Business owners have a general sense of most HR terms, but still some questions keep coming again and again.
In particular, the relationship between payroll and HR often creates confusion.
We often hear questions like –
What is the role of HR in payroll processing? Does HR include payroll? What is the connection between HR and payroll? What are the advantages of integrating HR software and payroll software?
What exactly is the role of HR in payroll processing?
The role of HR in payroll processing is crucial. HR (Human Resources) plays a significant role in ensuring accurate and timely payment to employees.
Here are some specific responsibilities of HR in payroll processing:
- Employee Data Management: HR collects, verifies, and maintains employee data such as personal information, employment details, tax withholdings, and benefits enrolment.
- Time and Attendance Management: HR tracks employees’ working hours, leave records, overtime hours, and other attendance-related information. This ensures accurate calculation of wages.
- Payroll Calculation: HR works closely with finance departments, or outsourced payroll providers, to calculate employee wages based on the agreed-upon pay rates, deductions, bonuses, and allowances.
- Compliance with Employment Laws: The human resource department ensures that payroll processes comply with labour laws regarding minimum wage requirements, overtime regulations, tax withholdings, and other applicable legal obligations.
- Payroll Administration: HR handles administrative tasks related to payroll processing, including preparing pay cheques or electronic transfers for employees, distributing payslips or statements, and addressing any payroll-related inquiries or discrepancies.
- Benefits Administration: In most organizations, HR manages employee benefits programs such as health insurance, retirement plans, and other voluntary deductions that impact payroll processing.
- Reporting and Record-keeping: HR maintains accurate records of payroll transactions and generates reports for management’s review or external audits. These reports may include payroll expenses, tax filings, year-end reports, etc
What is Payroll processing?
Payroll is a list of employees that are paid by the company. Payroll is the total amount the employers pay to the employees. A payroll function involves the development of an organization pay policy that includes flexible benefits, leave encashment policy.
Payroll management also includes payslip components like basic, variable pay, HRA, and LTA. and also gathering other payroll inputs like the organization’s food vendor supply, etc.
Payroll and HR management also involve releasing the employees’ salary, depositing the dues like TDS, PF, etc with appropriate authorities, and filing returns.
Put together Payroll processing includes the calculation of the Net Pay after the tax adjustments and other deductions.
By integrating payroll within an HRMS, organizations can have several advantages:
- Centralized Data: The integration of payroll with other HR functions in an HRMS enables centralized employee data management. This reduces redundancy of data, improves accuracy, and also ensures consistency across different processes.
- Time and Cost Efficiency: Automating payroll processes through an integrated system eliminates the need for manual calculations. It also reduces paperwork. This saves time for HR professionals and minimizes errors. It also helps in faster processing of salaries and reduces administrative costs.
- Compliance Management: An HRMS with a payroll module ensures adherence to labour laws and regulatory requirements related to payroll processing. It assists in accurate tax calculations, generating necessary reports like tax filings or year-end documents, thus facilitating compliance with legal obligations.
- Employee Self-Service: Many modern HRMS systems provide self-service portals for employees. These portals allow them to access their payslips, view tax information, update personal details relevant to payroll processing (such as bank account information), and submit reimbursement claims online.
- Reporting and Analytics: An integrated payroll module within an HRMS provides comprehensive reporting capabilities. It generates reports on various aspects of payroll such as expense analysis, salary distributions, overtime tracking, etc. It is a great help to management in making informed decisions
Payroll processing in India
Pre-Payroll Activities
Defining payroll policy- The first step is wherein the policies to the bank during the payroll processes need to be established. These policies need to be approved by the management to turn these policies into standards. Policies like the Pay policy, Attendance policy, leave and benefits policy, and more.
Gathering inputs- At this stage, the inputs are gathered from various departments to ensure the accurate calculation of the payroll.
| Source of Data | Data Example |
|---|---|
| Employees | Income tax declaration, facilities availed, and more |
| HR team | Salary structure, eligibility for benefits |
| Finance team | Deduction for recoveries |
| Leave and attendance systems | Data from attendance systems, current work shift, etc. |
| General service providers | Transport service provider, canteen vendor, etc. |
This data collection can seem tedious at first but registering with IndiaFilings will make it more hassle-free.
Input validation- It is necessary to verify the validity of the data once it is gathered as a minute mistake can ruin the entire payroll process.
It is necessary to ensure that the list contains all the active employees and no records of inactive employees. Checking the data whether it adheres to the company policy. Ensure the present in the right format.
Once the payroll process is over it is always better to reconcile the values and verify the accuracy to avoid further errors.
Statutory compliance-The payroll administrator needs to religiously adhere to statutory compliance. There are various statutory deductions like EPF, TDS, ESI is deducted during the payroll processing.
These deductions are then paid to the respective authorities or government bodies.
Payroll accounting- Every organization is required to maintain an accurate book of accounts and the salary that is paid for one of the significant entries in the books of accounts.
Payout- After complying with the steps above the salaries can be finally paid in cash or cheque or via bank transfers. For hassle-free transfers, it is better to have salary accounts of the employees.
Report- Preparing a report is the last stage and it is necessary to prepare an accurate report containing information such as the department or location-wise employee cost.
Excel-based payroll management- At the initial stage of operations and when a company has a handful of employees they opt for excel based payroll management.
In excel based payroll management the calculation is done on excel sheets using the standard payroll calculation template. The already set mathematical formulas help the payroll officer to do the computation. But this method has many errors like
Outsourcing Payroll- When the payroll is outsourced an external agency is taking care of the payroll function. The payroll service provider based on the pay cycle every month provides various other data such as the attendance, leaves, and reimbursement details.
What is the connection between HR and payroll function?
- Employee Data: HR is responsible for collecting, verifying, and maintaining employee data such as personal information, employment details, tax withholdings, benefits enrolment, and changes in salary or position. This employee data is vital for accurate payroll processing.
- Salary Determination: HR plays a role in determining salaries based on various factors like job responsibilities, experience levels, market trends, internal policies, and negotiated agreements. The payroll department relies on HR’s input to calculate wages accurately.
- Time and Attendance: HR tracks employees’ working hours, leave records, overtime hours, and other attendance-related information. This data is crucial for calculating wages correctly in the payroll solutions.
- Payroll Processing: Once HR has collected relevant employee data and attendance records, it shares this information with the payroll department or outsourced providers responsible for processing payroll. HR ensures that the necessary calculations regarding wages, bonuses, deductions (such as taxes or benefits), and compliance with labour laws are accurately implemented in the payroll system.
- Compliance with Employment Laws: Both HR and payroll team must work together to ensure compliance with labour laws related to minimum wage requirements, overtime regulations, tax withholdings, benefits contributions, etc. HR provides guidance on legal requirements while the payroll department ensures that these requirements are met during salary processing.
- Communication with Employees: When it comes to communicating changes in compensation or benefits to employees (such as promotions or pay raises), it is typically handled by HR. Payroll relies on HR to provide accurate information about any updates or changes that impact an employee’s salary.
- Problem Resolution: In the case of any discrepancies or issues related to salaries or payments, both HR and the payroll department collaborate to investigate and resolve them effectively. HR communicates with employees to understand their concerns, while payroll investigates the technical aspects of the problem.
- Reporting and Record-keeping: HR and payroll departments work together to maintain accurate records of payroll transactions, employee earnings, tax filings, benefits contributions, and other relevant information. These records are essential for audits, financial reporting, and compliance purposes.
FAQs
What is a payroll management system?
A payroll management system is a software tool or platform that helps automate and streamline the process of managing employee payroll and related tasks. This includes calculating employee salaries, taxes, and deductions; managing employee attendance and leave; generating pay slips; and complying with tax laws and regulations.
Who prepares Payroll?
The Human resource office prepares the payroll since they hold the records of the attendance and the overtime that is rendered by the employees, the accounts department prepares the payment and is subjected to approval from the head of the Agency or the representative.
What are the benefits of using payroll management software?
Payroll management software can help automate the payroll process, reducing the risk of errors and saving time. It can also provide easy access to payroll information for employees and management, improve compliance with labor laws and regulations, and facilitate direct deposit of employee salaries.
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