Payroll Software is among the most crucial tools for small and medium-sized businesses and startups. Let me explain the reason. Payroll is one of the monthly “top expenses” for any startup. You may think COVID-19 has altered the payroll game. Yes, but not necessarily.
Remote working demands a more cloud-based payroll system. I’d like to explain why the conventional process of Payroll is similar. Whatever the size of your company, putting the payroll process wrong can have severe consequences. Don’t worry; I’m here to help you understand the process.
How do you define Payroll?
Payroll, as described in the most basic terms, is the procedure of paying your employees at your workplace. Payroll involves everything from collecting information about employees, keeping track of the amount of time worked, making calculations for pay, disbursing payslips and logging the expenses associated with Payroll.
What are the components of this payroll procedure?
The earnings (including allowances) and deductions comprise the three major components of an employee’s Payroll.
Earnings and allowance basic Earnings
Basic earnings are the amount in dollars a salaried employee receives each month. This sum does not include any tax or payment deductions. Basic salary earnings comprise bonuses, overtime wages and other incentives.
House Rent Allowance
House Rental Allowance is an allowance given to employees to pay to rent a house. Additionally, employees living in metropolitan areas can receive 50% of their payment amount. In all other cities, the HRA can be as high as 40% of earnings.
A certain amount of pay is also paid to workers as an allowance for dearness. It is a supplementary allowance. DA will differ for government employees and private sector workers. According to the most recent regulations, the dearness allowance amounts to 21% of pay for pensioners and employees.
The term “leave encashment” refers to the amount of paid time off that is not utilized by the employees. As you are aware, all salaried employees are entitled to a certain amount of paid leave days. If the employee is not utilizing the paid leaves, the employer must pay the required amount for the number of days.
A bonus is an award that is given to an employee through the workplace. Furthermore, bonuses are given to show gratitude for the work done and to keep employees engaged. Bonuses are taxed at 30%. After adding a tax on the cess of 4 per cent, a bonus tax rate is 31.2 per cent.
The process of commissions and additional compensations is done differently for different organizations. The term “commission” is generally an amount of money paid upon completing a job. In addition, it could be offered to sell a particular quantity of products or services. Commissions may be paid in addition to or instead of an income.
Children Education Allowance
Children’s Education Allowance (CEA) is the benefit that employees receive to educate the children of their employees in Indian schools. CEA is granted at INR 100 per month for two children. CEA is a tax-free benefit that allows employees to cut down on their taxable wages.
Hostel Expenditure Allowance
Hostel expense allowance or Hostel Subsidy is like CEA. This makes it a tax-free benefit. Hostel subsidy is provided as INR 300/month per child, up to two children at a maximum.
The Transport Allowance can also be referred to as the Conveyance allowance. Employers also provide it to employees who travel from home to work. The TA may be a variable or fixed amount and is tax-deductible. In addition, it is only available for salaried workers and is considered as TDS.
It is stated that the Income Tax Department of India states that Helper Allowance or Assistant Allowance is exempted to the extent of the expenditure in helping duties to profit of the business. In turn, it is taxed in part.
The term “travel allowance” refers to the time the term used to describe when an employee receives an allowance to cover expenses that are incurred by transporting employees during their working hours. It usually is 70% of this allowance or INR 10,000 per month.
Uniform allowances are provided to cover purchasing and maintaining uniforms for work. In addition, the allowance is tax-deductible.
This allowance is granted to employees for expenses made on days that the employee is away to work. E.g. Work trips
City Compensatory Allowance
City Compensatory Allowance (CCA) is the compensation offered to workers living in metropolitan cities. This is why CCA is a set amount of employees in one particular city to assist with the high cost of living. It is tax-free.
This allowance is paid out for working overtime hours outside of working hours. The overtime allowance of each company differs and is decided at the discretion of an employer. Thus, overtime allowances are tax-deductible.
The telephone allowance is the most popular type of allowance paid to an employee. It is tax-free.
Fixed Medical Allowance
FMA includes daily medical expenses but not any hospitalization costs. It is tax-free.
Entertainment allowance is an employee’s payment for various occasions like client meetings, drinks, dinners, hotel stays and so on. The allowance is also tax-deductible for workers in the private sector.
Employers frequently offer gifts to employees on celebrations and other occasions. They are referred to as vouchers, gift vouchers or gift certificates. Employees who are given under INR 5000 per year are not tax-free on the gift. If the gift amount exceeds INR 5000, The gift voucher is counted as income and tax-deductible.
Project allowances are the amount paid for specific tasks to a particular work project. It is a temporary benefit that is tax-free.
Allowances for holidays are paid annually as leaves. Indian laws provide employees with an average of 15 days of paid leave per year.
Research allowances are given to encourage academic research or education. Additionally, it is exempted from the number of actual research expenses.
Allowances for food (meal allowances) are a form of allowance for food from eating joints offered in the workplace or provided from the workplace. Food allowances are exempt up to Rs. 50 for each meal. The rest of the lump sum becomes taxable if the allowance is more than fifty rupees.
Allowance for Books and Periodicals
The allowance is based on expenses related to journals, periodicals, books or newspapers to aid in the skill education of employees. The periodicals and books allowance is tax-free if the invoices are paid directly to employers.
Notice Pay Deduction
As you know, employees cannot quit the company without giving the company a notice period. It is a once-off deduction and is tax-deductible as a salary regularly.
Voluntary Provident Fund
Voluntary Provident Fund refers to the voluntary contribution of voluntary employees to the fund. It is above and beyond the 12% EPF contribution and is a regular deduction. In addition, VPF contribution is the highest. VPF contribution is one hundred percent of the base salary and the dearness allowance (DA).
National Pension Scheme
The National Pension Scheme (NPS) is a voluntary contribution as EPF or VPF. The NPS’s entire amount is tax-free, and withdrawals from pensions are tax-free.
What is Payroll Software?
The next question is What does payroll software do? HR experts employ software for payroll automation to automatize payroll processes from the beginning until the end. It manages the entire process of Payroll.
Paying employees isn’t one step. It’s a collection of tasks. I’ll discuss the specifics of these tasks in the following section.
What are the steps involved when running automated payroll software?
A series of steps are involved in payroll management:
- Employee Onboarding
- Defining Policies
- Making the Salary Structure
- Processing Payroll Inputs
- Calculating Salary
- Generating Tax and Payslips
- Compiling Data Reports
- Filing statutory tax returns