This is how payroll process works in India

This is how payroll process works in India

The whole payroll process used to be a tedious task in the earlier times as people calculated, entered, & maintained a book of record (something like bookkeeping) manually.

Well, in the present scenario, we have technology to compute everything and churn out the cause of manual errors. The entire process has helped the HR department to concentrate on a personal touch more than being indulged in calculations for days.

But, there’s one thing which hasn’t changed in the payroll process- the outcome of delay or error in the salary as employees work for money. Payroll error happens faster than you cook instant Maggi noodles and it can even lead to financial & legal burdens.

To avoid these errors & make sure that employees are content, companies ensure that the process is done with compliance to the laws.

Here, we’ve enlisted the points as to how it works in India in the simplest ways:

Explaining payroll process

The amount of money which a company pays to its employees in lieu of the work they do, is called payroll and the procedure involved in paying the entire amount is eventually, called the whole process.

There comes a lot of things such as gratuity, PF, Insurance, Taxes, HRA, LTA, that a company is bound to deduct & add in order to provide a complete salary every week, month, or year.

In India, usually the pay cycle is monthly which means that the employees are paid on a monthly basis.

There are stages various stages of payroll processing: 

  1. Defining of policies

    There are various payroll policies followed by different companies such as leave policy, time & attendance policy, benefit policy, and many more. Suppose, a company pays shift allowance to its employees then the net pay will be different to the company which doesn’t add this feature.

    There are various types of allowances as well such as food coupon, travel allowance, and others which differ from employee to employee because each employee doesn’t incur the same amount.

    Defining the correct policy in place holds utmost importance. For example, fixing an amount of travel allowance and others.

  2. Accumulation of data & information

    Every month, the HR department accumulates and analyzes the data of each employee in accordance with his/her attendance, leaves, and others. If there is any leave taken which exceeds the monthly limit, the salary is deducted which is also called loss of pay. Also, there are various other things to be considered such as insurance claims, reimbursements, etc.

  3. Calculation

    After accumulating all the information related to all employees, deductions and addition take place. Various deductions such as tax deductions, PF, gratuity, insurance and addition such as incentives, travel allowance, housing allowance occur in order to prepare a proper salary. In general terms, gross deductions are subtracted from gross pay to get the net pay amount of each employee.

  4. Statutory compliance

    The HR manager or department ensures that statutory compliance like EPF, ESI, TDS are deducted properly from each employee’s salary in order to maintain a proper flow & avoid any circumstances.

  5. Final step- credited message from your bank’s servers

    Certain companies provide the same bank account to its employees to practice a smooth process but certain firms credit the salary in different banks. Well, however the salary gets credited, the company should ensure that it is done smoothly without any glitch.

  6. Share the reports

    Once the salaries are credited, higher officials like CEOs ask for the data and the HR department presents the complete data. If there happens any glitch (for example- if some employees didn’t get their salary) then it is rectified with the measured & encountered steps.

    There are various ways to complete the entire process such as doing it on excel where all the formulas will be intact, consulting a payroll outsourcing firm which can help the company to be compliant and accurate, or using a software to complete the entire process. Many big companies have their own software’s to complete the procedure as doing with excel sheets can become a daunting task (with 1000+ employees) and other companies either go for outsourcing to avoid any consequences or get cloud-based software.

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