Things You Need To Know About Payroll System in India

Things You Need To Know About Payroll System in India

Payroll and payroll processing are important concepts for any business. Payroll Processing in India is an important business process as it constitutes enormous financial elements like net salary, gross salary, daily wages, bonuses, compliances, leaves, and lots more. People must understand the payroll’s complexity as it is the main concept of any business. It includes every employee’s hire-to-retire journey. One of the most significant to gain a better understanding of the entire payroll is to understand the phases, methods, challenges, and solutions of processing payroll. 

If you don’t know the whole concept, you may do mistakes that could cause serious consequences. So every employee needs to understand about Payroll processing system. In this post, we will explain to you every aspect of the payroll system in India. 

Payroll Management System

What is Payroll?

Payroll is a list of employees who get paid by an organization. It prefers total pay or salaries or compensation to its employees. There are other activities payroll involves more than just calculating paychecks. Payroll is counted by tracking working hours, a listing of employees, distributing salary timely, documenting the payroll costs, and calculating pay. Payroll can be managed through the standard of procedure, utilizing the recent technology, and choosing the proper payroll model or payroll software

What Is Payroll Processing? 

Payroll processing is the term where several steps are involved to calculate compensation for all employees.  The process involves three to four stages and other tasks like defining salary structures, gathering employee working hours, collecting their data, deductions, and allowances, and fixing the necessary policies concerning other adjustments and government taxes. It’s a complicated set of procedures that calls for several teams to work in synchronization. But you can say that payroll activities are simple to calculate, for that you need to understand some specific terms.  

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HR managers invest much time and energy in recruiting, training, and fixing an adequate process for each employee. In a way, employees depend on company policies to get paid without any type of delays. So, the payroll processing cycle should be maintained with distributing, filing, reporting, and providing pay slips as well. 

In simplest words, if payroll is the quantity paid by the company to employees, payroll processing is the full methodology of calculation and maintaining of data. 

How Is Payroll Calculated In India?

Mostly for calculating Payroll in India, people use

“Net Salary = Gross Salary – Gross Deductions”

this simple formula. 

Under this, we can elaborate, 

“Gross Salary= Basic Salary + Reimbursements + HRA + All Kinds of Allowances + Arrears + Bonus”

“Gross Deductions = Professional Tax + Public Provident Fund (PPF) + Income Tax + Leave Adjustments+ Loan Repayments (If Any) +Insurance (If Any)” 

So, for counting HR Payroll, you need to count gross salary and gross deduction. Once you deduct gross deductions from the gross salary you can easily get the net salary as the result of payroll calculation.

Phases Of Processing Payroll In India

Every organization has a lot of tasks to do under the payroll management system.  Related to that, the procedure is divided into main 3 phases.  These are 3 phases of payroll processing: 

  1. Pre-Payroll Activities
  2. Actual Payroll Procedure
  3. Post Payroll Activities 

Here we explain all 3 phases, 

Pre-Payroll Activities: 

This phase consists of 3 sub-activities, 

  1. Payroll Policy Inclusion: 

Creating and maintaining the standardized process is the main activity of Pre- Payroll phase. As payroll includes pay, leave, attendance, and other policies, it should be well defined in the cloud payroll system. It should be implemented uniformly to make it universal for your organization. 

  1. Inputs Collection: 
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Gathering all data is included in this pre-payroll activity phase. This phase involves communication with departments and staff. As this is easy in small companies however this is quite tough in big companies. In this case, one streamlined process is necessary. Considering that, leave, attendance, holidays, salary revision, and employee data all should be gathered in payroll software

  1. Inputs Verification: 

As per the decided policy, input verification is needed. After receiving employee information, HR should check that it meets the company policy. It is used to ensure active and inactive employees before payroll processing. 

Actual Payroll Procedures: 

This phase consists of the calculation of the Payroll.

After completing pre payroll procedure, Payroll is processed within the payroll management system. After checking deductions and taxes, the salary is created in the employees’ bank accounts. By following a streamlined process in every phase you can avoid errors.

Post-Payroll Activities: 

This phase consists of 3 sub-activities, 

  1. Salary Payment: 

After the calculation of payroll, salary distribution is the next process. It involves telling the bank to disburse salary after checking salary and taxes. If you are using any payroll software, then it can be very easy to do this activity with one click.

  1. Payroll Accounting: 

After salary distribution, to manage the account of the company is under post payroll phase. You should ensure that the salaries of employees are recorded for future tracking of company finance. 

  1. Payroll Reporting and Compliance: 

After deductions such as Employees’ State Insurance (ESI), Tax Deductibility at Source (TDS), and Employee Provident Fund (EPF), the amount should be remitted to the respective source. The due dates for every government agency vary from each other and it should be done in time. The activities such as business return form, PF filing, and other form filings are included in this. 

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Buckling Up, 

In this article, you’ve got covered all the components of the Payroll management system in India. At last, you must aware of payroll software features and advantages. In India, under payroll processing, you ought to implement payroll software for eliminating errors, reducing problems, and saving time. If you are facing the same challenges mentioned above you may check the robust, automated, cloud payroll system in India. Consult our experts to fulfill your requirement.