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What is Payroll?

Payroll is a list of employees who get paid by the company. Payroll also compares to the total amount of money the employer pays to the employees. As a business function, it involves:

1. Developing organization pay policy including leave encashment, flexible benefits policy, etc.
2. Defining payslip elements like basic, variable pay, HRA, and LTA
3. Gathering additional payroll inputs (e.g., the organization’s, food vendor may supply knowledge about the amount to be recovered from the employees for meals consumed)
4. The actual calculation of gross salary, statutory as well as non-statutory deductions & arriving at the net pay
5. Releasing employee salary
6. Depositing dues like TDS, PF, etc. with proper authorities & filing returns

In short, we can say that the payroll process includes arriving at what is due to the employees also called as ‘net pay’ after adjusting necessary taxes and other deductions.

What are the stages of Managing payroll?

A payroll officer needs to do careful planning. There are always continuing tasks that need to care and a constant need to control changes to withholdings, contribution to social security funds, etc. The entire process can be divided into three stages, pre-payroll, actual payroll, and post payroll activities.

Defining payroll policy

The net amount to be paid is affected by multiple factors. The company’s various policies such as pay policy, leave & benefits policy, attendance policy, etc. 

Gathering inputs

The payroll process involves communicating with multiple departments and personnel. There can be information like mid-year salary revision data, attendance data, etc.

Input validation

Once inputs are received, you need to check for the validity of the data concerning adherence to company policy, authorization/approval matrix, right formats, etc. You also need to assure that no active employee is missed out and that no inactive employee records are included for salary payment. 

Payroll calculation

At this stage, the validated input data is filled into the payroll system for actual payroll processing. The result is the net pay after adjusting certain taxes and other deductions. Once the payroll process is over, it is always a good practice to reconcile the values and verify for accuracy to avoid any errors.

Statutory compliance

All statutory deductions like EPF, ESI, TDS 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 nature of the dues. In most of the cases, payment of dues is made via challans. After all, dues are paid return/report are filed. E.g., for filing PF return, ECR is generated and filed.

Payroll accounting

Every company keeps a record of all its financial transactions. Salary paid is one of the important operating costs which has to be reported in the books of accounts. As part of payroll management, it is necessary to check that all salary and reimbursement data is fed accurately into the accounting/ERP system.

Payout

You can pay a salary by cash, cheque,& bank transfer. Typically organizations provide employees with the salary bank account. Once you complete payroll, you need to ensure that company’s bank account has enough funds to make the salary payment. Then you want to send a salary bank advice statement to the concerned branch. This statement is issued with particulars like employee id, bank account number, amount of wages, etc. If you are opting for payroll software that has an employee self-service portal, you can simply publish the payslips, and employees can log-in to their account and access the payslips.

Reporting

Once you complete payroll runs for a particular month, the finance & high management team may ask for reports such as department wise employee cost, location wise employee cost, etc. As a payroll officer, it becomes your responsibility to dig into the data and extract the required information and share the reports.