FAQ

There are always ongoing tasks that need attention and a constant need to monitor changes to withholdings, contribution to social security funds, etc. The entire process can be split into three stages, pre-payroll, actual payroll and post payroll activities.

1. Pre-payroll activities

Defining payroll policy

The net amount to be paid is affected by multiple factors. The company's various policies such as pay policy, leave and benefits policy, attendance policy, etc. come into play at that time. As a first step, such policies need to be well defined and get approved by the management to ensure standard payroll processing.

Gathering inputs

Payroll process involves interacting with multiple departments and personnel. There can be information like mid-year salary revision data, attendance data, etc.

Input validation

Once inputs are received, you need to check for validity of the data concerning adherence to company policy, authorization/approval matrix, right formats, etc. Organization also needs to ensure that no active employee is missed out and that no inactive employee records are included for salary payment.

2. Actual payroll process

Payroll calculation

At this stage, the validated input data is fed into the payroll system for actual payroll processing. The result is the net pay after adjusting necessary taxes and other deductions. Once payroll process is over, it is always a good practice to reconcile the values and verify for accuracy to avoid any errors.

3. Post-payroll process

Statutory compliance

All statutory deductions like EPF, TDS, ESI are deducted at the time of processing payroll. The company then remits the amount to the respective government agencies. The frequency can vary depending on the type of the dues. In most cases, payment of dues is made via challans. After all dues are paid, return/reports are filed.

Payroll accounting

Every organization keeps a record of all its financial transactions. Salary paid is one of the significant operating costs which has to be reported in the books of accounts. As part of payroll management, it is essential to check that all salary and reimbursement data is fed accurately into accounting/ERP system.

Payout

Organization can pay salary by cheque or bank transfer. Typically organizations provide employees with salary bank account. Once organization completes payroll, they need to send a salary bank advice statement to the concerned branch. This statement is issued with particulars like employee id, bank account number, amount of wages, etc. If they have opted for employee self-service portal, can easily publish the payslips and employees can log-in to their account and access the payslips.

Statutory compliance in Indian payroll

When organization run payroll, being statutory compliant means that they are paying as per the applicable employment norms set by the central and state legislation. The common statutory requirements that apply to Indian businesses include the provision for minimum wages, payment of overtime wages to workers, TDS deduction, contribution to social security schemes such as PF, ESI, etc. While computing salary organization need to consider all these deductions and contributions. Income tax is one such deduction. At the beginning of the year, the employee is asked to make a declaration about his additional incomes, tax saving investments, etc. called as ‘income tax declaration.’ Accordingly, employee’s tax liability is calculated, and TDS is deducted. The TDS is then deposited monthly with the government, and a quarterly report of all deductions is also filed. Once TDS returns for the fourth quarter is completed, Form-16 can be issued to employees. The employees use this Form-16 as proof of tax deducted at the time of filing their individual income tax return.

Non-adherence with the statutory law can lead to hefty fines and penalties. That is why it is necessary to be up to date on all tax and payroll statutory changes.

Statutory Compliance means adhering to rules and regulations. Statutory Compliance in HR refers to the legal framework that an organization should adhere to in dealing with its employees.

Why is it important?

Almost every company faces a worrying number of potential legal issues relating to compliance. However, it may never be a company's intent to break these laws, but without necessary protection, it may easily slip through the cracks.

Every country has its own set of state and central labor laws that companies need to comply with. Dealing with statutory compliance requires companies to be updated on all the regulations in their country. It is also mandatory for companies to adhere to them. Non-compliance with these regulations can cause a company a lot of legal trouble such as penalties and fines. That is why every company invests a huge amount of money, effort and time to meet compliance requirements and seeks advice from the experts.

In order to manage with demanding regulatory environment, every company needs to formulate efficient ways to maintain compliance and minimize risks.

Is it different for organization?

Statutory compliance for a partnership firm, private limited company, LLP, or any type of company does not change. Every organization that hires employees and pays salaries must comply with the labour laws.

The advantage of statutory compliance to organizations:

1. Avoids penalty or fines because of their timely payments
2. Protects the organization from unreasonable wage or benefit demands from trade unions or aggressive employees.
3. Prevents legal troubles as the company is fully compliant
4. Mitigates risks and increases awareness about compliance
5. With compliance in place, there is a lower risk of an adverse incident

If a company does not conform to rules and regulations it will risk:

1. Penal actions and financial losses to the organization
2. Loss of reputation and business integrity
3. Customer loyalty will be impacted severely