Today, in this blog, we will be discussing about 20 important things related to payroll processing and solutions. This will later help you in processing payroll without error and abide by laws.
Do we really need to understand this? If you are owning a business, payroll processing is one of the most important duties for you. To conclude with payroll is not easy as it may seem to be. Employee information gathering, wage calculation, knowing current laws, taxation, having correct payroll software are some areas where you need to look before committing payroll.
So, before we start with the actual subject, let me ensure we are same page. What is payroll? What comes into your mind after you read the word?
In its simplest, payroll is a process of providing salaries to your employees and part timers based on their worked hours and decided pay. Is it this simple? Calculation of final pay to be paid requires several other data like leaves taken, remining PLs, LOP, loan, any leftovers, compensations, appraisal, and so on.
Not so simple. Right? Don’t worry. There are several options available in order to assist your payroll department. A dedicated payroll software or all-in-1 HRMS software could help you calculate those critical components in seconds leaving no room for errors.
So that now we have learnt a lot in basics about payroll, let’s start with the actual learning i.e. 20 possible instances you may face while processing payroll. Here we go…
To make it easy to understand, we have break down payroll into 5 categories:
- Gathering employee information and timesheet
- Withholdings and taxes
- Employee payments
- Tax filing and IRS reporting
- Compliance management
Gathering employee information
- Bank information
It all starts from onboarding of employees. While collecting basic employee data, you need to be careful about some info like bank account details, branch, etc. Also, you need to know whether they have a salary account or not. A mistake here may lead to 2 months of delayed payment to the employee.
- Self-service portal
An ESS (Employee self-service) portal helps their employees put their basic information by themselves. Such allowance has two benefits for you. First is employee empowerment to allow them to process data on their own which also helps in employee engagement. Whereas, the second benefit is saving efforts and time at HR base.
- Addressing working policies and overtime rules
On the day of joining, it is the prime duty of HR to familiarize their working norms and rules at organisation. Working rules like working shifts, leave management for women and men, and overtime rules impact majorly on employees. Better working schedules and norms can promise better employee retention for the enterprise.
Payroll at the end is directly associated with employee timesheets and attendance throughout the month. A payroll data without timekeeping and monthly attendance data is incomplete. Payroll cannot be processed without knowing worked hours. employee timesheet management is no easy task. Solutions like HRMS software provides best automated data on timesheets and attendance.
- Attendance management software
As discussed earlier, employee attendance data is very crucial for the monthly payroll. Accurate attendance could not be promised through human hands or old traditional methods. Dedicated HR software solutions can bring the best needed data in seconds. Automated data processing based on previously fed parameters helps in processing efficient payroll every month.
- Administrator approval
Once all the payroll data is collected for the month, it requires the final approval of administrator. Payroll data like employee timekeeping and wage calculation is sent to HR administrator and then the call is awaited. Another data needed to process payroll is taxes and withholdings.
With holdings and Taxes
- Gross pay
Gross pay is the total salary amount of an employee without any deductions or tax cut. After payroll gets approved by the payroll administrator or department, salary calculation is done. This involves the gross salary calculation, deductions, reimbursements and net pay.
Popular deductions made in gross income include PF (Employee provident fund), PTax (Professional tax), ESI (medical deductions) and Loan (if any). When the final deductions are made to the gross income, we get the final amount an employee would get in their account.
- Net pay calculation
This is the final pay an employee would get after deducting the necessary parameters like PF and PTax as discussed earlier. Additional deductions into the net pay include LOP/ LD (Loss of pay) or compensation. After all these mandatory calculations and withholdings are attended, we proceed to third phase – Payments!
- Salary slips
Now its time to distribute salary payments to employee base. Pay checks and earning statements are required to be sent to each employee nominated for salary for the month.
- Earning statement
Along with salary slips, you are supposed to provide earning statements to your employees. An informative salary slips, and statement helps you in building better relations with them. These are the two most important provisions post payroll procedure.
- Automated notifications and self-service
Automated tools like HRMS software provides you liberty to automatically process salary slips and detailed statements in employees’ accounts in one click. The self-service portal provides salary slips to employees through the provided login on their mobile phones. Cloud-based HR software lets the HR people work on the go.
Self-service portal along with leave management software makes attendance management easier and fool-proof.
Tax filing & Reporting
- EIN number
The EIN (Employer Identification Number) is a very important number assigned by the IRS to organisations. This is mandatory for all the organisations out there, which are providing employment and salaries. It is required to send payroll reports to the IRS regularly. The IRS uses EIN number to identify businesses while they report.
- IRS reporting
IRS reporting means payroll report submission to the IRS (Indian Revenue Service). This needs to be done by every registered organisation at least quarterly. Payroll reports are used to notify the services about their employment and tax liabilities. You are required to submit reports for both federal and state taxes to remain compliant.
- In case of failing to report
In case if an organisation fails to provide/ submit payroll reports to the IRS service, it owes penalties and fines declared by the body. Even a small mistake or mis – understandings may lead to huge penalties. Mistakes like failing to file taxes are too a serious offence and may owe you penalties starting from 5 percent of the tax amount, up to 25 percent. Yes, it doesn’t go above 25 %.
- Could penalties be waived off?
Not really, but yes! IRS on requests can waive off late tax filing or reports. If organisation requests the IRS service body to waive off the penalties put on them due to missing the deadline, fines could be relieved. But it is the sole responsibility of a business to not fail the date and file tax and provide payroll report on time.
- HR software solution
Until now, payroll processing may seem a very strenuous job for companies. For small business, even a small mistake in payroll procedure may lead to complete end to company’s future. HR software solution lets the HR department of small businesses function easily without a window to error. Payroll processing is no more difficult.
- Employment laws and employee rights
Compliance management is the most important part in payroll for businesses. Compliances like employment laws might drown a company if not followed in proper way. Labour laws are built in support to protect employees and workers during employment. Employee rights in India have 3 parts – RTI (Right to Information), Right to Participate and Right to refuse from any unsafe work. Organisations must be aware of these laws to stand abide by laws.
While managing compliances and data, cloud-security to company data is another important job for the owners. Keeping data safe and back-ups has become a priority task for every business. Keeping employee and payroll data safe and crating back-ups is one important segment in payroll management.
An up to date HRMS software solution is very well equipped of features promising data security and compliant payroll in long run for the business. Adopting an HRMS solution could solve most of the payroll difficult easily.
There were some most important points an organisation must be aware of while committing to payroll management. Here’s an advice to small businesses and start-ups-
Should a small business outsource payroll?
Yes! Due to small workforce and huge list of duties to be performed, there might be chances that you may overlook the importance of a dedicated HR and payroll department, which then leads to mistakes and therefore possible penalties.
Outsourcing payroll brings in few major benefits for you as stated below:
- Responsible payroll team
- And much more…
That’s it for the day. I hope the blog clears your doubts and educates you for a long run. Thanks for reading!
Happy payroll processing!
Ritik Singh writes about HR (Human Resource) software, cloud, and enterprise technology. A dynamic content writer who writes for Pocket HRMS, a leading provider of cloud-based HR software with inbuilt AI-powered HR Chatbot (smHRty) to small and mid-sized businesses across India.