Last updated: February 2nd, 2023 6:21 PM

Employee Payroll Management Process  

Payroll is an important document that organizations and businesses use to manage their employees on a daily basis. It is a document that contains a list of all of a company's employees who are paid for work done or services provided to the company. It summarises the total amount of money paid to employees by a company over a given period of time. The present article briefs the Employee Payroll Management Process.

What is payroll?

Payroll is a list of the company's employees who are paid. The total amount of money paid to employees by the company is sometimes referred to as payroll. It entails the following tasks as a business function:

• Developing the organization's pay policy, which includes flexible benefits and leaves encashment policies, among other things.
• Determining the components of a payslip, such as basic, variable pay, HRA, and LTA
• Obtaining additional payroll inputs (for example, the organization's food vendor may provide data on the amount to be recovered from employees for meals consumed)
• The process of calculating gross salary, statutory and non-statutory deductions, and determining net pay.
• Paying employees' salaries
• TDS, PF, and other dues are deposited with the proper authorities, and returns are filed.

In a nutshell, the payroll process entails calculating what is owed to employees, also known as 'net pay,' after deducting necessary taxes and other deductions. The formula for computing net pay is as follows: Net pay = gross income - gross deduction

Gross income:

All sorts of recurring income + allowances + any one-time payment or benefit Equal gross income or salary

Gross deduction:

All sorts of regular deductions + statutory deductions + any one-time deductions equate to the total deduction

Functions of payroll

The following are the functions of payroll.

• It comprises the remuneration strategy of a corporation, which may include bonuses, leaves, and deductions.
• It generates a thorough payslip that can be used for a variety of purposes. It also includes a thorough salary or compensation breakdown.
• It is used to pay wages or salaries.
• It's used to keep track of payroll-related data.
• It's used to figure out how much you're paid.

A thorough payroll is required for good financial management in a company with more than one employee. The fundamental purpose of payroll is to aid a firm in making timely wage and salary payments to its employees. It also assists with other important tasks including income tax, unemployment tax, and social security.

What is Payroll Management?

In a nutshell, the payroll management process relates to the administration of a company's employee financial data. Details about the employee's wages, incentives, bonuses, deductions, and net compensation would be included. As required by law, an employer must preserve and maintain these records. Noncompliance with the Income Tax requirements governing employee records may result in legal ramifications.

Benifits of Payroll Management

The Payroll Management process offers organization and consistency to their employees. It also gives them a dedicated system for grievance redressal.  A good Payroll Management system can help a business with the following:

• The Payroll Management process provides a clear representation of the company’s salary, which is important for a financial assessment
• Payroll Management process Improve the morale of employees
• Payroll Management process help organization to reduce the chances of paying legal fines.
• The Payroll Management process helps even new startup owners

Various methods of Payroll Management

Organizations use four main techniques to compute gross wages and salaries, as well as the deductible amounts for each employee. Large firms utilize state-of-the-art software for payroll processing, while some companies prefer traditional manual techniques. The following are examples of numerous approaches and processes: Employing an accountant for payroll management: As a specialized role, many firms hire a competent payroll accountant with a diploma or degree in accountancy or finance to handle exclusively payroll operations. He or she is totally accountable for all payroll-related tasks at the organization. The expert must be well-versed in both basic accounting principles and internationally accepted accounting standards. However, it raises the organization's costs. Using a manual system: Instead of using state-of-the-art digital tools, this technique entails making manual entries in traditional payroll ledgers, spreadsheets, and a calculator. Firms in the manufacturing and construction industries use this formula to compute pay for onsite contractual workers or extremely small businesses that pay on a daily/weekly basis. The procedure, on the other hand, is time-consuming, boring, hazardous, and prone to errors. This is nothing to write home about, even in this era of tax cuts and a strong economy. Outsourcing payroll operations: Some businesses even outsource their payroll operations to a third party that is responsible for all aspects of payroll accounting. This is an effective technique to save money and time for companies with more than 1,000 employees. Payroll records and tax analysis, medical claims processing, employee provident fund processing, insurance processing, and audit planning and processes are all handled by the outsourcing company. Outsource your payroll processing and HR management to IndiaFilings at just Rs.4899 per month. Get error-free monthly payroll calculation Implementing payroll administration software: Today, automated, cutting-edge software is available to handle all aspects of the payroll process. Payable sums and deductions are calculated in seconds with the click of a mouse or the press of a key. The payslip is generated quickly as well, with little chance for error. Furthermore, the software validates the data automatically. However, in order to ensure optimum efficiency and accuracy, the individual operating it must be well taught.

What are the Stages of Payroll Processing?

A payroll officer must plan meticulously. There are always activities that need to be completed, as well as the need to keep track of changes in withholdings, contributions to social security funds, and so on. Pre-pay roll, real payroll, and post-payroll activities are the three steps of the process.

Pre-payroll:

The payroll procedure must be planned out before the actual remuneration to be provided to employees can be determined. This preparation encompasses a significant portion of the entire payroll process. It entails setting up salary structures, payroll cycles, collecting data for the full month, confirming the data, and then using that data to complete the real payroll process, which comes after pre-payroll processing. Few setups are done in accordance with the company's principles, while others are done in accordance with the law and regulations; these are known as "statutory compliances in India."

Real payroll:

Calculation of Payroll- The confirmed input data is then loaded into the payroll system for actual payroll processing at this point. After adjusting for appropriate taxes and other deductions, the net pay is the outcome. To avoid any problems, it is always a good habit to reconcile the data and verify for accuracy once the payroll process is completed.

Post payroll: 

The third and last stage of the Payroll Process is Post-Payroll. The entire payroll process is broken down into three phases: pre-payroll activities, actual payroll processing, and post-payroll processing. The procedure is lengthy and includes numerous large-scale tasks.

Challenges in Handling Payroll Management Proces

Due to two main factors, the payroll procedure becomes difficult.

The Obligation to Remain Statutory Compliant

As previously stated, failure to comply with statutory laws can result in the imposition of fines and penalties, or, in the worst-case scenario, the business's survival. There is now advanced payroll administration software that performs payroll automatically in accordance with statutory laws.

Having to rely on a variety of payroll inputs

Before you can process payroll, you'll need to gather all of the data from various sources, such as an attendance register, a record of transportation services used, data from the HR department, such as wage revision information, and so on, making it a time-consuming procedure. For many years, HR and payroll officers managed payroll using excel sheets, but these sheets have flaws such as reliance on excel formulae for compensation computation, trouble adding and removing personnel, and other constraints such as manual data entry, difficulty extracting information, and so on.

Procedure for Employee Payroll Management 

Employee data should be collected and updated on a regular basis:

Every employee requires information such as Social Security numbers, tax withholding certificates, benefit enrollment deductions, and worker classifications.

Employees are compensated.

Employers can pay employees by cheque, direct deposit, or pay card in most cases, while certain states have laws prohibiting employers from using electronic or alternative pay.

Work out your gross compensation:

Employers must log the total hours that employees work and multiply them by their hourly rate to compute gross pay for non-exempt or hourly workers. Exempt and salaried employees have it a little simpler. Divide the annual salary by the number of pay periods to arrive at the answer.

Maintain complete payroll records.

Businesses must keep payroll records for at least three years, according to the federal government. Some states have standards that are considerably more stringent.

Work out your net compensation:

After deducting any pretax payments for benefits or retirement plans from gross income, net or take-home pay is computed. Withhold federal income tax, FICA taxes, and any other state or local taxes and withholdings that apply. Finally, if necessary, deduct some forms of benefits, retirement plans, and wage garnishments after taxes.

Allow HR personnel to participate in payroll training.

While a human resources (HR) professional's training includes payroll processing, their expertise is mainly focused on recruitment and personnel records administration. Consider holding payroll training sessions for your HR personnel to improve your company's payroll management procedures. Despite the fact that HR and payroll departments play separate responsibilities in an organization, they share functions that are critical to a company's performance. When engaging with employees, your HR team's improved awareness of payroll policies will help relieve some of the load on the payroll personnel. As a result, professional relationships strengthen, and the overall attitude in the office improves.

Determine how much the employer pays in payroll taxes.

Employers are responsible for half of the entire FICA tax, as well as federal and state unemployment insurance levies. Depending on the state or location, there may be additional state and local payroll taxes.

Ensure that your payroll process is transparent.

Employee misunderstandings of the payroll system are a common source of problems. This is especially common in firms when compensation regulations are either unavailable or poorly communicated to employees. Many payroll concerns, such as unpaid taxes or misclassifications of employees (contractor vs. employee), can be resolved by implementing a completely transparent payroll policy. A transparent payroll policy should include the following information:

• How does the payroll system work?
• How are employees classified?
• How are salaries determined?
• Reporting responsibilities for employees
• Payroll procedures in place at the company to deal with payroll errors
• Vocational earnings levels (earnings on which vacation pay is calculated)
• How are pay and promotions determined?

Put the policy in writing, post it clearly in the workplace, and make sure that every employee receives a copy. You should also make the necessary changes to your employee manual.

Government agencies and benefit suppliers should be compensated.

Employer payments for payroll taxes and insurance premiums, as well as taxes, benefits, and garnishments, are taken from employee earnings, must be remitted to the relevant agencies and insurance carriers on time.

Prepare and submit tax returns.

Businesses must report to the federal and state governments the taxes they withhold and pay. Depending on the total tax liability of the business and state rules, this is usually done quarterly or annually.