Payroll Software is a cloud-based solution that integrates, manages and automates the payroll process in an organization. It Is responsible for handling compliances, calculating payroll, disbursing employee salaries, generating payslips, maintaining the security and integrity of the database and more.
With so many advanced features, modern payroll and management software for businesses will help you with anything and everything related to salary management.
So, let us take a look at some of the features which make having the best payroll software such an incredible tool to use for any HR and small businesses:
A good software development team would understand that payroll software cannot be complete without a fully structured updated statutory compliant module. Hence, it needs to be built from the ground up to be easily updated as per the changes in the regulatory laws. This ensures that your payroll is always updated as per the latest changes and any kind of new updates can be easily incorporated.
With highly secure encryption standards available in modern payroll system, you can be assured that your employees’ data is in safe hands. In practice, your employees’ data is encrypted whenever it is stored in the cloud and decrypted whenever the user retrieves it. However, this process should be completely transparent to the user, which would ensure that anyone with the right credentials can access the data and use it even if they are not tech-savvy.
Having a dedicated mobile app is necessary nowadays due to the advancement of mobile internet technology and the ever-growing use of smartphones for internet usage. It also assures that your employees can be connected with you anytime, from anywhere. That is why most modern payroll software has dedicated apps for accessing their data remotely as well as staying connected with timely updates and notifications.
Employee self-service allows you to provide your employees and managers with any pertaining information at any time and using any internet-enabled device. This makes it easy to keep them engaged while also being transparent with them regarding their payroll, attendance, leaves, etc. They can also retrieve the same information at their fingertips with the aforementioned mobile app. Employee self-service has become a necessary requirement for the most advanced HR payroll management software.
No two organizations are the same and hence they would have different expectations and requirements from their payroll software. Hence, it is ideal to have a payroll system as it helps in scaling it as per your requirements while also ensuring that the modules can work independently. It is also beneficial to check for integrations with other commonly used applications so that you can seamlessly transfer data between them.
It is beneficial if your payroll management system can showcase real-time insights using meaningful graphs to help you visualize the current scenario. You can act on those insights and take corrective measures just in time to ensure that your company remains running smoothly before any small issue balloons up. Along with this feature, creating custom reports is a necessity for any payroll solution and needless to say, modern payroll management systems have versatile report generation modules.
Having an HR chatbot on your phone is like having dedicated HR personnel at your disposal. You can communicate with it in normal language and it would use AI to understand your query and provide accurate relevant results. This feature helps redirect the common employee queries to the chatbot, thus saving HR from repeatedly answering the same doubts and queries, which eats up almost 40% of their usual working hours.
Let’s face it! It is the 21st century and going digital is more of a necessity than a luxury. However, it is a sad reality that even today, there are companies that are still using physical paper to run payroll related activities. Along with wasting the precious resources of the planet, this is also making the office look cluttered. Modern offices should be a minimal space where things are arranged aesthetically, which helps the brain function well and having a paperless office sure helps a lot.
Based on what we have discussed until now, it is clear that payroll management is a complex process. It involves various departments and a huge amount of data manipulation. Similarly, due to its complexity, errors can creep in easily and being a repetitive process, it also becomes fairly monotonous.
Hence, it is suggested to implement a good online payroll software as it has multiple advantages over manual payroll processing. A cloud-based payroll system can transform your entire payroll management strategy right from the way the finances are handled to the way the reports are visualized, while also being much more efficient than the manual payroll and compliance method. Modern payroll software even takes the help of predictive analysis of artificial intelligence to analyse and predict various patterns of your payroll and employee behaviour, such as leave trends, the likelihood of attritions, etc. which can be acted upon to minimize their effects on the business.
So, let us take a closer look at the ways that a payroll software for your company can be deployed:
Cloud-based payroll software is ideal in cases where you require a ‘set it and forget it’ approach. In this online payroll system, you simply use the services provided by an online cloud-based payroll processing system and pay for the same using a subscription model. In this case, it becomes very easy to update it as well as add and remove users since the entire software and hardware maintenance is undertaken by the software vendor. The end-user will also be able to access it anywhere using any smart device as the only requirement is an internet browser. One need not be concerned about data theft too with the added security of high-level encryption available in online payroll software.
On-premise payroll software is used in cases wherein the company is concerned more about the data being handled, such as the BFSI sector, FMCG, E-commerce, government undertakings, etc. In these business verticals, people are still apprehensive about the security provided by the internet-based software deployment models and hence, they prefer having an in-house server. The software is developed in-house and deployed on the server. As a result, the company needs to maintain both software and the hardware and hence, the associated payroll processing costs are also borne by the company itself.
If a company needs to fully remove the burden of handling the payroll woes, they outsource it to the best payroll system provider. This payroll systems provider will handle all relevant tasks associated with payroll processing for a pre-defined fees, while the company is free to allocate its resources to its core business tasks. In this scenario, the company is giving the service provider full access to the employee data and hence, they need to choose a software solution provider wisely. In this case, the company is least bothered about whether the service provider is using dedicated software or whether the payroll is managed manually. Their sole concern would be smooth and timely salary disbursement with zero errors and the safety of their employee database.
Now that we have understood the several features of payroll software, let us take a look at the benefits that deploying an efficient payroll management system will have on your company:
Utilizing a SaaS software model allows you to access it anywhere anytime using any browser on any platform. A software based on cloud architecture is developed considering the different ways we interact with our digital life and hence, it does not matter which device you are using, as long as it has an internet browser and internet connectivity, you are good to go.
With most of the HR and payroll-related tasks automated, HR will be able to spend their valuable working hours developing employee engagement programs while the HR and payroll software does the heavy lifting. It also helps save money by lowering the costs associated with record-keeping, payslip generation and distribution, etc. as well as eliminating the additional costs incurred due to incorrect calculations. You can also remain at ease knowing that the latest statutory compliances are updated as soon as they are implemented. This saves a lot of paperwork and hassle usually seen around the implementation of such laws. Similarly, the calculations which used to take days and even weeks can be completed within a day owing to the automated calculations done by the software.
The statutory compliances have had an impact on the calculation of employee payroll since the advent of employment laws. There are lots of different legislations to be considered while deciding payroll of an employee. On one hand, it needs to be cost-effective for the company while on the other, it has to be highly competitive in the job market for recruiting talented employees. In this scenario, good payroll software will be able to showcase the projected salary figures for new designations. Moreover, any changes in the existing statutory laws can be easily implemented by simply updating it once in the system as the same will be reflected elsewhere.
The payroll software helps in keeping an accurate track of the employee attendance and working hours as their payroll is calculated based on the same. Modern payroll solutions even take the help of smartphones in ensuring that the employee is at the required location using GPS and cameras. This kind of system ensures that you have precise attendance data of your staff and calculate payrolls down to the minute. Moreover, it can also be used to track the exact overtime data as well as late comings, which makes it highly compelling for jobs where the clock-in and clock-out timings are not fixed.
Employee wages disbursement is another feature of payroll software that makes it highly efficient. The employees would be able to choose whether they would like their wages deposited into their bank accounts or use payment cards or have cheques issued. Similarly, the payroll and HR software can be configured to be more transparent by sending the payslips to every employee’s registered email ID.
Before we delve further into what HR payroll software is used for, we need to understand the basic factors which affect your payroll and its various components. Understanding these components will help us comprehend what makes it so tedious.
By ensuring on-time, accurate payments, an all-in-one payroll software helps reduce the associated costs and improve the overall efficiency of your payroll management system with an easy to use interface and simplified processing. It is especially useful for small businesses as it saves their time and effort in providing employee salary on time.
As is common knowledge, an employee’s salary is comprised of their earnings, deductions as well as some other components for statutory compliance. However, one needs to understand these components better to really appreciate the efforts put in by the HR department to run payroll processing and distributing them without errors for each salary cycle.
For our understanding, let us simplify your payroll processing components into 3 categories and take a closer look at each of them to understand how it plays into the bigger picture:
The ‘Earnings’ section comprises the various amounts which the employee can ‘take home’. The following are the various components that can be categorized under the ‘earnings’ section:
The ‘Basic Salary’ of an employee is the base pay that is defined by the government. It is the amount that the employee is eligible for before other components are added to it to make it the ‘Gross Salary’. It is recommended that the base pay should be 50% of the total salary of an employee. However, employers often try to keep it as low as possible since the other salary components are a percentage of the basic salary.
The ‘Net Salary’ is the final amount the employee takes home after all statutory deductions are removed and the additional allowances and bonuses are added. It is the amount that is given to the employee at the end of each salary cycle.
The ‘Gross Salary’ refers to the amount that the employee receives each month before the statutory deductions. It includes all the allowances, bonuses, etc. that the employee is eligible for as well as the deductions, which are removed before paying it to the employee. Basically, as a general rule of thumb,
Basic Salary + Net Salary = Gross Salary
The ‘Allowances’ and ‘Bonuses’ refer to the additional payment which the company provides its employee for them to remain with the company as well as for any job well done. It comes in various forms depending on the company and the business the company is involved with.
The Dearness Allowance (DA) is the amount paid to government employees, public sector workers and pensioners in India, Pakistan and Bangladesh to counter the effect of inflation on these employees and is calculated as a percentage of the basic pay.
The House Rent Allowance (HRA) is the amount paid by the employers for paying towards their rent. The employee is exempted from HRA taxes in case they are staying in a rented house. It can be up to 50% of the basic pay for employees staying in Metro cities and 40% for other cities.
The Hostel Expenses Allowance (HEA) is the amount paid by the employers for paying the employee’s children’s hostel fees. It is exempted from tax until Rs. 300 per month and is applicable for a maximum of 2 children of the employee.
The Child Education Allowance (CEA) is the amount paid by the employers for the school and education-related expenditure of the employee’s children. It is exempted from tax until Rs. 100 per month and is applicable for a maximum of 2 children of the employee.
The Travel Allowance (TA) is the amount paid by the employers towards their employee’s daily travel expenditure to and from the workplace. It is also referred to as the ‘Conveyance Allowance’.
There are various other allowances such as allowances related to owning a car, leave and travel on travelling for business purposes, home furniture allowance, etc. The kind of allowances available for the employee would depend on the kind of company, their business vertical as well as the employee’s position.
The ‘Deductions’ section comprises the various components which are deducted from the employee salary to reach the final net salary that is distributed to the employee. These deductions are a result of the different labour laws and it applies to all salaried employees in the country irrespective of their designation and company.
The Employees’ Provident Fund (EPF) is an arrangement by the government to help the employees accumulate wealth and prepare them for retirement. Under the EPF, every employee has to contribute 12% of their basic income to the EPF fund, while the employer also pays the same amount as their contribution to the EPF fund. This fund can be used by the employee in case of any emergencies or can be kept as a fund for enjoying one’s retirement period.
The Professional Tax (PT) is the tax applied on the incomes of the employees by some states in India. It is deducted from the employees’ salaries and is exempted from their taxable income. The professional tax also depends on the state the employee is working in as well as their income bracket. Hence, the amount varies throughout India. There are some cases in which PT is not deducted. For example, if the employee is physically disabled or if they are a parent of a disabled child, such employees need not pay professional tax.
Tax Deducted at Source (TDS) is the tax deducted by the employer before paying the salary and it is later deposited to the income tax department as per section 192 of the Income Tax Act, 1961. TDS can range between 10% to 30% of the employee salary based on the salary slab that they fall under. Also, if the employee’s annual income is below ₹ 2,50,000, then no TDS should be deducted.
The Employee State Insurance (ESI) is another form of a deduction from the employees’ salaries; although in this case, it benefits the employee, as is the case with EPF. ESI is managed by the Employee State Insurance Corporation, an autonomous organization under the Ministry of Labour and Employment. ESI proves useful for the employee as it is a kind of medical insurance and hence, can be used in case of hospitalization.
The ‘Statutory Compliances’ section deals with other credits and debits prescribed by law, which does not belong to the above sections. These are mandatory based on their condition clauses and the employers and employees in India are required to adhere to the same for the smooth functioning of the organization.
Bonuses are awarded to those employees who perform exceptionally well. However, these bonuses need to comply with the law. As per the Bonus Act, 1965, an employer is entitled to provide a bonus ranging from 8.33% to 20% of the employee salary, wherein, the said employee’s salary (Basic + DA) should be between ₹ 7,000 and ₹ 21,000 monthly.
The National Pension Scheme (NPS) is a scheme by the Government of India, wherein the employees and their employer contribute a part of the employee’s salary to their pension account to account for the social security of the individual after their retirement. An added benefit of this scheme is that it is classified as an Exempt- Exempt-Exempt (EEE) scheme, which means that the entire amount is exempt from any kind of tax deductions.
Gratuity refers to the additional payment provided by the company to employees who have stayed with the company for a minimum period of 5 years and is leaving the organization. As per the Payment of Gratuity Act, 1972, the employer is required to pay 15 days of salary for each year the employee has spent in the company as gratuity. Gratuity payments under ₹ 20 lakhs are exempted from taxes for the lifetime of an employee.
Now that we have understood the various components in the payroll, let us understand the process of its calculation, how it becomes statutory compliant, as well as how is it distributed and finally, how it is accounted for and recorded for bookkeeping purposes.
In this section, we will take a look at the various steps involved with calculating the payroll and verifying it.
The first step of collecting data is the most crucial one since the subsequent steps depend solely on the data collected during this step. Hence, it is very much imperative that the gathered data is accurate.
However, it is easier said than done since it involves collaborating with other departments. In the case of MNCs with a huge number of employees, it becomes a daunting task and this is where a dedicated payroll software helps a lot. It would be ideal to have an HRMS in these situations as it would have attendance and payroll as modules and hence, there would not be a need to pester anyone for the data. Having dedicated software also helps in avoiding data inconsistency as well as removing any errors.
Various parameters need to be collected for arriving at the payroll amount. Some of them are:
Once the data is collected, one needs to ensure that it is precise and devoid of any kind of errors. It also needs to be verified by cross-checking it with the statutory policies and the supporting documents, such as reimbursement proofs, investment declarations, etc.
Similarly, while verifying the data, it is required to take into account the newly joined staff members as well as those that are leaving the organization. One needs to adjust the payment details accordingly and ensure that both of these kinds of staff are being paid accurately with all the required components.
In this section, we will take a look at the various tasks which are undertaken to run payroll and distribute it.
Payroll calculation is the process of calculating the final payroll amount that the employee is eligible to receive in the current salary cycle, based on the data collected. This process will be accurate only if the collected data is error-free. After considering all the components of the salary such as base salary, EPF, ESI, PT, IT, bonuses, etc. the final gross amount is calculated.
This is where all the deductions and additions occur and the net pay amount is finally calculated. Based on the employee’s tenure, designation, business vertical as well as the state the company is situated in, there are various taxes and other deductions such as EPF, PT, etc. which needs to be subtracted from the employee’s salary and the final net pay figure is calculated.
Based on the steps until now, the payslip is generated which proves to be a blueprint for that salary cycle’s pay-out. The employee gets an accurate picture of their salary structure by looking at the payslip and hence, it is a very vital part of the whole salary process. Payslips also help the employee understand specifically where the deductions have been made as well as understand whether any extra payments have been made for overtime, extra work, etc.
This is the best part of the entire process since it is where the salary is distributed to the employees. The pay-out has to be timely and accurate and it helps the employees remain loyal and engaged with the company. Different companies have different pay-out systems in place, with crediting to the employee’s bank account being one of the most common forms of salary disbursement. The other common methods include issuing cheques, paying with Demand Drafts (DD) as well as paying with cash in an envelope.
The following activities are undertaken after the salary distribution and they are mainly required for statutory compliance and accounts maintenance.
Since salary is a financial aspect of the company, it is required by law to maintain the files and records for a specified period. It is also beneficial for the internal company audits, and hence companies maintain their financial records even after the required time frame is completed.
Reports are generated by organizations for various purposes like analysing the data, taking important decisions, predicting future business forecasts, etc. Financial reports related to the salary along with the department-wise and location-wise data would help the upper management understand the current situation better and take necessary actions for the overall betterment of the organization.
We have already discussed how the company deducts the salary components required by law while paying the employee wages. These deductions are then paid to the government and the individual employee accounts based on the type of deduction. For example, the professional tax is provided to the government, while the EPF contribution is deposited into the employee’s provident fund account.
Payroll and HRMS software has become a necessity in the modern age. Hence, companies of all sizes have started deploying an HR and payroll system to stay competitive in the digital world. Even if you are a start-up, you need to deploy a payroll software that provides accurate salary payment for each employee per month. They will also develop trust in your business and remain engaged for longer if you disburse their salaries on time.
Deploying payroll software is one of the options of staying updated with the latest statutory changes. We will keep the software updated with the latest regulatory changes so you can avoid hefty statutory fines, which will be catastrophic for functioning of a start-up. The employees of your business can be happier with a dedicated employee self-service portal that helps them download their payslips each salary cycle. It will also help them learn more about their payroll and related information.
Irrespective of the company’s size, full-service payroll processing consumes a lot of valuable time. It includes processing massive data such as your employees’ attendance, working hours, various benefits they receive and taxes related to the various payroll components. Additionally, the HRs spend a significant amount of time and effort in cross-verifying the details to ensure the accuracy and integrity of data, even for small business.
Automated Payroll will be able to take care of these with precision and efficiency so that you can allocate other tasks to the HR department. Dedicated payroll systems also help in ensuring that you comply with the latest regulatory laws, thereby avoiding the need to manually update the system for new changes. Since Payroll is an essential part of any company, dedicated human resources and payroll software can easily automate it for you.
The New Wage Code is an attempt to simplify the regulation of wages and extend security to the people working in the unorganised sectors. Following are some of the significant reforms:
Changes in Basic Salary per month Your basic salary cannot be less than 50% of your CTC. Since most employees have basic salaries with less than 50% of CTC, their salary structure will be revised to comply with the new regulations.
To increase employees’ basic salary to 50%, companies will have to decrease the number of allowances provided. Hence, it will result in a lower in-hand salary.
Since PF is 12% of the basic salary, it will increase when the New Wage Code is implemented. It ensures that the employees will have a higher pension and PF amounts on their retirement.
Under the New Wage Code, employees who have worked for your company for one year are now entitled to receive gratuity instead of the current mandate of 5 years.
What is payroll?
In simple words, payroll is any process of providing salary to employees and wages to part-timers based on their worked hours and decided pay. This is not so simple. Calculation of final pay to be paid requires several other calculations and data like leaves taken, remaining PLs, LOP, loan, compensations, appraisal, withholdings, etc.
Payroll involves the process to provide pay to your employees by the employer on agreed terms. There are 2 basic categories into pay:
Net pay is the actual amount received by the employee after all deductions are made into gross pay.
Net pat = Gross Salary – Deductions
Steps included in the payroll management process:
A payroll manager needs to be attentive during the payroll management process. It requires proper planning and assistance to effectively perform without any error. There are always ongoing tasks, which need constant attention to everchanging amendments and withholdings. To learn easily, we have segregated the entire process into 4 major categories as below:
1) Gathering employee information
-Addressing working policies and overtime rules
-Attendance management software
2) Withholdings and Taxes
-Net pay calculation
4) Tax filing & Reporting
What is payroll management system?
Payroll software helps with payroll processing of the entire workforce in seconds. Yes, you heard it right. Payroll management software is capable of tracking and recordkeeping payroll and employee parameters like employee leaves, tax deductions, ESI calculation, etc.
From calculating the precise payroll amount to managing taxes, a payroll solution could help businesses function smoothly.
Also, the software generates payslips and important reports at a click. Employees can upload, access, and edit their personal details on the employee service i.e. ESS portal from their smartphones on the go. Also employees can apply leaves, salary details, and deductions when needed through their service portal.
4 Benefits of having a payroll management system
1. East detailed reporting
2. Time savior
3. Online payroll software
4. Compliance management
Easy detailed reporting
A good payroll system will facilitate this process seamlessly. This can be extremely valuable when you are looking to retrieve information for any queries related to these matters. The payroll software allows you to generate accurate payroll reports like monthly payslips or leave report of any employee.
Since everything in a payroll management system is automated, you will be saving a lot of time. You don’t have to manually enter the information for every cycle. You set it up once and let the software handle the rest. The only thing you will probably do is new employee registration for every new hire.
Online payroll software
The online functionality of a cloud-based payroll system makes it an easy pick for any business. Instances like remote working bring challenges like remote workforce management and online payroll. A payroll software, whereas allows the HR manager to digitally collect the hour details of employees and keep the right data for payroll. Online payroll software promotes flexible working and easy management.
This refers to the legal framework your business must adhere to. As an employer, you are required to maintain various payroll and payment records of your employees. Every organization that hires employees and pays salaries must comply with the labor laws. By having a payroll process in place, you are automatically complying with the employment and labor laws in India.
Information is the key. The HRMS solution with an inbuilt payroll management system could bring the much-needed wave at the firm. No one knows your business better than you. Know the requirement and choose the right HR management solution for streamlined processes and cost-saving.