What Is Payroll? A Definitive Guide To Payroll In India

By Kiran Shetty | September 13, 2021

Imagine if the salary is paid inaccurately or there’s a delay in issuing payments. Such irregularities can cause large-scale damage to personnel and further affect business productivity. Albeit ensuring accurate and on-time payment is important, adhering to the legal guidelines and policies including labor law, PF, PT, and other statutory compliance are likewise vital. Non-adherence can lead to severe legal and monetary consequences. To ensure your employees’ satisfaction and you’re law compliant, you need to have the appropriate knowledge about payroll and the way to run payroll effectively. So with this article, let’s understand the entire process of payroll management in India, starting with the basics.

What is Payroll?

Payroll can be described as the procedure to pay an organization’s employees. It consists of amassing the list of personnel to be paid, keeping tabs of working hours, calculating the pay, releasing the salary timely, and documenting the payroll costs. Behind the process, there’s tons of work as payroll involves more than just calculating paychecks. It’s a complex set of procedures that calls for several teams to work in synchronization. However, these types of complexities can be controlled smoothly through the standardization of procedures, choosing the proper service delivery model, and utilizing the latest technology to manage payroll operations.

Important Components of Payroll Structure in India

Every organization in India has a monthly salary disbursement process that consists of many crucial elements structured together to make a salary package. These components are essential for both the company and the employees to evaluate taxes, ESI, benefits, LTA, PF, and so on.

  • CTC – The overall amount spent on the personnel is referred to as the CTC or cost to the company. It is the full salary package of a worker, however, not the take-home salary. CTC comprises of all monthly additives like “Basic Salary,” “Perquisites,” “Allowances”.
  • Gross Salary – Its calculation is carried out by adding up basic salary, allowances, tax, and various It includes overtime pay, bonuses, holiday pay, and more.
  • Net /Take-Home Salary – Following the organization’s HR regulation, the amount evaluated after deducting income tax at source (TDS) and other deductions is called the take-home or net salary.
  • Allowances – Apart from the basic pay, obligatory benefits are provided, that are either fully or partly taxable or exempted from tax. Some of the common allowances are House Rent Allowance (HRA), 40% of basic (non-metros) 50% of basic (metros), Medical, Leave Travel Allowance (LTA), Conveyance, Children education allowances, Dearness Allowance (DA), etc.
  • Prerequisites – These are additional benefits or non-cash advantages that a few personnel revels in due to their official
  • Deductions – In the Indian payroll system, after implementing deductions to the CTC, you obtain the real take-home salary that an employee It includes deductions such as Provident Fund (PF), Employees’ State Insurance (ESI), Labour Welfare Fund, National Pension Scheme (NPS), Professional Tax, etc.

Other Elements of Payroll in India

  • Payslip
  • Form 16
  • Reimbursements
  • Incentive and Bonus
  • Ad-hoc pay
  • Income Tax
  • Employee Investment Declarations
  • Gratuity

What are the Stages of Payroll?

The complete procedure is divided into 3 stages:

  • Pre-Payroll Process
    • Clarifying Payroll Policy – The net payment amount concerns multiple The organization’s several policies including pay policy, departure, and benefits policy, attendance policy, etc. plays the role at that time. As a primary step, such regulations need to be properly described and authorized by the management to make sure of standard payroll processing.
    • Collecting Inputs – In the subsequent step, you are required to accumulate inputs from several departments to ensure precise evaluation of payroll. At first, all those data collections may appear So, to make it smooth, you can adopt a payroll software, that will encompass functions like attendance and departure management, Employee Self Service Portal(ESS), and lots of other features to make it hassle-free.
    • Input Authorization – After receiving the inputs, you need to test the validity of the data regarding adherence to company policy, approval matrix, correct formats, etc. Additionally, you need to make sure that no active worker is neglected and no inactive worker data are involved in payroll processing.
  • Actual Payroll Process
    • Payroll Calculation – The verified input records in this stage are fed into the system for actual payroll processing. The outcome is the net pay after calibrating mandatory taxes and different.
  • Post-Payroll Process
    • Statutory Compliance – Statutory deductions like EPF, TDS, ESI are deducted during payroll processing. The organization then handovers the subsequent amount to the respective government agencies.
    • Payroll Accounting – Each corporation has to hold precise records of accounts, and one of the substantial entries in it is the salary So, throughout the payroll procedure, salary records should be fed into the ERP or accounting system.
    • Payout – Once all the above steps are achieved, you can distribute the pays through cash, cheques, or bank
    • Reporting – Reporting is the ultimate step, wherein you are required to arrange precise reports that incorporate data including department/ location-wise worker cost.

For any corporation, evaluating payroll manually is not easy. It’s a very time-consuming and tiresome job. That is when a payroll solution comes into effect. In a giant country like India, with its numerous state-level regulations and geography, it is vital to have a payroll system in place this is scalable and robust.