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Payroll is an important function of any organization’s HR department that deals with the process of paying salaries to its employees. Payroll serves as a financial record of a company’s payout to its employees in terms of wages, incentives, salaries, bonuses, benefits, etc. Calculating payroll for each of its employees for their hired-till-retired journey is a prominent task for every company.
Understanding Payroll Processing in India
Payroll processing in India involves a large number of financial aspects such as gross pay, net salary, bonuses, leave, compliances, and so on, all of which must be combined to arrive at the employees' "net pay" after the necessary taxes and deductions have been applied. The formula used for this is:
Gross income - Gross deductions = Net pay.
Here,
Basic + Allowances + HRA + Reimbursements + Bonus = Gross Income
Regular deductions + statutory deductions + one-time deductions = Gross deduction
Payroll processing is the whole technique for precisely determining the net pay of employees as per statutory compliance and organizational policies.
Financial Year and Pay Period in India
Every year in India, the financial year runs from April 1 to March 31. As a result, the 31st of March is an essential deadline for meeting financial responsibilities.
The pay period or Payroll Cycle in India is the time between paychecks and it must adhere to the Indian government's laws and regulations. According to the company's payroll policy, a pay cycle can be weekly, monthly, or based on a contract. In India, the payroll cycle is usually monthly, with salaries generally paid on or around the 28th of each month. The average workweek in India is 48 hours long, with approximately 8 hours of work per day.
Steps of Payroll Processing in India
Payroll processing begins with employee onboarding, which entails creating a list of all employees to whom salaries must be paid. Additionally, for payroll processing in India, the organization must have the following numbers: TAN (Tax Account Number), PAN (Permanent Account Number), and TDS return filing. For the Social Security Scheme, you'll need a PF number and an ESI number.
Now let's look at the next steps in the payroll processing procedure in India:
- Selecting a Payroll System
The company must decide on the type of payroll processing for a seamless payroll process after taking into account significant criteria such as business growth, employee numbers, legal structure, and so on. The payroll system can be one of the following:
- A payroll system that is manually maintained
- Payroll System Outsourced to a Third Party
- Payroll Software Implementation
- Setting up a Company Payroll Policy
Every company has its approach to employee engagement, philosophy, and work Every organization has its mindset, philosophy, and work culture when it comes to employee engagement. To standardize payroll processing, a company must establish the following policies:
- Employee benefits policy and pay policy
- policy on time off and attendance
- Pay schedule policy, as well as salary components such as deductions.
- Employee Data Collection
The next stage is to collect employee data from several departments to achieve an accurate payroll evaluation as the finance department will provide employee bank account details, PAN, address, income tax declarations, evidence of investment, and so on. The HR department is in charge of employee work hours, attendance, and leave, among other things.
- Validate Employee Data
Employee data is then validated for adherence to company policy, authorization criteria, accurate formats, etc. It ensures that only the data of active employees are used in payroll processing. Validating also reduces the likelihood of errors to a significant extent.
- Calculating Payroll
After validation, the data is entered into the payroll system to calculate the net salary of every employee after making necessary deductions from the gross salary.
- Adhering to Statutory Compliances
During the payroll processing, adherence to statutory compliances is mandatory. All statutory deductions like TDS, PF, Employees State Insurance (ESI), and professional tax needs to be deducted from the employee's gross salary.
- Accounting for Payroll
It entails keeping track of the company's accounts for employee salaries. As a result, each company must keep accurate records of employee salary computations in their accounting system during payroll processing.
- Payroll Payout
The company must transmit a salary bank advice statement to the related bank branch with details such as employee ID, account number, salary amount, and so on to pay the employee's salary. The salary can be paid by cash, cheque, or bank transfer.
- Preparing Payroll Reports and Updating Records
It includes generating payslips and tax details to be given to the employees either physically or digitally. In India, employers use payroll reports to analyze financial data or verify their tax liabilities. Pay rates, hours worked, overtime accrued, taxes deducted from salaries, employer tax payments, leave balances, and other information may be included.
In the Essence
These are the steps that are required for efficient payroll processing in India. It is an extensive and complex process that might take several hours of effort if done manually.
In India, with its numerous statutory compliances and state-level regulations, it is recommended to implement an automated payroll system for efficient payroll processing.
Run Global Payroll : Payroll in India : Payroll Processing in India
