The organization comprises of its employees, and they fall under the payroll of the organization.
Payroll means the salary or the wages that employees receive for their services. The company is liable to pay a certain agreed amount to its employees. The list of such employees and their salaries is known as payroll.
Factors that Constitute Payroll
- Payroll comprises payment policies, including leave encashment and other benefits that constitute the salary of an employee.
- It also includes the components of the payslip, such as fixed salary, variable salary, HRA, etc.
- It contains the gross salary calculation, both statutory and non-statutory deductions, and compiles the net pay.
- Income tax filing returns, deposits like PF, TDS, etc., are also mentioned in a payroll.
The payroll process thus derives the net pay of the employee after adjusting taxes and deductions that may apply.
Changes keep occurring in an employee’s payroll every time. It may be a change in the employee’s contribution to social security or deductions due to late coming, etc. The officer concerned must continuously monitor these changes and include them in the payroll from time to time.
As such, the payroll officer must know about the current legal regulations and knowledge of the tax structure for proper filings. The officer must also know about various policies of the organization, such as the pay policy, deductions policy, sick pay policy, etc. As the first step in payroll processing, all these policies must get validated by the management to standardize the payroll.
The second step in payroll processing is to gather inputs. In small organizations, this task is taken care of by a small team. Inputs like newly hired employee data, the salary structure, the attendance data, etc., can be easily gathered.
But in big organizations, gathering inputs is a complicated task. Various teams from across the organization must send the necessary data. Expenses incurred like transportation services, food/canteen services, etc., are gathered and included in the payroll.
The third step is to validate the inputs received. Data provided by the teams must be checked for compliance with company policies, taxation rules, attendance policies, etc. Then the data is checked for discrepancies in the data received. After all, correct data will enable the organization to pay the right amount to the employee and boost productivity.
All the data thus received is fed into a payroll system. The organization can choose a reliable and efficient software system for this purpose.
The system brings out the net pay of each employee after adjusting to all deductions and taxes. This brings to an end the payroll process. But, there are certain things that the organization must do as a part of the post-payroll process.
The organization must remit all the statutory deductions such as PF, TDS, etc., to the government. This is done periodically or frequently as per the type of the due. After paying all dues, the organization files a report.
Payroll management comprises a high cost to an organization. After payroll accounting, every organization must maintain records of the payrolls. Feeding such data into an ERP system or an accounting system is a must.
Now, the organization can pay out the salary to the employees. In general, the pay-out is in the form of cash, by cheque or transfer. A salary bank account is typically provided by the organization.
The payroll officer then sends a bank advice statement with the details of the employee, account number, and the salary amount to transfer to the bank.
Reporting to the Management
After completing the payroll run for the concerned month, the payroll officer may have to report details like costs incurred on the employees, etc. For example, if the number of employees is doing overtime, it means there is a shortage of employees, and the payroll officer can report the same to the management. Also, the performance of employees can be assessed using the payroll data.
Payroll processing is not an easy task. There are mandatory statutory laws to adhere to. Any misstep will lead to penalties. In the worst case, the very existence of the business will be at stake.
Getting all the necessary input data together for preparing the payroll is another challenge. The process is complicated.
These any many other challenges can be overcome by using sophisticated software.