PAYROLL COMPLIANCE: A GUIDE FOR YOUR HR

Payroll is the procedure for paying employees in a business. It entails gathering the list of employees who need to be paid, keeping track of the hours worked, figuring out each employee’s compensation, promptly disbursing the payment, and monitoring payroll costs. There is a tonne of background work required to complete these because payroll involves more than just calculating paychecks. It’s a complex process that necessitates collaboration amongst several teams.

Every company aspires to run its business as effectively as possible. However, mistakes do happen and can have negative effects. SMEs typically use spreadsheets to conduct payroll or contract it out to a professional because they have fewer employees than huge corporations. These payroll processing techniques are quite prone to mistakes.

Employee morale may suffer and productivity may be hindered by mistakes made in the processing and execution of wages. Maintaining legislative compliances is as crucial to making sure computations are accurate and completed on time. Businesses need a deeper grasp of the entire process to guarantee compliance and employee satisfaction with the payroll process.

PAYROLL COMPLIANCE

The legal framework to which businesses or organisations must conform with regard to the handling of their workers or employees is known in India as payroll compliance or statutory compliance. The majority of the company’s resources—time and money—are dedicated to ensuring compliance with these rules. Everything from health care benefits to provident funds to minimum wage these compliance requires not only a lot of time, but also professionals who can offer guidance on all of these compliance procedures. As a result, organisations dealing with compliances must be knowledgeable of India’s many labour laws and regulations.

Employers who breach any of these regulations may be subject to penalties that could hurt their financial situation or even force them out of business. But if they can figure out these compliances, they can help keep employees happy and stay out of tax trouble. After all, receiving safe, accurate, and timely payment for their work is crucial for both the employees’ and their families’ daily survival.

Here is where an efficient HR plays an important role. HR/Human Resource manager acts as an expert to these law. At Salahkar, we hire professional HR with upmost skills and efficiency who can manage these important functions in a firm.

It’s more difficult than it seems to comply with payroll laws in India. This is due to the fact that there are numerous components, including Form-16, CTC, gross and net salaries, HRA, TA, DA, EPF, and professional taxes. With so many parts, it is simple to overlook small nuances and fail to comply, which is a circumstance that must be avoided.

This blog is written by us to assist you in adhering to Indian labour regulations and avoiding possible penalties. The fundamentals of these compliances in India, significant components of the Indian salary system, and payroll processing procedures will all be covered in this handbook.

IMPORTANT COMPONENTS OR ELEMENTS OF PAYROLL  IN INDIA

Payroll includes a lot of components that a HR has to take care of at the time of payment. All the elements are listed below. So lets understand all components one by one.

1} CTC OR COST TO COMPANY

Cost To Company, or CTC. the entire annual expense incurred by a corporation for each employee. The employee’s monthly wage and other benefits are actually a cost to the business. When making an employment offer, private Indian enterprises frequently refer to a CTC package. All financial and non-financial expenditures on an employee are included in CTC.

CTC = Direct Benefits + Indirect Benefits + Savings Contributions

Ctc includes basic pay, dearness allowance, house rent allowance, medical allowance, conveyance allowance, incentives or bonus( generally give on diwali in india), leave allowance, vehical allowance, mobile allowance, special allowance, travelling allowance etc.

2} GROSS SALARY

Gross Salary is the monthly or yearly salary before any deductions are made from it. A gross salary is a gratuity and EPF (employee provident fund) subtracted from the cost to the company. Basically salary without tax deduction is gross salary.

3} NET SALARY

Net salary refers to the amount received after tax is deducted from gross salary. It is the amount that an employee takes home. Mainly income tax is deducted from gross salary to find net salary. So, net salary is always less than gross salary.

4} ALLOWANCES

In India, employers are required to provide a number of benefits to workers in addition to their base pay. These advantages are either completely exempt from taxation or fully/partially taxable.

5} DEDUCTIONS

Ensuring these compliance in India requires deducting a part of salary for EPF or employee provident fund, professional tax, gratuity.

HOW TO CALCULATE PAYROLL IN INDIA

Net Salary= Gross Salary – Gross Deduction

Where,

Gross salary is calculated as- Basic salary + house rent allowance (HRA) + reimbursements + arrears + bonus

Gross deduction is calculated as- Professional tax + public provident fund (PPF) + income tax + gratuity + insurance + leave adjustments + loan repayments (if any)

LEVELS OF PAYROLL IN INDIA

In India payroll can be easily classified into 3 levels. All the levels have its own importance and should be followed in an order. All the stages are listed below-

1} PRE PAYROLL ACTIVITIES

These activities have to be followed before the payment of salary.

It has two activities included-

# SETTING FORTH PAYROLL POLICY

The net amount due to employees depends on a variety of factors, as was previously mentioned. The amount of compensation an employee receives, for instance, is determined by your company’s pay policy, benefits, attendance, etc.To maintain consistent payroll processing, you must define and obtain management approval for the payroll policy. It is a once-off procedure .

# COLLECTING DATA FROM VARIOUS DEPARTMENTS

If you want to calculate payroll without any mistake, then you have to gather all information other departments. It can be salary structure, leave records, payments and deductions, facilities availed, income tax declaration, arrears, payroll settlement terms etc.

2} PAYROLL PROCESS

Now you have all the data. Now you can easily calculate employee’s salary. We have mentioned the formula above. After calculating the salary, pay it in the bank account. It should be done on time, as it may lead to problems for some employees.

Always take care of all the elements that plays a vital role in the payment. This includes salary components and structure, statutory compliance, financial elements such as HRA, tax on bonus, changes made in tax (which is made every year in the budget that is announced by the finance minister of the country), loans facility, freezing the salary by finalizing the payroll etc. well the firm and its managers to check the amounts properly as if incorrect, tax department can impose heavy penalties.

3} POST PAYROLL ACTIVITIES

Activities after payroll are also time-consuming. It contains-

Statutory Compliance: Deductions like professional tax, EPF, TDS, ESI, etc., should be reported and remitted to the respective government agencies.

Payroll Accounting: You need to keep records of salaries paid, including the entire salary structure (that indicates the net pay and deductions). These records must be preserved for a period of three years after the date of the last entry made therein.

Payslip: You must send a payslip to employees after payout. The salary slip should include details like their take-home salary and deductions.

TYPES OF LEAVES IN INIDAN PAYROLL SYSTEM

Employees are entitled for 4 types of leaves. These are other than the national holidays or employer granted holidays. If any employee demands these leaves, employer has to provide it, if not be ready for the penalty. Leaves are listed below-

1) CASUAL LEAVE: Workers are permitted to take unpaid time off for personal reasons, including travel, rest, vacation, and family events. Depending on the state and the company, an employee may be granted a certain amount of casual leaves. However, each employee is entitled to a minimum of 15 unpaid days off each year.

2) SICK LEAVE: It enables workers to take time off when they’re ill. While the number of sick days offered varies by company, most businesses provide 7 to 10 days of sick time annually. A HR or manager should ask about the employee if he/she is sick, this develops feeling of togetherness in an employee and he/she once recovered, will work with greatest efficiency.

3) MATERNITY LEAVE: The Maternity Bill of 2017 allows for eight weeks of paid leave prior to delivery and an additional 18 weeks after giving birth.

4) COMP TIME: It is provided to workers who put in extra time on non-working days (e.g., national holidays or Sundays). An employer has to pay double salary or overtime to its employees.

LAWS TO REMEMBER

Social Security

• The Employee Provident Fund Act, 1952- EPF is a welfare programme implemented to guarantee employees a better future. It is a legal benefit that employees can take advantage of after retirement or after leaving the workforce. Employees who pass away will be able to collect benefits on behalf of their dependents. Employers and employees are required to contribute to the Fund under the Employees’ Provident Fund Scheme (EPF Scheme). If certain requirements are met, interest generated on the sum is added to the member’s Provident Fund Account (PF account) and made accessible to the employee upon retirement or termination of work, as applicable.

• The Labor (Labour) Welfare Fund Act, 1965- Aid for individuals in need might come in the form of money or basic supplies. In order to enhance labourers’ working conditions, offer social security, and elevate their standard of living, it provides amenities for them. To support the aforementioned claim, several state legislatures have passed the Labour Wellbeing Fund Act, an Act that is solely concerned with the welfare of workers. The Labour Welfare Fund Act includes a number of the services, advantages, and facilities that the employer provides to the employee. These amenities are provided through contributions from both the company and the employee. The rate of contribution, however, may vary from one state to another.

The Employees State Insurance Act, 1948- The Employees’ State Insurance Act contains a number of sections that cover insurance and medical benefits for any workers employed by factories that are members of the ESI Corporation. From a legal and employee viewpoint, the start of an official social security scheme in India is an intriguing possibility.

• The Payment of Gratuity Act, 1972- Employers are required by the Payment of Gratuity Act of 1972 to provide their staff gratuities as a way of saying thank you for everything that they do for the business. After retirement, it is a financial incentive given to workers who worked in mines, industries, plantations, oil fields, ports, etc.

Wages

• The Payment of Wages Act, 1936- The Payment of Wages Act, 1936 governs how employees are paid their wages (direct and indirect). The statute is meant to be a remedy against erroneous deductions made by the employer and/or erroneous salary payment delays.

• The Minimum Wages Act, 1948– In accordance with Indian labour legislation, the Minimum Wages Act of 1948 establishes the minimum wages that must be provided to both skilled and unskilled labourers.

• The Payment of Bonus Act, 1965- The purpose and objects of THE PAYMENT OF BONUS ACT, 1965 The primary goal of the Payment of Bonus Act of 1965 is to preserve harmony and peace between labour and capital by allowing employees to benefit from the success of the institution and by establishing minimum and maximum bonus rates as well as the “Set on” and “Set off” schemes. The right of the workforce to participate in the establishment’s profits is protected by this Act.

• The Equal Remuneration Act, 1976- The main goal of the Equal Remuneration Act of 1976 is to ensure that men and women receive compensation on an equal basis. This act is put into effect to prevent discrimination against women and to treat women fairly and justly. Basically deals with “equality”.