Think about the people whose only source of income is their monthly salary. Now just consider the salary being paid inaccurately or not in time. These loopholes attack the self-esteem of the personnel and eventually the productivity of the business. Therefore, accurate payment, as well as timely payment of the salary, is a vital action to be performed. There are various legal guidelines that are supposed to be followed and abided by; such as Employees’ Provident Fund, Professional Tax, Labor Welfare Fund, Employee State Insurance, Labor Law, and many more. Noncompliance with these Statutory guidelines can result in stern legal action. If you wish to ensure that the people working in the company are content and satisfied, it is important to have a clear understanding of payroll and how to manage it effectively.
So before moving on directly to the concepts of Payroll, let’s start with getting familiar with the basic understanding of the same.
Payroll and its Management
Payroll refers to the record which enlist the details about the employees and how much are they getting paid. Following are the constituents that it covers:
- Firstly, Deposit and Report Dues like TDS, PF, ESI, etc.
- Secondly, Distribute Payslips
- Thirdly, Gross and Net Salary Calculation
- Fourthly, Collect Payroll Inputs
- Then, Define Pay Components
- Lastly, Set Pay Policy
In a nutshell, Payroll Management Process is basically the ‘Net’ amount paid to the employees. That means, the amount paid after adjusting all the possible additions and deductions. This can be represented through the below mentioned equation:
Net Payment = Gross Income – Gross Deductions
Where,
Gross income = Regular income + Allowances + Other benefits
Gross Deduction = Regular deductions + Statutory deductions + Other deductions
Stages of Payroll Management
Management of payroll requires a lot of mindful planning as well as constant monitoring. The whole Management Process can be fragmented into 3 phases:
Pre-Payroll Process
Define Payroll Policy
The net payment to be received by the employees is influenced by numerous policies like attendance, leaves, benefits, pay, etc. Policies like these need to be defined and laid led clearly after comprehensive planning and approval by the top management. This will ensure a uniform and unbiased processing of the payroll.
Collect Inputs
Now, after the policies have been defined, the next begins the step of gathering input. This step involves contacting and communicating with the various organizational departments as well as the personnel. This is basically the input collection process. Smart payroll software with a combination of advanced characteristics like attendance, number of leaves, a self-service portal, etc. are used to successfully fulfill this stage
Input Validation
Now, after the inputs are collected, it is important to test and validate those inputs. The input validation is done by adhering to the policies of the company, using the correct format, and many more factors. Also, it is kept in mind that no one is missed out and no one is wrongly paid.
Actual Payroll Process
Calculation
This stage is the actual payroll processing step. Firstly, the validated data is inserted into the payroll system. And then, the net payment amount is derived after adjusting the deductions. Lastly, the figures are verified to avoid any inaccuracy.
Post-Payroll Process
Statutory Compliance
All statutory deductions like EPF, TDS, ESI are deducted at the time of processing payroll. The company then remits the amount to the respective government agencies. The frequency can vary depending on the type of dues. In most cases, payment of dues is made via challans. After all the dues are paid return/report is filed. E.g., for filing PF return, ECR is generated and filed.
Accounting
Recording financial transactions is something that every organization does. And, payment of salary is one of the important operating costs to be entered in the accounting system. Accuracy in the accounting of all the transactions relating to payment towards employees is an essential part of Payroll Management.
Payout
As soon as accounting is done for the same, the next step is to ensure paying out to the employees. Salary can be paid either in cash, through cheque, or bank transfer. Most organizations provide employees with salary bank account. For that, a statement is issued with particulars like employee id, bank account number, amount of wages, etc. And if payroll software with an employee self-service portal is used, then employees can log-in to their account and access the payslips directly.
Reporting
Lastly, after the staffs’ payout is completed, department-wise reports relating to employees’ costs are submitted to the top-level management for financial assistance and further actions.
Payroll Methods that can be adopted by Business Organizations
Following are the methods for running payroll:
Excel based
The Excel-based Payroll Management method is basically meant for beginners. Business organizations operating at an initial level with hardly any number of employees opt for this method. This method involves the use of a standard template of Excel sheets for calculating payroll. The mathematical formulas that Excel offers help in the computation. This method costs zero! But since the data is fed up manually, it is prone to a huge number of errors.
Outsourcing
The payroll outsourcing method is basically for those business organizations that don’t have the staff for managing the payroll. Therefore, they reach out to external agencies for the same. So, the task of managing the payroll is outsourced to these external agencies where they hand over the task to a service provider. The business organization shares the relevant details with a service provider and he/she then calculates the payroll adhering to the statutory procedures. But, often business organizations hesitate in opting for this method as it requires full transparency of the business’s financial transactions.
Software
Payroll software is basically for those business organizations that are well established and are aiming to reduce the friction in gathering inputs. For running the same successfully, one needs to ensure that the relevant inputs are received seamlessly and in time. There are various advanced payroll management software available in the market that not only automates the computation process but also serves as a holistic leave and attendance management, HR management, and employee self-service portal. Depending on the size of your business and use cases you can opt for appropriate software for your business.
Best Payroll Software for your Organization
Moving from a manual payroll system to an automated payroll system saves time as well as increases efficiency. Following are a few significant features one can consider while opting for payroll software.
Ease of Operation
Managing payroll is a very bulky task. It is better to opt for an upfront system instead of a comprehensive one. This is because it reduces the need for software training and guidance.
Scalability
The size of the organization also matters in deciding the type of software you need. The service of the software depends on the size of the organization. It serves differently as per the requirement. So, the software offerings should be such, that you can choose the advanced features at a rational price without any complications.
Integration with Time, Attendance and Leave Management System
Time Management
Large scale companies who work on managing analytical projects need software that can keep a track of time and helps in managing time and increase efficiency.
Attendance
For faultless payroll processing, business organizations search for software that supports attendance management using smart automated tools like auto-track via log-in, access cards, biometric access, etc.
Leave Management
Every business organization grants its employees with certain leaves. They would want software that could keep an account of all the leaves of the employees directly through the system. So a strong system software with a leave management feature helps manage payroll effectively.
Integration with the Accounting System
The accounting system of the company needs to record every financial transaction including payroll information like department-wise employee cost, individual payroll components like reimbursements, tax due and paid, etc. Some software has integration with accounting software via API (a way to push data directly from one software to another). These integrations can help the finance and human resources team work together and avoid any manual entry of data.
How to learn the concepts of Payroll Management?
Learn the management of payroll can be daunting. You can not afford to make mistakes. Because it not only affects the well-being of the personnel but can also invite legal risks. It is a huge responsibility.
Internal Revenue Service
Being as much educated as you can in case of managing money and the payroll system can boost your confidence. IRS is a really good source where you expand the horizon of your learning. You can find a lot of articles as well as tools to understand & comprehend federal payroll tax basics and recordkeeping for businesses with employees.
Consult an Accountant
As a responsible sole proprietor, it is a wise decision to contact a Certified Public Accountant & seek the correct guidance about handling payroll tax filings. An accountant can give you the correct advice in case of setting up the accounts and explain how to make payroll-related tax deposits and file tax returns for the same.
Abide by the State
Complying with the federal payroll tax laws is not enough. Abiding by the State’s tax laws is equally important.
Mentorship from a business
A business mentor can also answer payroll-related questions as it helps you overcome the obstacles associated with establishing a small business. Having personal experience in learning the ins and outs of the same, a mentor might be able to shine a light on issues that have left you in the dark.
Enroll in a training course and get certified
Lastly, you can get yourself enrolled in a training course. It can provide you with significant tools that will help you deliver payroll training material. You can attend courses either online or offline. These courses can really help you to study, learn and get certified.
Vskills Certifications
Vkills offer certification course where you can become a Certified Payroll Manager.
Challenges
The processing of payroll system can be a challenging task. Following are the 2 major reasons for the same:
Obey and stay legally compliant
As discussed before, non-adherence to statutory laws can lead to hefty fines and invite penalties. Today there are some advanced payroll management software that automatically processes the same in compliance with statutory laws and legal guidelines.
Dependence on numerous inputs sources
Before payroll can be processed, you need to get all the data together from sources such as attendance register, conveyance facility availed record, data from HR team like salary revision information, etc., making it a complicated process. For many years HR and employee imaging officers were managing payroll on excel sheets, but excel sheets have problems like dependency on excel formulas for salary calculation, complexity in adding and removing employees, and other limitations like manual data entry, difficulty in extracting information, etc.
