Payroll Accounting

Apr 19, 2022 | Blog, Business

There has been a lot of confusion between the meaning of salary and payroll. Many people uses the terms “Salary” and “Payroll” interchangeably. However, there is a considerable difference between the two. Salary refers to the amount to which the employee is entitled, in lieu of providing its services. On the other hand, payroll is a record maintained by the company which tells the name of its employees and detailed breakup of the payments due to them. Thus, payroll is an administrative function, which the employer follows to account for the payments due to employees.

Owing to huge number of employees and the statutory obligations of employers such as TDS, PF/ ESI deduction etc., payroll accounting is all important for an organisation.

Payroll Accounting involves calculating, managing and recording the employee’s compensation. It calculates the net amount payable to employee after considering Basic Pay, Dearness Allowance, House Rent Allowance, Other Allowances, Incentives, Bonus, Over time, TDS, PF, ESI, Professional Tax, employee’s attendance data, etc.

Process of Payroll Accounting
For the purpose of payroll accounting, an organisation has to follow a series of steps which are as follows –

  1. Prepare a list of employees – The very first step in payroll accounting is the preparation of list of employees that are to be paid.
  2. Specify the Payroll Policy – In this step, the organisation should define its payroll policy. It includes defining basic pay for various designations, maximum leaves allowed, deductions for taking leaves beyond that, treatment of unused leaves, amount to be paid for overtime, the mode of payment, pay dates, deductions and withholdings, criteria for availing bonus, if any and many more. The payroll policy should be designed covering all the relevant aspects, as it is the base for the whole procedure. The payroll policy must be approved by the management.
  3. Gathering necessary details – The employee details such as their PAN number, address, bank details, attendance data, employee’s investments detail, revision in salary, if any and all other relevant information must be gathered.
  4. Data Validation – It includes checking the validity of received data, confirming it with the organisation’s policy and ensuring that all no employee is left to be considered.
  5. Payroll calculation – It involves feeding the validated data into the system for processing payroll. It may be the excel sheet which you maintain or the payroll software adopted. Net amount to be paid will arrive as a result, after due considering the deductions and tax obligations.
  6. Payment to employees – This step involves disbursement of the determined salary to all the employees.
  7. Payment of statutory dues – While calculating net pay of employees, various statutory deductions are made such as TDS, PF, ESI, Professional Tax etc. These deducted amounts have to be paid to the concerned government department, within the applicable due dates.
  8. Payslips and tax computation sheets – At the end, the payslips as well as the tax computation sheets must be distributed to the employees.

Thus, payroll accounting is a lengthy process but essential too. These days many firms are providing end-to-end payroll solutions, ranging from payroll calculation to fulfilling the statutory compliances. Organisations are approaching such firm and outsourcing the function of payroll accounting. These firm delivers you the accurate payroll on time and lends a helping hand in managing your human resource. After all, human resource is the greatest asset, an entity have.

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