Payroll is a highly sensitive and complex function that needs to be handled with care. There is immense employee information and payroll data that needs to be analysed. Each individual’s salary needs to be calculated, keeping several variable factors in mind. Then there’s complying with government rules and regulations, and other compliance related issues. As India is a global business hub, there are many such challenges.
Let’s discuss the complexities that payroll professionals encounter on a daily basis.
When a new employee is hired, the payroll team must obtain their tax details. These can be obtained from their old employer. The details help the payroll admin to correctly calculate how much the employee must be taxed in their new position. This information is collected on the employee’s final settlement, which is what they receive once they leave their previous employer. That information must be obtained and submitted, otherwise, the employee will have to pay the difference when they file for income tax return.
Each process in the payroll makeup includes detailed activities, such as deducting taxes, Employee Provident Funds, gratuity, and other such procedures. On top of these, there are other complex duties, too. These include calculating the tax liability as per laws set by the Central government, as well as individual States. Then there’s the calculation of eligible deductions, Medicare, and more.
Indian employees can create their own salary structures to an extent. These can include flexible benefit plans, with certain components being tax-free. Such components are usually added to the employer’s CTC. The payroll professionals need to handle these during the pay cycle. That ensures that tax is kept back correctly. Payroll admins also need to collect proof of expenses. Only then, the individual will get tax exemptions.
Collecting Declarations and Proofs
At the start of each year, employees submit a form called investment declaration. These elucidate their investment plans and apply for specific tax deductions and exemptions. Payroll teams need to work with employees to guide them on how to submit these declarations and collect them at the right time. Otherwise, tax-related confusions and other disruptions will occur. They must also collect and verify proofs of these investments against previous declarations submitted by the employees.
Many times, there are language barriers that come in the way of payroll efficiency. This is true for large companies present in multiple states, or multinational companies. In situations like this, the payroll staff needs to encourage the ground staff to address the authorities, employees, and regulators in their native language.
Correctly Filing Tax Returns
Handling tax returns and supporting documentation from both employers and employees is an important function. If payroll staff miss deadlines for filing tax returns or file them incorrectly, legal complications can arise. Some of these various taxes are:
Employees Provident Fund
EPF is crucial and has several associated responsibilities and duties. Both employers and employees contribute to it. The payroll staff needs to be familiar with interacting with the PF authority. They must take care of the employee’s KYC (Know Your Customer) documentation to the PF. They must also onboard new hires, handle PF transfers, advances, and withdrawals.
The most important function of payroll is to ensure each employee gets paid in time. They must manage multiple media claims, as well as other benefit plans. They have to manage disabilities, leaves, and more. These have to be paid at the correct time otherwise, employees will be highly discontent. But it is essential to handle these aspects effectively while juggling all the other issues listed here. That can make it a task, if not planned out efficiently.
State Taxes, Insurance, and Labour Welfare Fund
Some tax and insurance rules are different from state to state. Payroll staff must be well-versed in this. It will influence withholding certain contributions at the right time. Employee State Insurance and Professional Tax aren’t applicable in all the States. But payroll staff must know the compliance obligations in the States they are applicable in. There is also the Labour Welfare Fund that is managed by the state boards. These determine what needs to be paid by employees and employers.
Employees Who Leave
Employees who exit from the company have to give payroll certain proof documents about investment figures. These have to be verified and tax calculated. Without these, the employees who are leaving will not receive any tax exemptions or benefits. If they comply, they will have access to these instead of being taxed at the standard rate. There are many ways to combat these payroll complexities. That includes using data analytics, updating software systems, and taking help from payroll experts to navigate these complexities. If you need help with any of these, reach out to us and we will guide you.