A Complete Guide for Payroll Processing in India 

In the business world, it is crucial to process payroll accurately and on time to ensure that employees are properly compensated. This task can be even more challenging in India due to various complexities, such as gross salary, bonuses, leave, and statutory compliance. As a result, it is essential for companies to adhere to all laws and regulations to avoid any issues. severe legal and financial consequences. Likewise, SkizzleHR, a pioneer in the HR technology industry, offers a payroll system to streamline all the payroll processing in India. The intuitive software helps companies define their pay stubs, customize payslips, and comply with all the Indian regulations and laws. 

Payroll Processing in India 

Payroll processing in India requires a lot of detailing due to the combination of a series of other operations. Any mistakes in following it can lead to serious repercussions, for instance, employees getting their salaries late and this scenario might bring the morale of your employees low. Nobody would want a situation like this. Besides, payroll mistakes consume a lot of time to be corrected, therefore, it is crucial that the HR department use a payroll system that will help them streamline their payroll processing.

What is Payroll and How is it Processed in India?

Employers use payroll to calculate and distribute compensation for the efforts and work done by employees for the company. This compensation consists of salaries, wages, bonuses, deductions, certain statutory deductions, and contributions made mandatory by the Indian government. These contributions include income tax, provident fund, and employee insurance (if they have). Payroll processing in India involves several steps to ensure employees receive accurate and timely payments that comply with several legal requirements.

Payroll Processing Components in India

Salary Calculations:

The first step in payroll processing is calculating employees’ gross salaries, including pay, allowances, bonuses, and any other forms of compensation, like, attendance, leave, and overtime.

Deductions:

The salary is calculated based on various deductions, such as income tax, provident fund (PF), employee state insurance (ESI), and professional tax. 

Payout:

This is the actual payroll processing stage in India. The calculated salary after deductions of all the retirals from the gross salary is transferred to the employee’s bank account, through bank transfers, checks, or cash payments, whichever is in compliance with labour laws and company policy.

Post-payroll Processing

Statutory Compliance: A Priority

It is the foremost crucial aspect of payroll processing in India. Some examples of statutory compliance include income tax deductions, where after every payroll cycle, employers are required to deduct the amount that is to be deposited to the Income Tax Department and file accurate and prompt tax returns. Likewise, it is crucial for the HRs to ensure the timely deposit of employer and employee contributions to the Employees Provident Fund Organization (EPFO). ESI contributions are also deducted and deposited on time. Professional tax deductions, if applicable in your state, should be calculated and submitted to the respective state government authorities. Gratuity payments, employers can either create a gratuity fund or purchase gratuity insurance.

Record Keeping: The Backbone of Post-Payroll 

Maintaining accurate records of salary payment, PF, ESI, and other deductions for each employee. The management can feed the reimbursement data directly into the payroll or Enterprise Resource Planning (ERP) system. Next, when paying the salary to employees, companies must ensure they have enough funds in their account and a payslip must be generated that includes employee ID, account details, salary, and deductions. Additionally, if you use the best payroll software in India, you can also publish the payslips so that employees can access them. Using our software, the HRs can view and select a template for the payslip, if they don’t agree with the built-in payslip. 

Reporting: Drive the Payroll Performance 

The last step is to create proper and accurate reports of the payroll processes that contain information, such as department or hierarchy-wise employee salary. These reports can be shared with the finance department to give them the exact idea of the expenses and enable them to make more informed decisions. Besides, the HRs must also ensure reconciling payroll accounts and ensuring compliance with all tax and labour laws and regulations. They must issue tax forms to employees and respond to any payroll-related inquiries and issues from employees. 

Conclusion

Payroll processing in India is a complex process and it is the most critical aspect of a company’s financial management as it includes several steps. Collecting and cross-checking employees’ attendance and leaves, their gross pay, deducting taxes, managing their timesheets, and more can be daunting and are areas where a slight mistake can cause huge problems. The stages of payroll in India can be categorized into three steps, pre-payroll, actual-payroll, and post-payroll processing activities. SkizzleHR, offers a payroll system that enables companies to follow all compliances with local, state, and central regulations. The software also helps businesses to effectively manage their payroll processes while ensuring timely and accurate payments to their employees. 

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