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Assignment on payroll management

system
Course title: accounting management
Course code: Act-303

Submitted to:
Repon Miah
Senior lecturer in Accounting
Department of business Administration
Daffodil international university

Submitted by:
Md Mamunur Rashid Shifat
Id: 191-11-837
Section: BBA PC-c
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Payroll management system

What is payroll management system?

A payroll management system is a tool - predominantly

a software program - that enables your business to handle all your
employee's financial records in a hassle-free, automated fashion. This
includes employee's salaries, bonuses, deductions, net pay, and
generation of pay-slips for a specific period. Payroll is a list of employees
who get paid by the company. Payroll also refers to the total amount of
money employer pays to the employees. As a business function, it
involves:

1. Developing organization pay policy including flexible benefits, leave

encashment policy, etc.

2. Defining pay slip components like basic, variable pay, HRA, and LTA

3. Gathering other payroll inputs (e.g., organization’s food vendor may

supply information about the amount to be recovered from the
employees for meals consumed)

4. The actual calculation of gross salary, statutory as well as non-

statutory deductions, and arriving at the net pay

5. Releasing employee salary

6. Depositing dues like TDS, PF, etc. with appropriate authorities and

filing return.
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In short, we can say that payroll process involves arriving at what is due to
the employees also called as ‘net pay’ after adjusting necessary taxes and
other deductions.

The equation for calculating the net pay

Net pay = Gross income- gross deduction

Were,

Gross income or salary = All types of regular income + allowances + any

one-time payment or benefit

Gross deduction = All types of regular deductions + statutory deductions +

any one-time deductions
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What are the Stages to Processing Payroll?

A payroll officer needs to do careful planning. 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.
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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.
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In smaller organizations, these inputs are received from a consolidated source or fewer
teams. However, in a larger organization, the task of gathering data may look
overwhelming. If you are using a smart payroll software having integrated features like
leave and attendance management, employee self-service portal, etc. inputs collection
process does not remain a problem.

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. You also
need to ensure that no active employee is missed out and that no inactive employee
records are included for salary payment.

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.

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/report are filed. E.g., for filing PF
return, ECR is generated and 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
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part of payroll management, it is essential to check that all salary and reimbursement
data is fed accurately into accounting/ERP system.

Payout

You can pay salary by cash, cheque or bank transfer. Typically, organizations provide
employees with salary bank account. Once your complete payroll, you need to ensure
that company’s bank account has sufficient funds to make the salary payment. Then you
need to send a salary bank advice statement to the concerned branch. This statement is
issued with particulars like employee id, bank account number, number of wages, etc. If
you are opting for a payroll software that has employee self-service portal, you can
easily publish the pay slips and employees can log-in to their account and access the
pay slips.

Reporting

Once your complete payroll run for a particular month, finance and high management
team may ask for reports such as department wise employee cost, location wise
employee cost, etc. As a payroll officer, it becomes your responsibility to dig into the
data and extract required information and share the reports.

Statutory Compliance in Indian Payroll

When you run payroll, being statutory compliant means that you 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 you 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.
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Challenges in Handling Payroll Management Process

The payroll process becomes challenging due to two main reasons.

The Requirement to stay Statutory Compliant

As mentioned before, non-adherence to statutory laws can lead to levy of fines and
penalties and in the worst case may even threaten the existence of the business. Today
there are some advanced payroll management software that automatically processes
payroll in compliance with statutory laws.

Dependence on Multiple Payroll Inputs Sources

Before payroll can be processed, you need to get all the data together from sources
such as attendance register, conveyance facility availed record, data from HR team like
salary revision information, etc., making it a complicated process. For many years HR
and payroll officers were managing payroll on excel sheets, but excel sheets have
problems like dependency on excel formulas for salary calculation, complexity in adding
and removing employees and other limitations like manual data entry, difficulty in
extracting information, etc.

Various Methods Available to do Payroll for your

Business
The possible options for running payroll can be

 Excel based payroll management

 Payroll outsourcing
 Using payroll software

Excel based Payroll Management

Many businesses who are at an initial stage of operations and have a handful of
employees usually go for excel based payroll management.

Excel based payroll management involves doing payroll calculation on excel sheets
using standard payroll calculation template. The mathematical formulas are set that help
the payroll officer do the computation. While this method does not involve any cost, but
it has its inherent limitations like
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 High chances of clerical and mathematical errors as data is entered

manually
 Difficulty in adding and removing employees from payroll list
 Chances of duplicate data and omission of entries at times
 Need to monitor tax updates and other statutory changes like PF, PT etc

Payroll Outsourcing

Outsourcing payroll means you want an external agency to take care of your payroll
function. Many organizations who do not have a dedicated person for payroll go for this
option. Based on their pay cycle, every month they provide employee salary information
and other data such as attendance, leaves, reimbursement details, etc. to the payroll
service provider. The service provider then computes payroll and also takes care of
statutory compliance. Since payroll is a crucial function and businesses want to have full
transparency and control over it, they often hesitate in outsourcing payroll.

Payroll Software

As discussed above, for running successful payroll, you need to ensure that payroll
inputs are coming from every source in a timely and seamless manner. The intent of
using software is to reduce the friction in getting the inputs. There are advanced payroll
management software available in the market that not only automates payroll
computation but also serve as a holistic leave and attendance management, HR
management and employee self-service portal. Depending on the size of your business
and use cases you can opt for an appropriate payroll software for your business.

Best Payroll Software for your Organization

The move from manual payroll system to automated one can save a lot of time. It not
only helps in faster and accurate payroll processing but also keeps the employees,
management and regulatory bodies happy.

There are some features that you should consider while selecting a payroll software.

Ease of Operation
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Payroll function can be very cumbersome. You should opt for a system which has
comprehensive but straightforward workflows. If the software is intuitive, it reduces the
need for software training and guidance. Also, make sure that the software provider is
providing well-updated documentation so that you can access the information anytime
as you may need.

Scalability

As organization size increases your software also need to serve you appropriately. The
limitation can be in terms of employees data it process or in terms of the availability of
features like leave and attendance management, reimbursement model, etc. The
software offerings should be such that you can opt for advanced features at a
reasonable price without much difficulty.

Employee Self-Service Module

One of the primary payroll input providers is the employee. He provides information
such as income tax saving investment declaration, type of flexible benefit opted, etc. The
interaction between the payroll officer and employee is usually very event-based. To
understand the significance of ESS module let’s assume a case of income tax declaration
in two scenarios:
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So, we saw how a simple tool like employee self-service portal can

reduce the manual intervention and automate payroll data collection
for accurate tax computation.

Integration with Time, Attendance and Leave Management System

Time Management

Typically this module is used to track time spent on projects or specific activities.
Consulting firms such as audit firms, specialist doctors, etc., who manage critical projects
require a robust time management module for tracking time and at times this data may
also be used for billing clients.

Attendance

While most small organization go for manual attendance system, medium and large
organizations have started using smart automated tools such as biometric method,
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auto-tracking via system log-in, access cards, iris capture, etc. The data is stored in a
system and linked to the payroll software that uses this data to calculate attendance
days, overtime, etc. For seamless payroll processing, check that software
supports attendance management and is configurable with access control machines.

Leave Management

In every organization, employees are entitled to take a certain number of leaves such as
privilege or annual leave, casual leave, sick leave, holiday, etc.

If the software has leave management feature, HR can directly credit these leaves to the
account of every eligible employee. As and when required, the employee can apply for
leave through the system. A good system should also be able to define a workflow to
notify the employee’s manager for either approval or rejection. A robust payroll
software with built-in leave management feature can help attain accurate payroll.

Integration with the Accounting System

Your accounting/ERP system needs to record every financial transaction including

payroll information like department wise employee cost, individual payroll components
like reimbursements, tax due and paid, etc. Some payroll software have integration with
accounting software via API( a way to push data directly from one software to another).

In the absence of such integration, the payroll officer needs to provide all transaction
details to accounts department. The accountant then manually posts it in the form of
journal entries in accounting/ERP software like Tally ERP, SAP, Quickbooks, etc. These
integrations can help finance and payroll team work together and avoid any manual
entry of data.

Cloud-Based Software over On-Premise Solutions

The payroll management automation space is transforming rapidly. The on-premise
software solutions have become obsolete and businesses are going for cloud-based
solutions due to their advantages.

Ability to Access the Data at Any Time and From Anywhere

If you use a cloud software, you do not need to be present in your office to be able to
access your payroll data and employee data. You can login from anywhere at any time
just like Gmail.
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The Advantage over the Inherent Limitations of On-Premise Systems

The on-premise systems have their limitations like threat of data loss by fire, flood, etc.
Also, the setup cost of these systems is huge and comes with an initial operation limit.
Often the annual maintenance cost is quite high. Whereas, the cloud solutions are built
on such technology, so you can always opt for an upgraded plan that supports higher
level of operations at any time. Since cloud solutions have data center at multiple
locations, even during incidences of fire, flood, etc. your data remains safe.