This article will highlight how you can create your payroll process with the help of a payroll process flowchart. Let us study the steps in detail.
Overview
Payroll processing can be an overwhelming and complex job. Before getting into this, let us first understand the meaning of payroll. Payroll can be defined as the record of employees who have the right to receive remuneration for their work or services to the company. It can also be defined as the financial records of the company in the context of employee salary, bonuses, incentives, and other benefits.
Payroll processing is the simple process of calculating an employee’s salary for the work they have done after deducting all taxes and other adjustments. The whole process includes several steps, including setting up salary structures, collecting essential employee data, tax deductions and allowances, etc. After considering everything, an employee’s salary is calculated and as per company policies, a tax deduction is done. Once this is calculated, it is paid at a premeditated time.
In our country, an employee’s net salary can be calculated after adjusting deductions such as TDS, PF contributions and other benefits. Let us now study the payroll process flowchart in detail. There are several steps involved in this process.
Payroll Processing Steps
Essentially, there are three stages in the payroll processing cycle. These include pre-payroll activities, actual payroll activities and post-payroll activities. Each stage has different steps in payroll processing and its roles.
Pre-Payroll Activities
The first stage in payroll processing is the pre-payroll activities. This stage includes the following steps:
Preparation of list of employees: The foremost step in payroll processing is gathering the names of employees and recording them. This onboarding of employees is done to prepare the list of employees that need to be paid
Determining payroll policy: Every company has its own unique set of policies for payroll. There is a different approach for various aspects of payroll. Every company should follow a standardized payroll process and for this, they need to define certain policies. These policies include a pay policy, employee benefits policy, salary components, including deductions, leave and attendance policy, and pay schedule policy
Employee inputs: The next step in the first stage of payroll processing is gathering employee inputs. These inputs include PAN, address, bank account details, income tax declarations, etc. Most companies gather all this information from employees upon their joining. Every department in a company maintains this information for different purposes. For example, the finance team may keep records of an employee’s pay, bonus, commission, incentives, etc. The HR team keeps track of an employee’s work hours, overtime, leave, attendance, salary revision, etc. Similarly, the admin team keeps records of an employee’s bills and reimbursement of expenses
Accuracy check of employee inputs: Once all information about an employee is gathered from the inputs, it should be compiled and consolidated. However, it is important to check the validity of these inputs before the actual payroll process. It is always a good idea to check for the correctness of this information with the employees. Doing so eliminates the risk of errors in payroll processing and also saves one from the repercussions.
Actual Payroll Activities
This is the second stage in payroll processing and essentially involves only one step. This step is mentioned as follows:
Calculation of payroll: Once the inputs gathered from the employees are checked for accuracy, they are entered into the company system and maintained. These inputs come in handy while calculating every employee’s payroll. The net salary of every employee is calculated after making the vital deductions and taxes. Net salary equals gross salary minus gross deductions. Net salary can be calculated using spreadsheets or payroll software.
Here is a list of all essential elements of the salary structure that help in calculating net salary. These include:
- Cost to company
- Allowances
- Prerequisites
- Arrears
- Professional tax, PF, and insurance deductions
- Leave adjustment
- Payslip
- Form-16
- Reimbursements
- Bonus, incentives, expenses
- Employee financial details
- Employee investment declarations
- Loan repayment (if any).
Post-Payroll Activities
This is the third and last stage in payroll processing. The following steps are included in this stage.
- Accounting: The salaries paid to employees are recorded as the biggest expenditure of any company. Payroll process flowchart accounting refers to recording and maintaining the company accounts regarding employee salaries. It involves recording the salaries paid to each employee and maintaining their records
- Salary payment: This step involves paying the entitled employees their remuneration. For salaries to be disbursed, the company first must ensure that their bank account has sufficient funds. Once ensured, they may direct the salary bank account to pay the employees by disbursing their salaries. Companies can also make use of software and pay via a direct deposit. In addition, they should also distribute payslips to each employee individually or via software
- Compliance and reporting: An employee is paid their salary once all statutory deductions are made. These deductions include TDS, PF, ESI and professional tax. All these payments must be paid by the company to the respective government departments within the due dates. The company needs to file these payments by filling out forms handed out by each department.
This ends the payroll process flowchart processing cycle. In addition to all this, every company in India must follow all statutory compliances and legal regulations while disbursing salaries to their employees. A few of the general statutory compliances are mentioned below. These include:
- ESI fund and PF funds
- TDS ( Tax Deduction at Source)
- Professional tax
- Gratuity
If any company fails to adhere to these legal regulations and compliances, it may have to face heavy penalties. The repercussions of the same could be bad.
Payroll Processing Methods
Several methods can be used by companies for payroll process flowchart processing. These include using spreadsheets, outsourcing payroll services, and automation. While spreadsheets could be a great option for small-scale companies, it is not so much a great idea for large-scale organizations. It is almost impossible to maintain records of hundreds of employees using spreadsheets. It also increases the risk of errors as it is done manually.
Outsourcing payroll services helps companies focus on other important aspects and build long-term business growth strategies. It is a great option for companies that do not have a dedicated payroll processing team. The last option is automation. In this, the software is used for payroll processing. It eliminates any risk of manual errors and saves a lot of time and labor.
Conclusion
Now that you are aware of all the steps involved in the payroll processing cycle, it is important not to miss out on any crucial step or government regulation. Any failure to comply with legal enforcement or government regulations can have repercussions. We at Vakilsearch can help you streamline the entire process so that you do not miss out on any benefits.
Frequently Asked Questions
What is the payroll flow process?
A payroll workflow connects a series of automated payroll processes, reporting duties, and manual verifications. When you initiate a payroll workflow, it adheres to either a pre-set or user-defined pattern.
What are the steps of the payroll process?
Step 1: Gather Information
Step 2: Calculate Earnings
Step 3: Deduct Taxes
Step 4: Process Payments
Step 5: Record Keeping
What is the payroll process cycle?
The payroll cycle, also known as the pay cycle, refers to the duration between two payroll processing sessions. Essentially, it's the timeframe separating two successive paydays. For instance, in a business where employees are paid weekly, each successive 7-day interval marks a fresh payroll cycle.
What is the SOP of payroll?
A payroll standard operating procedure (SOP) is a document outlining the routine tasks necessary for payroll processing. It serves as a guide to ensure accurate and efficient execution of payroll procedures.
How do I create a salary slip in payroll?
To create a salary slip in payroll, you need to include key information such as employee details, pay period, basic salary, allowances, deductions, and net pay. You can use spreadsheet software like Excel or dedicated payroll software to streamline the process. Start by organising your data and then create a template that you can use each pay period, adjusting the figures as needed.
