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Payroll is the process by which the net pay of an employee and includes the benefits that you provide to each employee or group of employees and the deductions that must be made depending upon the salary.  This is a complex process that requires a high degree of accuracy to avoid problems that may affect the growth of the organization.

Streamlining this process and ensuring accurate and timely payment of salary is vital as any inaccuracies will negatively impact the morale of the employees and affect productivity. Adhering to the various laws and regulations such as labour laws, EPF and other statutory compliance requirements is critical.  Non-compliance with these rules and regulations can lead to serious legal issues that may lead to financial consequences.

The onus is on the management to see that the employees are happy and the company is fully compliant of all the statutory rules and regulations.  To achieve this you will need a perfectly working Payroll system that can generate accurate payslips and maintain all employee related records up-to-date and accurate.  In this article we delve into the most time consuming process in the Payroll and on how the entire process could be streamlined for ensuring smooth functioning.

1. Steps to process Payroll
2. Which Payroll Processes Are the Most Time-Consuming
3. How to Streamline Them?
4. How GetifyHR Helps You??

1.  Steps to process Payroll

The entire Payroll Process can be dived into 3 stages, namely, Pre-Payroll stage, Actual Payroll processing stage and Post-Payroll stage.

1.1  Stage I – Pre-Payroll stage

1.1.1   Choosing the right Payroll system

Choosing the right Payroll system is critical for the smooth working of the process.  Payroll process is a complex process that requires utmost care and effort to function smoothly.  There are three basic payroll systems that you can choose from and they are:

• Manual Payroll
• Payroll using in-house Software
• Outsourcing Payroll

Manual Payroll:  Manual Payroll is processing the payroll manually either on paper or on a spreadsheet. This is a time consuming process and requires dedicated effort.  The possibility of manual errors is high.

Payroll Processing using specialized Software:  Fully customized Payroll Software are now available that offer everything from basic payroll operations to highly complex operations that include time tracking and even human resource services.

Outsourcing Payroll:  Here the entire payroll process is outsourced to an external agency that performs the entire operations with the use of high end technology.  The entire gamut of payroll processing right from inputting data to handling the rather complex statutory compliance requirement is handled by the outsourcer.

These three Payroll systems have their own pros and cons and a thorough study based on your requirement has to be undertaken before you make the choice.  Factors like the number of employees, work hours, employee benefits, and the complexity of the Statutory Compliance requirements for your state have to be fully studied before deciding on the type of system you prefer.

1.1.2  Create a Payroll Policy that suits your workplace.

Take time to review the existing labour laws, working hours and overtime laws, and other details pertaining to employment.  The payroll policy should also include the schedule for Pay dates, the mode of payment of salaries, the deduction & withholding and the benefits payable to the employees.  A comprehensive study of all aspects should be made before finalising the payroll policy.

1.1.3  Gather Employee information.

Ensure that all the details pertaining to each employee is collected.  Information regarding each employee’s personal details, social security details, tax filing records and details pertaining to employee health insurance, retirement savings etc have to be collated.  The disbursement of salary whether by cash, cheque or direct deposit have to be defined and accurately maintained.

1.1.4  Handling Employee Updates

All the changes that have taken place during the salary period have to be updated.  This would include the salary revisions, changes in deductions and tax structure and also include details of all new joining.

1.1.5  Input Validation

Once all the inputs have been received, you have to validate the data and ensure that no active employee is left out and conversely no inactive employee records are included for salary payment.

1.1.6  Tracking attendance work hours

If you are manually performing the payroll process, the paper time cards would be available and you have to add up hours, check for errors and update the data to your payroll records.  Those using a Payroll processor have to verify and approve the time sheets that are available and update the system.

1.1.7  Handling Employee Leave

For manual operations, the Leave details of all employees would be available on paper and these have to be updated.  For those using a Payroll software the details would be already existing in the system.

1.1.8  Processing  Employee Benefits

These have to be calculated manually and the data has to be updated before you start the actual payroll generation.  The employee benefit details will be available in the system for those using Payroll software.  These records have to be updated before running the actual Payroll process.

1.2  Stage II – The Actual Payroll Process

Once all the updates have been made and the data validated, then you can go ahead with the actual Payroll process.  On completion of the payroll process the Payslips are generated that gives the Net Pay after deduction of relevant taxes and other statutory deductions.  The Payslips can be distributed to the employees along with their salary dues in the method adopted by the company.

1.3  Stage III – Post-Payroll Process

The Post-Payroll process is the final stage in the Payroll process and has the following sub-stages:

1.3.1  Salary Disbursement or Payout

This stage involves the disbursement of salaries to t he employees either by cash, cheque or direct deposit as the case may be.  The company has to ensure that sufficient funds are available in the Bank Account to meet the payments.  The Bank has to be informed about the payment and a statement has to be issued providing details such as Employee ID, Bank A/c. No. and the amount of salary etc.  For those using a Payroll Software that has the Employees Self Service (ESS) module, the payslips can be published and the employee can login to their account and access the payslips.

1.3.2  Statutory Compliance

During this process all the statutory deductions like EPF, ESI, TDS, PT etc that have been deducted during the Payroll process are remitted to the respective government accounts.  Payment dues are made via challan and the frequency will be according to the type of dues.   Once these payments have been made the returns/reports are generated and filed with the authorities.

1.3.3  Accounting the Payroll

Salaries make up a significant part of the expenses incurred in a business.  These expenses have to be properly accounted for and reconciled so that the company maintains accurate and complete financial records and ensure full compliance with all statutory and tax regulations.  Keep track of all the expenses related to Payroll including salaries, overtime wages, bonuses and benefits.  This will enable the management to get an accurate overview of the total payroll cost and help with budgeting and financial planning.

2.  Which Payroll processes are the most time consuming?

The Payroll process in its entirety is a highly complex activity that has to be performed with great care and expertise.  All the activities involved in payroll are complex processes that only vary in the degree of complexity.  However, among these activities the most time consuming and complex processes are the following.

2.1  Tracking Attendance work hours

2.2  Payroll Adjustments

2.3  Processing Employee Benefits

2.4  Manual Payroll Calculations and Salary Revisions

2.5.  Tax Collections and Statutory Compliance

2.1  Tracking Attendance work hours

Tracking Attendance work hours is one of the most time consuming tasks in Payroll processing.  Calculating employee hours, overtime, deductions and taxes is a difficult task when handled manually.  Accurately tracking employee hours is a challenging task, more so for remote or part-time employees.  The process is not only tedious, but is also prone to errors.  This can lead to discrepancies in the pay slips that will result in employee dissatisfaction leading to disharmony in the workplace. Where the employee strength is very low, tracking work hours will be effective but when the workforce strength is high it is prone to errors.

2.2  Payroll adjustments

Payroll adjustments refer to any change in the employees’ regular pay.  The changes can be a temporary or permanent increase or decrease of an employee’s pay.  Either way, it is important to perform this process accurately for wages and hour compliance.  This is a complex process as any change in employment status, change in salary or wages, overtime wages, change in wage work hours and change in benefits and allowances will have its effect on the entire payroll process.  Any change would naturally reflect in the compliance requirements and therefore, it is vital that these are handled carefully to avoid non-compliance with the statutory requirements.

2.3  Processing Employee Benefits

The benefits to Employees include providing health insurance and other key benefits.  Normally the HR department is entrusted with the job of administering this process.    A typical employee benefit administrator is entrusted the task of developing a benefit program, coordinating with the benefit provider, facilitating the enrolment of employees into the program and assessing the eligibility of employees for the benefits.

The most common types of employees’ benefits include

• Health Insurance Coverage
• Retirement Plans – 401(K)
• Disability Insurance
• Paid time Off
• Parental Leave
• Wellness Programs

This is complex process that requires efficient handling through a dedicated team.

2.4  Manual Payroll Calculation and Salary Revision

Manual Payroll Calculations are based on the frequency of payment and their hourly wage.  In an employee is working your company for Rs:250/- per hour on a frequency of biweekly payment, then he will get 40 hours/week x 2 weeks  = 80 hours x 250 = 20,000/- as gross payment.  If the employee has worked overtime, it is paid at 1.5 times the workers regular pay rate.  Supposing he has worked for 10 hours overtime per week then the calculation would be 10 hours x 2 weeks = 20 hours x 375 = 7,500/- (gross overtime wage).

The Payroll calculation of a salaried employee is paid for each working period.  Since the salary is fixed it is easier to manually process the salary.  Salary revision is the process of reviewing and changing the compensation and benefits package of employees within the organization.  The process involves adjusting employees salaries based on various factors such as performance, market trend, cost of living and company budget.

These changes should be informed to the employees and the relevant changes must be made in the payroll calculations during the scheduled pay period.  The process has to be performed with utmost care and accuracy as any mistake would be reflected in the payslip generated.  Any mistake in the process would dampen the morale of the employees and pave the way for disharmony in the workplace.

2.5  Tax Calculation and Statutory Compliance

Tax calculations and Statutory Compliance are two vital factors that have to be carefully handled while processing the payroll.  The Tax and Compliance calculations include:

• Income Tax – TDS
• EPF and ESIC, LWF & Payment of Gratuity
• Labour Laws

Income Tax – TDS

Tax Deducted at Source (TDS) is one of the most important statutory regulations that every business has to adhere to.  The purpose of the regulation is to collect Tax from the source of an individual’s income and these include salaries, interest and commission.

Individual Assessees were given the option of following the Old Tax Regime or the New Tax regime (23-24).  However, in the budget announcements for the year 24-25, a New Tax Regime has been introduced that has made some changes from the earlier New Tax Regime 23-24.

The relevant Tax slabs for all the three tax regimes, Old Tax Regime, New Tax Regime 23-24 and New Tax Regime 24-25 (AY 25-26) are detailed below:

Old Tax Regime for Individuals

New Tax Regime FY 23-24

New Tax Regime FY 24-25 (AY 25-26)    

EPF and ESIC

The Employee Provident Fund is a social security scheme administered by the Employees Provident Fund Organization.  EPF is a contribution towards the welfare of the employee and requires both the employer and employee to contribute a certain percentage of the Basic pay + DA.  As per the Act, both the employer and employee have to contribute 12% of Basic Pay + DA towards EPF.  Every organization that 20 or more employee has to comply with the EPF regulation.

Employees’ State Insurance (ESI) is a social security measure administered by the Employees’ State Insurance Corporation (ESIC).  ESI helps employees to overcome unforeseen circumstances including medical expenses, maternity leave or disability due to mishaps at the workplace.  ESI is mandatory for establishments employing 10 or more employees and for employees whose earning is less than ₹ 21,000 per month.

Every eligible establishment has to remit the contributions towards EPF and ESI to the concerned department along with the required returns within the stipulated time frame.

Labour Welfare Fund

Labour Welfare Fund was enforced to provide the employees a means to improve their working conditions, for social security and to raise their standard of living.  The Labour Welfare Board of each state determines the amount and frequency of contribution and these differ from state to state.

Payment of Gratuity Act

The Payment of Gratuity Act, 1972 stipulated that the employer has to pay Gratuity to their employees for the services rendered by him during the period of employment.  Any employee who has completed a minimum of 5 years of service in an organization is eligible to receive Gratuity.

Labour Laws

An array of Labour Laws have to be adhered to by all companies and these include The Payment of Wages Act, 1936, The Minimum Wages Act, 1948, The Payment of Bonus Act, 1965, and The Maternity Act, 1961.

The Payment of Wages Act, 1936

The Payment of Wages Act ensures prompt payment of wages with the accepted time frame.  The preferred payment mode is by cash or cheque.  Bank transfers can be made only after consent from the employee.  These rules may vary from state to state.

The Minimum Wages Act, 1948

The Minimum Wages Act was enacted to prevent the exploitation of employees by fixing a minimum wage rate.  The minimum rate may vary from state to state and depends on certain common factors like cost of living, wage period (hourly, weekly or monthly) and job type.

The Payment of Bonus Act, 1965

The Payment of Bonus Act provides payment of Bonus to employees in an organization that employs more than 20 people.  The Bonus is calculated on a percentage of the employee salary and would depend on the profits made by the organization.  Employees who have completed 30 working days and have earned ₹ 21,000 or less (Basic + DA excluding other allowances) are eligible to receive Bonus.

Maternity Benefit Act, 1961

The Maternity Benefit Act was enacted to provide protection to women employees during the maternity period.  Any women employee who has worked 80 days within a 12 month period is eligible to receive maternity benefit.  The employee can avail maternity leave for 26 weeks.  Prenatal leave can be availed for up to 8 weeks.  The payment during this leave period is based on the average daily wage applicable during the period of absence.

How to Streamline the Payroll Process?

Streamlining the entire process will depend on the payroll system that you choose.  As mentioned earlier, the three payroll systems are Manual Payroll, Payroll using in-house Software and Outsourcing Payroll.

Manual System can be efficient when the workforce is limited and is manageable by a small team that has sound Accounting knowledge.  They may or may not use Spreadsheets for their calculations.  However, there is a great probability of errors creeping into this process and the final outcome may not be always accurate.  These errors may have some effect on the entire workforce and may pave the way for disharmony.  As mentioned above when the workforce is limited this system may be beneficial, whereas, if the workforce is large and the attendance tracking is done manually, there is the possibility of discrepancies creeping in that may lead disenchantment with the management.  This will negatively affect the growth of the organization.

Payroll using In-house software is an efficient way to handle your payroll.  You may opt for either Ready-made software which has its limitations or go in for customized software that will be able to handle all your requirements.   A fully customized Payroll Management software will be able to capture work hours accurately and automatically record the working hours, define time offs, breaks and overtime.  All the other complex tasks can be performed with ease and a great degree of accuracy.

Once the Payslip is generated, all the related reports/returns can also be viewed and printed.  The relevant payment of salaries to employees and the remittance of dues to the concerned authorities can be made along with the required returns.  Once the payroll activities are fulfilled, it is only a matter of generating the Payslips and all the required reports/returns are available at the press of a button.

Most of the current software is fully automated and integrated.  This will eliminate the need for manual intervention and simplifies data input and validation of output.  The entire payroll process is streamline to maximize efficiency.

However, the drawback is that errors may happen at the time of data entry which may have its effect on the final outcome.  Also any change in the Statutory Compliance rules and regulations does not get automatically updated.  This requires manual intervention and the onus is, therefore, on the HR team to keep this aspect fully updated.

The most efficient system is to outsource the entire Payroll processing to a professional Payroll outsourcer.  This may be costly, but over a period of time the accurate performance would far outweigh the cost incurred.  The main advantage of payroll outsourcing is that it eases the compliance burden and provides peace of mind.  At best payroll outsourcing removes the burden of maintaining an in-house processing team and gives you the convenience and sophistication of a professional payroll management system that is error-free.

By outsourcing, all core payroll tasks are handled with ease and all payments are made on time and accurately.  The biggest advantage is that you are 100% compliant with all the statutory rules and regulations.

How GetifyHR can help you?

GetifyHR is one of the leading outsourcers of Payroll Processing in the region.  Based out of Coimbatore, Tamilnadu, we have been providing highly professional service to a large number of clients across Indi.  We provide a high-end cloud-based, seamlessly integrated package that streamlines Payroll Processing, HR Management, Attendance & Leave Management, and Statutory Compliance rules and regulations.  An association with GetifyHR will help you to achieve tangible benefits by ensuring cost and time savings, thereby improving productivity and the performance at all service levels.

By outsourcing to GetifyHR, you will be able to generate Payslips at the scheduled time without any hitch.  The payslips will be available to the employer and the relevant payments can be released to the employees once it is endorsed by the management.  At the same times all the statutory dues to the concerned departments can be remitted along with the relevant returns.   On completion of the process, the following reports will be prepared and accessible to the employer.

• Payroll summary
• Allowances and Deductions Reports
• Attendance reports of all employees
• Employee Leave report
• Employee Overtime report
• All statutory reports relating to EPF, ESI, TDS and Professional Tax.

All management reports will be generated and these will be made available to the clients as and when required.

In addition to this we offer a full-fledged Employee Service Portal.  The Portal enables the employees to apply for leave, view the Payslips, declare investment details that reflect TDS exemption, keep track of all the circulars and notices issued by the management, view contribution and deduction details. View expenses/reimbursement claim details etc.  A Mobile App is also available that helps employees to view certain details from their mobile phones.

All these and more facilities are available to the clients.  Being a modular package, you can choose to start with regular modules and add on other modules as you grow in confidence with the performance of the package.  GetifyHR assures its clients the very best of services at all times.