What is Payroll System?
Payroll System is a cloud-based solution that integrates, manages and automates the payroll process in an organization. It Is responsible for handling compliances, calculating payroll, disbursing employee salaries, generating payslips, maintaining the security and integrity of the database and more.
Payroll Software Guide
What is Payroll?
Payroll refers to the combined sum of money that is received by employees for their terms of service in the organization. It includes deduction of taxes, contributions, summing of benefits, bonuses from the gross pay to derive the net pay of an employee.
It is a crucial aspect of an organization’s finance and human resource department. In addition, being critical in nature, it requires cautious evaluation to comply with the tax law regulations and labor norms to keep away from legal troubles and conflicts.
What is Payroll Management System?
An employee payroll management system is an application or software that is utilized in processing payroll-related tasks seamlessly. The payroll process is crucial for the organization and requires careful evaluation. So, the payroll management software automates the tasks associated with the processing of payroll and streamlines the complexities in calculating taxes, and deductions as well as aligns with the necessary compliance regulations.
The primary goals is to assist organizations in improving their efficiency and capability in processing payroll tasks which include:
- Management of employees’ data (attendance and personal details)
- Strengthening the data security of sensitive data of employees
- Streamlining complex tax, salaries, and benefits calculations
- Salary disbursal and direct deposits
- Appropriate administration of benefits evaluation to avoid any miss.
- Comprehensive report generation to benefit employees in understanding their salary breakups.
- Adherence to local, central, and federal tax laws and regulations in regards to compliance, etc.
What are the Types of Employee Payroll Management System for Business?
Understanding the diverse needs of organizations, various types of payroll management systems are available in the market. It solves the purpose of varying preferences and requirements of diverse business sectors as well as provides them the ease to manage their payroll process and tasks associated with it. Let us take an insight into its types or variations for business and their significance.
1. Cloud-based
This is the ‘set it and forget it’ type of solution where the organizations purchase the software from a third-party vendor who is solely responsible for the online updates, user management, and maintenance of it. The users get flexibility in accessing the software from anywhere by using internet-enabled devices. Furthermore, cloud-based software for payroll has enhanced security features that enable robust data safety of employees’ sensitive information and diminish data theft concerns.
2. On-premise
On-premise payroll management software is one of the most significant software that facilitates organizations to deploy software on their company’s in-house computing infrastructure. The on-premise payroll software, developed internally, is deployed on company servers, requiring the organization to manage both software and hardware. This self-reliant approach results in the company bearing the associated payroll processing costs. This is mostly installed by companies who are skeptical about third-party vendors in regards to the security of data.
3. Integrated HR and HRMS Payroll application
An integrated HR software and HRMS payroll application combines the functionalities of payroll processing and HR processes within a unified platform. This enables businesses to manage employee data, benefits, attendance, and payroll processes seamlessly and accurately. In the diverse business world, integration of software applications are essential to keep up with the fast-evolving market requirements of managing workforce.
4. Global Software
To handle the international currencies, tax laws and regulations, global software for payroll are significant. When a company has its businesses expanded in multiple countries, the difficulty in calculating tax provisions varies as per diverse governmental and labor regulations. Global software for processing payroll enables you to convert currencies, comply with the laws and regulations while evaluating payroll and manages the complexities in calculations.
5. Open-source Software for Payroll
Open source signifies publicly available software that can be accessed by the public in general and can also be customized by organizations as per their needs. It is highly flexible and is available at low cost. It enables its users to view, modify, add, and tailor the application as per their preferences at a reasonable cost. Although it has a vivid reach, its deployment and maintenance require technical expertise.
6. Outsourced
Outsourcing is the procedure where the company relies upon any other provider for the payroll processing of its employees. The provider or vendor is given access to employees’ databases for the payroll processing on time for the exchange of which they charge pre-defined fees. This method is mostly adopted by the companies that are least bothered about the data privacy of their employees and focus more on timely salary disbursement with accuracy.
How does payroll software work?
The best payroll software streamlines employee salary disbursal since it undertakes all activities related to payroll processing, such as;
– Importing the attendance data
– Accurately calculating the salaries by considering regulations
– Making necessary deductions
– Depositing salaries into employees’ accounts
– Generating and sharing payslips, and more.
Hence, they are integrated with other core business systems to provide accurate employee compensation. The employees can also access this software to view and edit their payment data, bank details, and more.
Payroll software automates the employee payroll process by taking care of the mandatory statutory compliances and making it easier for the staff to configure and automate employee payments.
Stages of Payroll Process?
The payroll process contains various stages such as:
1. Data collection
The first process is to gather relevant data of the specific period for which you need to process the payroll. This includes information such as:
Total hours worked by employees
Overtime Work hours (if any)
Total leaves availed
Bonuses entitled
Other relevant adjustments.
2. Timekeeping
Timekeeping or attendance tracking of employees’ total work hours in a specific period for which the payroll process is conducted. In the contemporary business sphere, attendance is automated by biometrics or facial/ selfie attendance management systems depending upon the organizational size, preference, and requirements.
3. Post-payroll Functions
The calculations in payroll processing includes the following:
i) Gross Pay:
Gross pay is the total or actual pay of an employee which include their salary, compensations, bonuses, commissions, overtime pay and all other sources of income. It is the earned income in total of the employees which they have earned in return for rendering service to the organization.
ii) Deductions:
Withholdings and deductions are the amount that are deducted or reduced from the employees’ gross income to derive the net pay. These deductions are made for several reasoning’s which include:
Taxation deductions to adhere the lax laws
PF contribution deductions for employee welfare
Medicare deductions for securing health plans of employees
Social security contributions
Insurance premiums and
Other garnishments for either the overall welfare of the employees’ health, wealth or compliance with the governmental laws.
iii) Net Pay
It signifies the final “in-hand” amount received by an employee after deductions. It is derived by subtracting the deductions from the gross pay of employees.
Net pay = Gross pay of employees – Deductions (contributions and taxes)
4. Benefits Management
The next process is to manage the benefits and compensations that an employee is entitled to without missing any. Benefits in employees’ payroll may include retirement plans, health benefits, provident funds, etc and other. The benefits of employees are subject to their terms of service, employment duration, seniority level, designation and etc. It is essential to ensure that all the relevant contributions and withholdings are accurate and reflected in the payroll.
5. Compliance Audit
After evaluating and accessing all calculations, the next step is to check with the compliance. It is pivotal to access the compliances as diversions can end up landing the company’s image on stake due to legal troubles and conflicts. Furthermore, the labor laws of local, state and federal jurisdiction are significant for the welfare of the workforce management.
6. Salary Disbursement and Report Generation
Last, but not least, process the salaries of the employees and generate the payslips report to give the employees a precise insight into their salary deductions, contributions, benefits, and perks. It is a vital step and is prioritized most to avoid delays is the disbursements of employee’s salaries.
What are the best features of online payroll software?
With so many advanced features, modern payroll and management software for businesses will help you with anything and everything related to salary management.
So, let us take a look at some of the features which make having the best payroll software such an incredible tool to use for any HR and small businesses:
1. Compliance management
A good software development team would understand that payroll software cannot be complete without a fully structured updated statutory compliant module. Hence, it needs to be built from the ground up to be easily updated as per the changes in the regulatory laws. This ensures that your payroll is always updated as per the latest changes and any kind of new updates can be easily incorporated.
2. Advanced cloud security
With highly secure encryption standards available in modern payroll system, you can be assured that your employees’ data is in safe hands. In practice, your employees’ data is encrypted whenever it is stored in the cloud and decrypted whenever the user retrieves it. However, this process should be completely transparent to the user, which would ensure that anyone with the right credentials can access the data and use it even if they are not tech-savvy.
3. Mobile app
Having a dedicated mobile app is necessary nowadays due to the advancement of mobile internet technology and the ever-growing use of smartphones for internet usage. It also assures that your employees can be connected with you anytime, from anywhere. That is why most modern payroll software has dedicated apps for accessing their data remotely as well as staying connected with timely updates and notifications.
4. Employee self-service
ESS Portal allows you to provide your employees and managers with any pertaining information at any time and using any internet-enabled device. This makes it easy to keep them engaged while also being transparent with them regarding their payroll, attendance, leaves, etc. They can also retrieve the same information at their fingertips with the aforementioned mobile app. Employee self-service has become a necessary requirement for the most advanced HR payroll management software.
5. Highly customizable
No two organizations are the same and hence they would have different expectations and requirements from their payroll software. Hence, it is ideal to have a payroll system as it helps in scaling it as per your requirements while also ensuring that the modules can work independently. It is also beneficial to check for integrations with other commonly used applications so that you can seamlessly transfer data between them.
6. Real-time insights
It is beneficial if your payroll management system can showcase real-time insights using meaningful graphs to help you visualize the current scenario. You can act on those insights and take corrective measures just in time to ensure that your company remains running smoothly before any small issue balloons up. Along with this feature, creating custom reports is a necessity for any payroll solution and needless to say, modern payroll management systems have versatile report generation modules.
7. HR chatbot
Having an HR chatbot on your phone is like having dedicated HR personnel at your disposal. You can communicate with it in normal language and it would use AI to understand your query and provide accurate relevant results. This feature helps redirect the common employee queries to the chatbot, thus saving HR from repeatedly answering the same doubts and queries, which eats up almost 40% of their usual working hours.
8. Fully paperless
Let’s face it! It is the 21st century and going digital is more of a necessity than a luxury. However, it is a sad reality that even today, there are companies that are still using physical paper to run payroll related activities. Along with wasting the precious resources of the planet, this is also making the office look cluttered. Modern offices should be a minimal space where things are arranged aesthetically, which helps the brain function well and having a paperless office sure helps a lot.
What are the benefits of a cloud-based online payroll system?
1. 24/7 Remote access
Cloud-based payroll software can be accessed from anywhere at any time. It helps the employees access their details, such as payment information, pay slips, and others, from their smart devices, whenever required. They need not waste time in email chains to undertake simple tasks like updating their details or downloading their pay slips.
2. Save time, efforts & money
With most of the HR and payroll-related tasks automated, HR will be able to spend their valuable working hours developing employee engagement programs while the payroll and HRMS software does the heavy lifting. It also helps save money by lowering the costs associated with record-keeping, payslip generation and distribution, etc. as well as eliminating the additional costs incurred due to incorrect calculations.
You can also remain at ease knowing that the latest statutory compliances are updated as soon as they are implemented. This saves a lot of paperwork and hassle usually seen around the implementation of such laws. Similarly, the calculations which used to take days and even weeks can be completed within a day owing to the automated calculations done by the software.
3. Enhanced security
Cloud-based software has also enhanced security since the developer is required to handle confidential employee data. The financial records related to payroll are especially sensitive. Hence, one should take utmost care to ensure this data remains encrypted in the database.
4. Automate statutory compliances
Statutory compliances are a mandate in the calculation of payroll, so it hold utmost importance during the processing of payroll. Diverse legislations are considered in the payroll process of an employee and the organizations mostly settle for those that not only automate their preferred tasks but are also cost-effective. Its efficiency proves to be an asset for the companies as it aligns with the laws and helps to adhere to the regulations. Furthermore, it can be updated once in case of alterations in statutory laws and the same shall prevail until further update.
5. High scalability
Cloud-based payroll systems also have the additional advantage of having excellent flexibility. The HR team can add or remove features at their convenience to ensure they pay for only those modules required by their company.
6. Track employee attendance accurately
It helps in tracking the employees’ attendance precisely by evaluating the actual working hours of the employees. Furthermore, it can also access the exact extra hours of work, leave days, and late comings as well. Today’s contemporary applications also provide enhanced services that can track the employee’s location via their smartphone’s cameras and GPS. Such aptness in tracking attendance helps in deriving accurate reports while processing a payroll.
7. Have one-click wage payout
Employee wages disbursement is another feature of payroll software that makes it highly efficient. The employees would be able to choose whether they would like their wages deposited into their bank accounts or use payment cards or have cheques issued. Similarly, the payroll and HR software can be configured to be more transparent by sending the payslips to every employee’s registered email ID.
8. Zero hardware costs
Cloud-based software can be accessed using any connected device. It helps avoid the additional overhead of deploying a dedicated server. Additionally, since the software vendor maintains the database, a cloud-based system also helps remove the additional server maintenance costs.
9. Automated updates
Cloud-based software also remains constantly updated by the vendor on the cloud. Hence, there is no downtime required in manually updating the systems. Additionally, the automatic update process is transparent, providing additional ease of usage for the end user.
What are the Limitations of a Payroll System?
Although these systems provide multiple benefits such as automation, accurate calculations, enhanced efficiency, etc., they do have certain limitations or challenges too. It is essential to address these challenges to potentially process payroll. Here are some common limitations:
➔ Installation Constrain
Implementations can be challenging as they require technical expertise, proper setup, and maintenance. For small businesses and start-ups, it can be expensive and time-consuming to migrate old data as well.
➔ Learning Curve
The end users of the system like employees, administrative personnel, and HR staff might face constraints in adapting to a new application. Furthermore, the training of the end users is time-consuming and tough for non-technical personnel.
➔ Expense Curb
The cost of purchasing, implementing and maintaining a payroll system can be challenging for start-ups or small businesses as optimum resource spending is the core principle for them. Additionally, there may be ongoing expenses for training end users, maintenance, hardware upgrades, and integrations.
➔ Customization Challenges
The customization or tailoring expenses are mostly additional in regard of certain features. some companies might need additional features to integrate with the payroll system which becomes tough to accommodate.
➔ Integration Issues
Integration with other existing software (such as HR, finance, and attendance) can be challenging. Compatibility issues might arise leading to problems in data transfer and transitions.
➔ Security Concerns
A payroll application contains sensitive data of employees that are confidential and if breached can lead to legal lawsuits, financial fraud, and identity theft like major issues. So, maintaining a secured database is a major challenge for businesses to protect their employees’ privacy.
➔ Dependency on Service Providers
For organizations using cloud-based payroll application systems or outsourcing payroll services, there is a level of dependency on service providers. Diversion of the vendor from providing adequate service can disrupt the payroll operations and can also hinder the business workflow.
Companies require expense management software along with payroll functionalities to ensure accurate, on-time payments to their employees every salary cycle. Having a dedicated payroll solution vastly reduces the time and effort required to collate the monthly inputs, process the payroll, and disburse the salaries.
Why do companies use payroll software?
Companies require payroll software to ensure accurate, on-time payments to their employees every salary cycle. Having a dedicated payroll solution vastly reduces the time and effort required to collate the monthly inputs, process the payroll, and disburse the salaries.
The following features of payroll software make it ideal for companies to deploy a dedicated solution for processing employee payroll:
▸ Accuracy
It can collate employee data for each salary cycle, which includes variables such as attendance and leave management system, late-comings, overtime, etc. It also considers the various regulations to calculate salaries accurately. Providing employees with precise wages every cycle helps improve their trust and loyalty towards their company.
▸ Transparency
Since it can be easily integrated with other systems, such as finance and accounting, it helps improve the transparency of the company finances. It helps in understanding the budget requirements of the company. As a result, enhanced transparency results in better budget utilization and accurate expense management.
▸ Flexibility
It is highly flexible as it needs to cater to companies of varying sizes and complexity. Additionally, the software would be used in multiple parts of the country, and depending on the state, it needs to change the regulatory conditions, which also requires additional flexibility.
▸ Scalability
This should also be scalable with the business. As the company grows with time, there could be an integration of new departments, hiring a new class of workers, and more. The software should be able to integrate these changes and ensure a smooth performance management system even under growing complexity.
▸ Efficiency
It should be able to improve the efficiency of the HR department concerning payroll processing. Hence, they can dedicate the time saved to other creative tasks such as strategizing employee engagement tactics, process improvement plans, and others.
How does payroll software support businesses?
Deploying a robust payroll software solution has multiple benefits for an organization. Apart from the apparent benefits of improvement in payroll efficiency, there are various other advantages, such as:
▸ Improved Loyalty
With an automated payroll system, companies can pay their staff on time. Additionally, there is no margin of error since the system calculates the payment based on the monthly inputs. Moreover, receiving salaries on time vastly improves the trust and loyalty of the staff towards their company.
▸ In-depth Insights
A dedicated payroll processing system can also provide in-depth analytical tools to provide valuable insights into various aspects of employee payroll. Integrating it with related systems would also help in enhancing the insights to deliver better budget forecasts.
▸ Enhanced Security
Since payroll deals with finances and requires excellent security, payroll processing systems are the ideal solution for a company. It also ensures that the right person can access the payroll data while others are effectively abstracted from it. It ensures that the right people have access to the data whenever and wherever they require it.
▸ Streamlined Reporting
It provides the option of real-time insights with interactive dashboards. It also has multiple ways to generate and share interactive reports. As a result, having a dedicated payroll solution provides you with various data that can be presented to the upper management to make critical decisions.
What is the Future of Payroll Systems?
With the fast-evolving technological advancements, the future seems to be shaped by digital transformations and Hi-tech breakthroughs. While it is challenging to predict specifics yet here are some potential predictability that could influence the future of payroll management software.
1. Enhanced Integration with Emerging Technologies
Integrations with artificial intelligence (AI), machine learning, and robotic process automation (RPA) will be enhanced with an automated payroll processing system. This integration can elevate the automation of repetitive tasks, enhance accuracy, and improve efficiency to optimum.
2. Expansion of Employee self-service Portals
Employee self-service portals within the are likely to expand allowing employees to access their payslips in real time. This can reduce administrative workload and improve employee engagement.
3. Global Payroll Solutions
The global complexities of payroll can improve in the future with efficient integrations and cutting-edge technological advancements. It may evolve much more efficiently to handle global challenges related to diverse currencies, laws, and regulations with much precision and accuracy.
4. Data Analytics and Workforce Insights
This may incorporate advanced data analytics tools to provide businesses with valuable insights into workforce trends, hence helping with strategic decision-making related to staffing, recruiting, compensation, benefits, and employee retention. It may also enhance the efficiency of management in streamlining the diverse workforce by fostering inclusion.
5. Enhance Experience Improvements
This may become more intuitive and easy to access hence diminishing the learning constraints on the non-technical workforces. Furthermore, it may become more adaptive to the changing governmental laws and regulations hence ensuring compliance with tax.
How Does the Payroll System Help Employees?
An efficient payroll system is significantly beneficial for the employees, here’s how:
➔ On-Time Payment
An efficient system provides a seamless experience to the employees by processing their payslips and salaries on time. It not only motivates their morale but also boosts their productivity.
➔ Clarity in Payslips
Payroll systems facilitate employees with employee self-service portals which contain the detailed payslips of employees. Hence, it gives a transparent insight to employees into their salary break-ups, contributions, deductions, and perks.
➔ Accurate Benefits Evaluation
It accurately evaluates the benefits of employees as per their entitlement. The benefits for different employees vary as per their designation and duration of service. This makes it more essential for employees to cautiously check the payslips that they can acquire from their ESS portal provided by the payroll application systems.
➔ Streamlined Record Keeping
The automation of record keeping of employees in the system of payroll facilitates the employees to access their pay details anytime, anywhere from an internet-enabled gadget. In addition, the application reduces errors and mistakes. It also provides employees financial history within the organization which facilitates them comparison and adequate report saving.
➔ Quick Notifications
One of the finest benefits of this is it provides quick notifications and alerts on important days and dates such as paydays, tax filing dates, benefits enrolment periods, etc. This helps employees to stay updated with the crucial updates on their employment.
How does Payroll Application Help with Compliance and Other Regulations?
It can help with compliance and other regulations of business in many ways such as:
▸ Accurate Tax Calculations
The payroll processing system automates the payroll process hence enhancing accuracy in calculations and deductions of taxes and benefits. This as a result helps ensure that employees’ federal, state, and local income taxes, as well as other applicable taxes, are timely calculated & withheld.
▸ Real-Time Updates
It receives regular updates when there are changes in tax codes or laws and regulations which ensures that the system remains updated with the latest legal requirements, hence minimizing the risk of non-compliance due to outdated tax calculations.
▸ Automated Reporting
It generates reports that are significant for compliance purposes. These reports can be submitted to tax authorities or other governmental departments to comply with the law necessities and avoid legal lawsuits. Some of the reports include payroll tax reports, wage and hour reports, year-end tax statements (e.g., W-2 forms), and more.
▸ Record Keeping & Audit Trail
Payroll management software maintains a detailed record of tax withholdings, payroll transactions, benefits and compensations, deductions,as and employee earnings. This serves a concrete proof or documentation during compliance submission. It is also crucial in the event of auditing by tax authorities or regulatory bodies.
▸ Multi-Jurisdictional Compliance
It can facilitate global business requirements and compliances by handling the complexities of complying with diverse tax codes, labor laws, and other regulatory requirements in different locations. This is beneficial for those businesses that are active globally.
Classifying the salary components
Before we delve further into what HR payroll software is used for, we need to understand the basic factors which affect your payroll and its various components. Understanding these components will help us comprehend what makes it so tedious.
By ensuring on-time, accurate payments, an all-in-one payroll software helps reduce the associated costs and improve the overall efficiency of your payroll management system with an easy to use interface and simplified processing. It is especially useful for small businesses as it saves their time and effort in providing employee salary on time.
As is common knowledge, an employee’s salary is comprised of their earnings, deductions as well as some other components for statutory compliance. However, one needs to understand these components better to really appreciate the efforts put in by the HR department to run payroll processing and distributing them without errors for each salary cycle.
For our understanding, let us simplify your payroll processing components into 3 categories and take a closer look at each of them to understand how it plays into the bigger picture:
➢ Earnings
The ‘Earnings’ section comprises the various amounts which the employee can ‘take home’. The following are the various components that can be categorized under the ‘earnings’ section:
▸ Basic Salary
The ‘Basic Salary’ of an employee is the base pay that is defined by the government. It is the amount that the employee is eligible for before other components are added to it to make it the ‘Gross Salary’. It is recommended that the base pay should be 50% of the total salary of an employee. However, employers often try to keep it as low as possible since the other salary components are a percentage of the basic salary.
▸ Gross Salary
The ‘Gross Salary’ refers to the amount that the employee receives each month before the statutory deductions. It includes all the allowances, bonuses, etc. that the employee is eligible for as well as the deductions, which are removed before paying it to the employee. Basically, as a general rule of thumb,
Basic Salary + Net Salary = Gross Salary
▸ Net Salary
The ‘Net Salary’ is the final amount the employee takes home after all statutory deductions are removed and the additional allowances and bonuses are added. It is the amount that is given to the employee at the end of each salary cycle.
➣ Allowances & Bonuses
The ‘Allowances’ and ‘Bonuses’ refer to the additional payment which the company provides its employee for them to remain with the company as well as for any job well done. It comes in various forms depending on the company and the business the company is involved with.
▸ Dearness Allowance
The Dearness Allowance (DA) is the amount paid to government employees, public sector workers and pensioners in India, Pakistan and Bangladesh to counter the effect of inflation on these employees and is calculated as a percentage of the basic pay.
▸ House Rent Allowance
The House Rent Allowance (HRA) is the amount paid by the employers for paying towards their rent. The employee is exempted from HRA taxes in case they are staying in a rented house. It can be up to 50% of the basic pay for employees staying in Metro cities and 40% for other cities.
▸ Hostel Expenses Allowance
The Hostel Expenses Allowance (HEA) is the amount paid by the employers for paying the employee’s children’s hostel fees. It is exempted from tax until Rs. 300 per month and is applicable for a maximum of 2 children of the employee.
▸ Child Education Allowance
The Child Education Allowance (CEA) is the amount paid by the employers for the school and education-related expenditure of the employee’s children. It is exempted from tax until Rs. 100 per month and is applicable for a maximum of 2 children of the employee.
▸ Travel Allowance
The Travel Allowance (TA) is the amount paid by the employers towards their employee’s daily travel expenditure to and from the workplace. It is also referred to as the ‘Conveyance Allowance’.
▸ Other Allowances
There are various other allowances such as allowances related to owning a car, leave and travel on travelling for business purposes, home furniture allowance, etc. The kind of allowances available for the employee would depend on the kind of company, their business vertical as well as the employee’s position.
➣ Deductions
The ‘Deductions’ section comprises the various components which are deducted from the employee salary to reach the final net salary that is distributed to the employee. These deductions are a result of the different labour laws and it applies to all salaried employees in the country irrespective of their designation and company.
▸ Employees’ Provident Fund
The Employees’ Provident Fund (EPF) is an arrangement by the government to help the employees accumulate wealth and prepare them for retirement. Under the EPF, every employee has to contribute 12% of their basic income to the EPF fund, while the employer also pays the same amount as their contribution to the EPF fund. This fund can be used by the employee in case of any emergencies or can be kept as a fund for enjoying one’s retirement period.
▸ Professional Tax
The Professional Tax (PT) is the tax applied on the incomes of the employees by some states in India. It is deducted from the employees’ salaries and is exempted from their taxable income. The professional tax also depends on the state the employee is working in as well as their income bracket. Hence, the amount varies throughout India. There are some cases in which PT is not deducted. For example, if the employee is physically disabled or if they are a parent of a disabled child, such employees need not pay professional tax.
▸ Tax Deducted at Source
Tax Deducted at Source (TDS) is the tax deducted by the employer before paying the salary and it is later deposited to the income tax department as per section 192 of the Income Tax Act, 1961. TDS can range between 10% to 30% of the employee salary based on the salary slab that they fall under. Also, if the employee’s annual income is below ₹ 2,50,000, then no TDS should be deducted.
▸ Employee State Insurance
The Employee State Insurance (ESI) is another form of a deduction from the employees’ salaries; although in this case, it benefits the employee, as is the case with EPF. ESI is managed by the Employee State Insurance Corporation, an autonomous organization under the Ministry of Labour and Employment. ESI proves useful for the employee as it is a kind of medical insurance and hence, can be used in case of hospitalization.
➣ Statutory Compliances
The ‘Statutory Compliances’ section deals with other credits and debits prescribed by law, which does not belong to the above sections. These are mandatory based on their condition clauses and the employers and employees in India are required to adhere to the same for the smooth functioning of the organization.
▸ Bonus
Bonuses are awarded to those employees who perform exceptionally well. However, these bonuses need to comply with the law. As per the Bonus Act, 1965, an employer is entitled to provide a bonus ranging from 8.33% to 20% of the employee salary, wherein, the said employee’s salary (Basic + DA) should be between ₹ 7,000 and ₹ 21,000 monthly.
▸ Pension
The National Pension Scheme (NPS) is a scheme by the Government of India, wherein the employees and their employer contribute a part of the employee’s salary to their pension account to account for the social security of the individual after their retirement. An added benefit of this scheme is that it is classified as an Exempt- Exempt-Exempt (EEE) scheme, which means that the entire amount is exempt from any kind of tax deductions.
▸ Gratuity
Gratuity refers to the additional payment provided by the company to employees who have stayed with the company for a minimum period of 5 years and is leaving the organization. As per the Payment of Gratuity Act, 1972, the employer is required to pay 15 days of salary for each year the employee has spent in the company as gratuity. Gratuity payments under ₹ 20 lakhs are exempted from taxes for the lifetime of an employee.
What questions should one ask when choosing a payroll solution?
It is crucial as the right system will improve the efficiency of your HR department, while a bad one would vastly increase the time taken in undertaking even simple tasks. Hence, it would be best to ask the right questions before choosing a payroll processing application for your company.
Following are some of the most relevant queries you should ask when choosing a payroll solution:
1) How intuitive is the software to use?
The payroll solution should be easy to use since it is used daily in the organization. Hence, it should be as intuitive as possible to ensure that HRs and individuals from non-technical backgrounds can use it with little to no training. It should also have the customizability to be configured in minutes. It would also be helpful if the software came with an up-to-date user manual which stays abreast of all changes in the system.
2) Is the payroll solution configurable? If yes, how configurable is it?
The payroll solution should be configurable by someone who uses it daily, such as the HR and finance department staff. Hence, it should have easily customizable menus and simplified paths to ensure that the configuration process is intuitive for the user. Simply put, there should not be a need to contact the IT department whenever a change is required in the system’s settings.
3) Does the payroll software consider the statutory requirements of all States of India?
One of the significant features of payroll software is the automation of taxes and other statutory calculations. However, the system should have the necessary compliance information to undertake these calculations. It is especially relevant for a country like India, where different states have different laws and regulations regarding employee payroll.
4) Can the system be integrated with your existing business software?
The payroll system should be easily integrable with your existing business systems. For example, it should be able to automatically fetch the attendance and leave information to process employee payroll. Similarly, it should be able to access the company’s expense management system to understand whether there are any pending arrears.
5) What encryption standards do you use to store the data?
The payroll data is precious for the company as it contains the financial and personal records of the employees. Hence, one must ensure that the payroll system uses enterprise-level encryption standards, including the popular 256-bit encryption standard, to ensure that the data remains safe and secure.
Tips for Smooth Payroll System Implementation
To implement a payroll system smoothly, you can follow the following tips:
➔ Efficient Plan
Develop an implementation plan regarding the process of implementation, overcoming possible adversities or challenges during the implementation, etc.
➔ Effective Communication
“Communication is the key to effective output” so for a smooth implementation of a payroll system, it is essential for you to efficiently communicate your needs, requirements, and preferences with your end users of the system as well as the vendor for availing adequate support.
➔ Data Migration
Ensuring data cleanup before migrating it during implementation is necessary to avoid inconsistencies and mismanagement of sensitive data.
➔ Training and Support
Providing comprehensive training to the end-users of the application is essential for the smooth functioning of the payroll system and to nullify the issues that might arise during the transition from one software to another.
➔ Adequate Evaluation
Conduct testing of the application before its implementation to avoid additional expenses on reinstallation and maintenance.
➔ Compliance Audit
Ensure that your payroll system adheres to local tax regulations, labor laws, and other necessities to keep away from legal lawsuits.
➔ Data Privacy
Prioritize data security during implementation. Implement encryption, access controls, and other security measures to safeguard sensitive payroll information.
➔ Robust Backup Provision
Implement robust backup and recovery mechanisms to recover data in case of loss during migration.
➔ End-User Review
Conduct this user acceptance technique with end-users to validate the payroll system’s efficiency. This will give an insight into the application’s overall performance and effectiveness.
Factors to Consider when Selecting a Payroll System
Selecting the right payroll processing application is crucial for any business as it will not only improve the organization’s efficiency but will also help in managing the workforce by processing their payroll accurately on time. So, it is extremely essential to select a payroll processing application that will not only align with your needs, preferences, and requirements but will serve your needs during transitions. Let us know the factors to consider while selecting a best payroll system in India:
1. Business Size and Requirements
The first factor to consider before settling for a fitting payroll system for your business is to evaluate the requirements of your business workforce and if it suits your company’s size and preferences. Access your complex business payroll system requirements such as multiple locations, diverse employee types, and varying pay structures of business by keeping the size of your business in consideration to choose the best payroll system.
2. Budget and Cost
Business finance is pivotal for the sustainability of any business. So, it is crucial to plan the budget in accordance to avoid wastage of resources and finance. Evaluate the total cost of ownership, including initial setup costs, ongoing fees, and potential hidden costs of payroll management software to get a suitable payroll system in the budget.
3. Compliance with Regulations
Major factors to consider in compliance with regulations include:
ensuring that the payroll system complies with state, central, and federal laws associated with companies and business Acts to avoid legal lawsuits and
To ensure that the payroll system can adapt to changes in laws and regulations to match the fast-evolving organizational needs.
4. Scalability
Consider a payroll system that suits the changing needs of your business and is flexible or customizable per your company’s preferences. This will not only serve the purpose of the payroll management process but will also enhance sustainability in the long run.
5. User-friendly Interface
You need to choose an online payroll system that has a user-friendly interface, to facilitate easy accessibility to the end-users. Not all employees in an organization are tech-savvy, so it is essential to have payroll management software that has a user-friendly interface for seamless use and to reduce the learning curve for employees responsible for payroll processing.
6. Data Security and Protection
Payroll systems handle sensitive and confidential employee information so implementing a secured payroll solution is paramount. Ensure the payroll system has robust encryption and authentication measures and also check for compliance with data protection regulations and industry standards.
7. Customer & Employee Training
An adequate employee training management system on the payroll management software is crucial for its implementation and maintenance. So, ensure that the payroll solution comes up with intuitive navigation and clear instructions as well as proper training to avoid hindrances in its usage and learning.
8. Support and Service
Before setting up a payroll solution ensure that the vendor provides you with adequate support during and after its implementation to avoid discrepancies and possible adversities in the future. A robust support and implementation team is a vital necessity for a payroll processing system as unforeseen challenges or errors can diminish the efficiency and accuracy of an employee payroll system.
9. Vendor Reputation
Take thorough research on the vendors who would provide you with your employee payroll solution. Look for customer reviews, testimonials, and case studies and get into market reputation research of the vendor to ensure the efficiency of the service provider and if it meets your expectations and requirements or not.
10. Integration Capability
Even though the integration feature varies for every business’s needs, yet, if you are the one looking for a seamless integration of HR processes, then you can check if the payroll system can integrate with other business systems, like time and attendance tracking or benefits administration, etc. and accordingly choose your suitable payroll system management software.
FAQs
Payroll and HRMS applications have become a necessity in the modern age. Hence, companies of all sizes have started deploying HR software and payroll systems to stay competitive in the digital world. Even if you are a start-up, you need to deploy a payroll solution or system that provides accurate salary payments for each employee per month. They will also develop trust in your business and remain engaged for longer if you disburse their salaries on time.
Deploying payroll application is one of the options for staying updated with the latest statutory changes. We will keep the software updated with the latest regulatory changes so you can avoid hefty statutory fines, which will be catastrophic of the functioning of a start-up. The employees of your business can be happier with a dedicated employee self-service portal that helps them download their payslips each salary cycle. It will also help them learn more about their payroll and related information.
Irrespective of the company’s size, full-service payroll processing consumes a lot of valuable time. It includes processing massive data such as your employees’ attendance, working hours, various benefits they receive and taxes related to the various payroll components. Additionally, the HRs spend a significant amount of time and effort in cross-verifying the details to ensure the accuracy and integrity of data, even for small businesses.
Automated Payroll will be able to take care of these with precision and efficiency so that you can allocate other tasks to the HR department. Dedicated payroll systems also help ensure that you comply with the latest regulatory laws, thereby avoiding the need to manually update the system for new changes. Since Payroll is an essential part of any company, a dedicated human resource management information system, and it can easily automate it for you.
The New Wage Code is an attempt to simplify the regulation of wages and extend security to the people working in the unorganized sectors. Following are some of the significant reforms:
Changes in Basic Salary per month your basic salary cannot be less than 50% of your CTC. Since most employees have basic salaries with less than 50% of CTC, their salary structure will be revised to comply with the new regulations.
1. Changes in Allowances
To increase employees’ basic salary to 50%, companies will have to decrease the number of allowances provided. Hence, it will result in a lower in-hand salary.
2. Changes in PF Contribution
Since PF is 12% of the basic salary, it will increase when the New Wage Code is implemented. It ensures that the employees will have a higher pension and PF amounts on their retirement.
3. Changes in Gratuity
Under the New Wage Code, employees who have worked for your company for one year are now entitled to receive gratuity instead of the current mandate of 5 years.
Yes, integration is not only possible but is highly significant in contemporary payroll processes as it will enable seamless data flow and communication with other applications. This as a result will enhance the efficiency, accuracy, and effectiveness of productivity.
Integration is pivotal for modern businesses to automate all the repetitive administrative tasks, and streamline the processes for better productivity and efficient functioning. To match the fast-evolving market trends, it is significant for payroll online applications to integrate with another HR system. Payroll systems can be tailored to integrate with other systems depending on the application’s functionality and software proficiency. So, while settling for a payroll system it is essential to evaluate its functionalities and proficiency as per your company’s needs.
Yes, it can be configured and customized for global payroll processing. However, it is accompanied by various challenges such as currency change, different tax regulations, diverse labor laws, and other compliance requirements across various countries.
An efficient payroll managing software can tackle the challenges of global payroll processing, enabling you to manage your operations in multiple countries or regions but it may be expensive for small or mid businesses as the global configuration might require additional features apart from the available ones. Key components that enable it to be globally proficient include:
Currency diversity support
Robust multi-region reports generation capabilities
Automated calculation of taxes across various regions complying with the taxation regulations of various countries
Functionalities to be flexible in grasping different languages, payroll practices, reporting needs, etc.
