Businesses must handle payroll effectively because it determines the employees' 'net pay' after all applicable taxes and deductions have been made.
Payroll is Processing the Payroll to employees of a business or organisation and creating a list of employees whose wages must be paid. After adjusting the necessary deductions, such as the employees’ Provident Fund contribution, Tax Deducted at Source (TDS), meal ticket, etc., the payroll process entails determining what is owed to the employees for a particular payroll cycle. The time between an employee’s two salary distributions is known as the payroll cycle. Work coordination across many teams, including payroll, HR, and finance, is necessary for the payroll process.
How Does Processing the Payroll Work?
The processing of employee payroll involves the following steps:
Activities Before Processing the Payroll
The following actions are a part of pre-payroll activities:
Defining Of Policy
Businesses should outline their payroll policy and seek management approval before implementing routine payroll. Every company has a unique philosophy, work culture, and strategy for employee engagement. To standardise the handling of payroll, a corporation must set the following policies:
- Pay policy
- Insurance policies for employees
- Schedule for absences and attendance
- Includes deductions from the salary
- Schedule of compensation.
Amassing Employee Input
Payroll depends on employee inputs such as bank account information, a PAN, the employee’s address, income tax returns, investment evidence, etc. Workers often provide these inputs to the firms during employment by the relevant department or team. Therefore, for process for payroll, each department or unit will gather and retain employee inputs:
- The finance department keeps records of each employee’s variable pay, bonuses, commissions, removal, cancellation, etc
- The Human Resources (HR) department keeps track of employees’ leave, attendance, overtime hours, loss of pay reports, employee leaving date, salary adjustment, etc
- The administrative staff records transportation costs, expense reimbursement, and other employee costs.
Examine Employee Inputs
Before utilising the inputs for the actual Processing the Payroll, verifying the legitimacy of the details supplied by the teams and the employees once they have been assembled is necessary.
All current workers must be considered while confirming data, and past employees cannot be paid compensation or comply with regulations. The possibility of making mistakes during the process of payroll and the implications of having to correct them are eliminated by validating employee inputs.
Payroll Activities in Actual
This process of the actual payroll activity requires only just one step, such as:
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Payroll Calculation
The company’s payroll system should is loaded with the employees’ verified inputs to compute each employee’s paycheck. Then, correcting for the appropriate subtraction of the owed taxes yields the net salary payout for each employee.
Activities Following Payroll
The subsequent steps are a part of post-payroll activities:
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Statutory compliance
The payroll administrator must strictly comply with all legal requirements when processing payroll. Several statutory deductions are made during payroll processing, including EPF, TDS, and ESI. The appropriate authorities or government entities are subsequently paid these deductions.
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Accounting
Since staff salaries are a company’s highest cost, they must be documented. Maintaining the company’s finances concerning employee compensation is known as payroll accounting.
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Pay Employee Salaries
The business must ensure enough cash in the bank account sends the employees’ salaries. Then, the firms would submit to the right bank the statement of salary bank advice instructing it to release salaries from the account.
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Reporting and Compliance
All required deductions from an employee’s salary, including TDS, PF, and Employees’ State Insurance Scheme of India, are made during the processing of their paycheck. Following their deadlines, these payments must be sent to the proper government agencies. The reduction should be reported to the relevant government agencies by submitting the forms that each agency has established.
How Much Time Does it Take to Processing the Payroll?
The length of time it takes to process payroll depends on the number of employees and whether you utilise manual or automated techniques. Employers payroll systems often complete their internal processes in 1-2 days. Two to three days after payroll is submitted, employees’ bank accounts are credited with their paychecks. Employees normally receive their paychecks five days following the end of the pay period.
Can Employers Postpone Payroll?
Employers must pay their employees in accordance with their payment schedule. Serious fines and penalties could be imposed for payroll delays.
How Often Does a Payroll Cycle Occur?
There are 4 types of payroll cycles in India:
- The Normal Cycle: Regular wages or salaries are determined by the normal payroll. It applies to the current pay period, which is paid on a particular day each period. It must be modified to account for tax deductions based on taxable income and any applicable state taxes to the business. Before beginning the regular payroll cycle, it is also necessary to modify other deductions, such as pretax benefits and contributions.
The salary of an employee, for instance, which is paid to the employee each month after the necessary deductions and taxes, is an example of standard payroll.
2. The Retroactive Cycle: The change of payments for earlier payroll periods back to a specific point in time is known as a retroactive payroll. It refers to money owed to a worker from a prior pay period and can occur for a number of causes, including an increase in pay or incorrectly calculated hourly rates or salary compensation.
Analysing employees’ prior earnings, deductions, and pricing based on changes to pay rates, benefit selections, and cost account modifications is helpful for retroactive adjustments. Details about earnings and deductions for backdated periods are reported on both regular and supplemental payroll.
3. The Off-cycle Payroll: These are the payments made outside of the typical payroll cycle, such as one-time bonuses. Between the day of the regular payroll payment and the day the Payroll Control Record is released for the following payroll run, the off-cycle payroll is processed. Employee expenditure claims and any other payments, such as late overtime, that were overlooked in the regular payroll run may also be reimbursed via this method.
4. The Full & Final Cycle: The administration of the last payroll is required when an employee leaves the company. The last payment from your company to an employee will be the final payment. Other payments may consist of previously agreed-upon allowances between the employee and the employer, reimbursable expenses that have not yet been reimbursed, or any unpaid bonuses or commissions.
Conclusion
Processing payroll is a complex and time-consuming procedure. To make the process simple and engaging, we at Vakilsearch create organic ways to help organisations to make their payroll swift and easy. Get in touch with us today to know more.
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