The article explains the concept of payroll management in any business organisation and the associated intricacies.
Payroll is the compensation an organisation uses to pay its employees for work done within a given time period on a monthly basis. It is usually managed by the organisation’s accounts or human resource department. The small business or home-based business sector is often directly handled by the owner.
Recently, most companies’ payroll is getting outsourced to specialised companies that manage pay cheque processing in relation to employee benefits, insurance, etc. It helps employees with greater convenience, faster speed, and immediate access to salary information.
On the other hand, digitally processed payroll-related information can be retrieved whenever needed without any hassle.
Payroll:
FIt may not be a big issue for a small business sector to manage the payroll systems, but when it comes to big corporate houses, managing payroll can be the biggest challenge. With a perfect payroll management system, all problems can be solved. Employers will feel more relaxed and focus more on improving productivity.
Let us begin with the definition:
The definition of the payroll management system: In simple words, a Payroll Management System is the process of paying salaries to the employees on a monthly basis. The employers can show their commitments toward their employees and the government agencies and keep their financial data in proper order through this process.
Importance of payroll management: Payroll management has become an integral part of a company’s operations. In the absence of an efficient and accurate Employee salary slip, Filing income tax and maintaining financial records, the employers have to face severe threats of wage claims and huge penalties.
The Different processes of payroll management: Various payroll management systems are available to make the employers’ life stress-free. Calculate your budget and choose the most suitable for your organisation.
- Manual payroll management system using the spreadsheet
It is perfect to use this system if you own a small company or a home-based business with just a handful of employees. It can be a cost-effective system, but it can lead to some serious errors regarding calculations, which can lead to wastage of time and hence your productivity.
- Payroll management software: This type of payroll management software saves time and transfers the administrative responsibilities regarding managing employees; the payroll system uses the automation of labour-intensive tasks. It provides a wonderful solution for employers in Calculating salaries, tax deductions, and paying the net salary accurately, whereas the employers can control the entire process.
Outsourcing Of Payroll
Big corporate houses that neither have the time nor the intention to take unnecessary headaches on their shoulders are often outsourcing the payroll managing system of their organisations. They usually appoint an administrative services payroll provider or enter into a contractual relationship with a Professional Employer Organization (PFO), who will take care of the payroll management of the organisation. This PFO will provide a complete payroll administration, including tax deposits, reporting and compliance, and maintaining vital financial records of the organisation.
Different Phases Of The Payroll Management Process:
Irrespective of the different types of the payroll management process, it generally consists of the three below-mentioned processes.
- Pre-payroll activities: It involves setting up the salary structures and payroll cycle, employee adjustments like new joining/ resigning the company, salary increments, gathering data for the entire month, validating the data, and then using the same to process the actual payroll procedure.
- Calculations: Under this step, the employers calculate the total gross pay each employee payroll usually earned in the last pay period and tax deduction at the source to get the net payment of the employees. The employers also accumulate their tax liabilities for the same time period.
- Post-payroll activities include verifying the transactions and comparing the current payroll with the previous one to ensure that to calculate employee payroll accurately. There are no gaps and deposit taxes within the due date.
Different Functions Of The Payroll Management System:
An accurate payroll management system is used to perform the following list of functions with an eye on gradually developing regulations that are necessary to manage the payroll process successfully:
- Calculate employees’ wages: With the help of the time and attendance software, employers should accurately check the number of hours every employee worked every month to calculate their wages. This is very much applicable to contractors, not to the salaried employees. Their gross salaries are their annual salary divided by the number of working months of a calendar year. After the calculation of the gross wages, it is the time to calculate certain payroll deductions, including:
- Taxes: Under the Indian tax regulatory framework, the tax must be deducted at the source when paying salary. It is the employer’s responsibility to remit this amount to the Government of India on behalf of the employee
- Voluntary deductions: Some employees give written declarations to deduct a portion of their salary to contribute to their pension plan, health insurance premium, life insurance premium, or payment to their unios.
- Mandatory deductions: There are certain mandatory deductions for which the employees usually get notification from the Government, including tax levies, child support, swach Bharat cess, and other wage garnishments.
After all the deductions are subtracted from the gross wages, the employer gets his employee’s net wages or take-home packages.
Process payroll taxes. A multitude of taxes are paid by the employer and then remitted to the Government of India. The employer then remits these taxes to the Government of India. In India, we have different rates of taxation. The employers have to calculate it and do the needful to avoid future issues.
Maintain records of all employees: The government of India mandates all the organisations to keep the record of their employees, which includes some basic information such as:
- Name and profession.
- Address.
- Aadhar Number.
- Day and time of when the employee’s workweek started.
- Hourly pay rate.
- Overtime calculations
- Gross wages.
- Payroll deductions.
- Actual realised allowance.
- Net wages,
- Taxes paid.
- Form-16.
Provide Pay Slips Or Salary Slips:
Every employer is bound by the law to provide pay slips or salary slips to their employees after their salary gets credited to their account. It can be either a hard or a soft copy that gives the entire salary details paid to the employee.
Benefits Of Using Payroll Management:
There is a long list of benefits that we can expect from the payroll management process, such as:
- Accurate calculations: Automation make sure the accuracy
- Complete assistance: Keep informed about any changes in tax regulations.
- Access to tax forms: Employers enjoy easy access to important tax forms.
- Maintenance of all records: Keeps all data about the employees.
- Minimum errors: Payroll software helps maintain the deadline for making tax payments.
- Enable employee self-service: The employees can edit their details if needed.
Conclusion:
The payroll management system is an integral part of any organisation. It helps to maintain a process of paying employees without any hassle. Since it has been done with the help of software, the chances of making errors are almost zero.
Keeping employee details, paying taxes within due date, and most importantly, maintaining transparency regarding the payment procedures can be considered the most valuable features of the payroll management system. Vakilsearch is always trying to help small business entities and startups with online legal help.
Please go through our blog posts on our website for any further details related to the payroll management system.
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