing system. After the processing of input data, the final results should give the net pay after adjusting all the taxes and other deductions. At the end, reconciliation of the final results is done along with its verification so that chances of errors can be mitigated.
- Legal compliance: At the time of payroll processing, all the statutory deductions made such as Employee Provident Fund, TDS, ESI shall be deposited with requisite amount to the concerned government authority. The frequency of statutory payment may vary depending on the type of dues and its due date. Timely returns are required to be filed as and when required.
- Payroll accounting: All the companies keep a record of all the financial transaction such as payment of salary and operating cost. It is essential for Payroll management to ensure that all salary and reimbursement records are accurately fed into the accounting system.
- Calculation of Pay-out: Depending upon the company’s policy, payment of salary can be either by way of cash, cheque or bank transfers. Before the payment of salary, management have to ensure that they have sufficient funds for payment of salary.
- Reporting to appropriate authority: Once the payments are processed for all the employees in respect of a particular month, separate department wise employee cost and location wise employee cost shall be allocated to the concerned department and reported to the finance department and higher management team. It is a duty of the payroll officer to extract required information and share the reports with appropriate personnel.
Challenges in Payroll Management Process
High amount of statutory compliances: Quantum of statutory compliances sometimes may lead to non-compliance of statutory laws, thereby attracting penalty and fines. In some cases, it may even threaten the very survival of the business.
Dependency on input sources: As all the data is gathered from various sources such as attendance register, conveyance facility availed, data received from the HR team etc. Collecting different inputs from different sources can make it a complicated process. Accuracy of inputs is highly important for the payroll processing to work effectively.
Manual payroll processing: In manual processing, it is difficult to generate the reports and share the information with the organisation. Also, manual feeding of data leads to errors and duplications.
Payroll Fraud: In case of lack of internal controls in the organisation, employees can claim fake insurance claims or falsified commissions or unauthorized reimbursements.
Regulatory Awareness: Not all the employees of payroll processing or HR team stay up to date with the latest legislation and taxes laws. This can result into inaccurate tax calculation and return filing or non-compliances.
Time consuming: Payroll processing needs a lot of time and effort. Even use of specialized software do not always eliminate the time constraint. Constraint human intervention is necessary to man the software effectively and efficiently.
- Gross and net Salary Calculation
- Payslips generation
- Basic salary, Dearness Allowances, HRA, Leave Travel Allowance, etc.
- Deducting and Depositing dues like TDS, EPF, ESI & PT
- Advising on payroll policies such as leave encashment
- Collection of payroll inputs, which includes the service they avail from food vendors, etc.
- Releasing salary of employees
- Filing statutory returns
- Calculations of statutory and non-statutory deductions
- List of employees
- KYC of all employees – ID proof, Address proof, Bank details, etc.
- PF/ ESI and Other Statutory Registration Details of the Organisation
Payroll processing is the task of managing wages / salary payment, gathering employee information, managing benefits and deductions and maintaining salary records of an organisation. Payroll processing is financial aspect of human resource function. It is a very crucial for any organisation to manage payroll with effective controls and full transparency.
In the course of payroll processing, a number of statutes have to be considered and complied with. Some of these include: -
- Income Tax Act, 1961
- Employees Provident Fund Act, 1952
- Employees state insurance Act, 1948
- Payment of Wages Act, 1936
- Minimum Wages Act, 1948
- Payment of Bonus Act, 1965
- Equal Remuneration Act, 1976
- Payment of Gratuity Act, 1972
All the companies keep a record of all the financial transaction in respect to their employees. This includes payment of salary, deduction of taxes, provident fund, ESI, etc. and other operating cost. It is essential for Payroll management to ensure that all salary and reimbursement records are accurately fed into accounting system.
Many organisations do not employ personnel specifically to handle the payroll functions, so they outsource their payroll functions to any external agency. Outsourcing of payroll function is the best option to ensure an effective payroll management. At the end of every month the service provider obtains details of the employees such as attendance, reimbursement claims, allowances, deductions etc. and compute payroll. Apart from ensuring timely payments of salary, the service provider also takes care of all the statutory compliance related to payroll activity such as timely deduction and deposit of professional tax, filing of returns, etc. This way the company can solely focus on its activities and leave the burden of payroll management and related statutory compliances to the outsourced agency.
The payroll management usually has to collect different employee related inputs from different sources. These include: -
- Human Resource Team
- Finance Team
- Leave and Attendance system
- General service providers
Such a decision should to taken based on a cost benefit analysis and on the basis of the size and structure of the business. Usually it is beneficial for small organisations to do their payroll processing themselves as outsourcing can become expensive. However, medium and large organisations can outsource the payroll processing to cut cost and relieve themselves from the burden of maintaining payroll records and timely statutory compliances.