Payroll processing manages all the steps and processes involved in employee payments. It also determines the amount of money the company needs to withhold on account of taxes and other deductions.

Ensuring proper payroll compliance offers several benefits such as protection against frauds and audits, better counter against complaints and demands, and employee engagement. When employees get paid fairly and accurately, it helps in keeping their morale high.

To understand the complete compensation process, here are the things you must know.

Stages of Payroll Processing

1. Policies and Input Validation

   The first stage of payroll processing involves the establishment of policies related to attendance, leaves, company, and employee benefits, and more. These policies must be practised as a standard to collect data from different departments of the company like HR, finance, and administration. This process, if done manually, can become overwhelming. Therefore, businesses must pursue tech solutions to reduce manpower dependencies.

   Next comes the input validation, where the validity of the gathered details is confirmed and inspected if it adheres to the company policy. Consistency in data format is also essential to ease the data tracking process in the later stages.

2. Payroll Calculation

   It is the key step where the net pay is determined. The data collected in pre-payroll activities about attendance, tax, gratuity, incentives, and deductions is fed into the payroll system to calculate the final amount.

   At this step, payroll compliance is crucial to avoid any federal, state, or local penalties. This also ensures the fulfilment of professional obligations towards the employees.

3. Compliance and Pay-out

   Statutory compliance in payroll processing is vital to keep an organisation clear on legal fronts. Companies should religiously adhere to regulations to avoid any unnecessary resistance. As a part of this step, companies pay statutory deductions like EPF, TDS, and ESI to respective government bodies.

   After the deductions are clear, payment accounting is done to document the payment amount in the accounting system, and the process proceeds to the next step, which is the pay-out.  

   Companies pay salaries via cash, cheques, or direct bank transfers. For hassle-free transactions, salary accounts are preferred. Once the payroll run is complete, detailed reports are prepared and submitted to the finance team for review. These files are stored in the database as proof of the transactions made during the tenure of the employees.

Other Elements of Payroll to Consider

Form 16

Form 16 is an official document with complete information on income tax returns.

Gratuity

Gratuity is the amount shared by both the employer and the employee and is a part of CTC. It is paid to the employee as a part of FnF only if the employee has served a minimum of 5 years in an organisation.

Incentives

Incentives are paid as rewards if an employee has achieved a certain target or meets pre-defined goals.

Reimbursements

Reimbursements are made for on-duty expenses. This may include payment for client calls, work trips, official stays in hotels, and meals. These do not fall under the taxable income category.

Income Tax Declarations 

Company-specific income tax declarations include tax deduction at source or TDS imposed on employee’s income. Investment declarations are also made to ease the process of ITR filing.

Leaves and Holidays

Employers allot a fixed number of leaves to each employee for which salary deductions are not made. The same goes for gazetted holidays.

Statutory Rules and Regulations for Payroll in India

Labour law compliance is one of the standard statutory requirements in payroll management. There are several parameters around labour law that should be thoroughly analysed and addressed, especially the rules regarding HR compliance. For example, the rights of employees, rights of working women, compliance audits, etc.

Any deviation or non-compliance on this front can lead to penalties and even criminal liabilities. Finding the right labour law compliance partner becomes essential to minimise these risks.

In addition to labour law compliance, other major statutory rules in India include The Minimum Wages Act (1948) and The Payment of Bonus Act (1965).

Leverage Core Integra for a Seamless Experience

Core Integra provides best-in-the-market solutions for labour-law compliance, payroll, acquisition, and temp staffing. We utilise cutting-edge technology and our extensive partner network to deliver a one-stop platform – driving integrated and automated solutions for payroll needs.

Leverage our tech solutions for your payroll and compliance needs. Click here to get in touch with us.