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Payroll outsourcing service & Payroll management services in India

Payroll outsourcing service takes care of the payroll of a company. Primarily, it is a list of a company's staff. However, the term refers to the record of the money spent by a company to pay all its employees. It provides a detailed account of the basic salary paid along with all forms of allowances, bonuses, and deductions. The proper maintenance of a well-designed payroll processing system is of vital importance to the smooth and profitable operations of any company.

Payroll processing is a complex and time-consuming activity and demands careful planning and execution. It is an ongoing process with occasional periods of peak activity depending on the frequency of salary distribution. The entire payroll services are traditionally looked after by the Accounts Department, though these days the company may entrust it to payroll outsourcing services and save itself and the HR wing a lot of hassles.

Why Payroll is Important For Your Business

Payroll management services constitute one of the most important functions of any organisation. It involves much more than the payment of salaries to the employees. The timely, accurate and smooth execution of the payroll processing ensures job satisfaction and confidence among the employees. It boosts their morale and loyalty. Erratic and unreliable payroll management services, on the other hand, create a negative impact on the productivity of the staff. This, in turn, will affect the reputation and stability of the company.

Payroll and compliance

The way the payroll services complies with various government rules and regulations, also contributes to the reputation of the company as a law-abiding, and responsible enterprise. A company that does not comply with such the prescribed laws can land itself into serious problems.

Employee Management System / Query:

Any reputed company cares for the welfare of its employees and is receptive to their needs and concerns. To address staff queries and concerns, well-established companies have a systematic employee management system. Many of the usual queries relate to payroll matters like leave, reimbursements, and tax deductions. A cell of the payroll services must devote itself to provide prompt, helpful and satisfactory responses to enhance the morale of the employees. It should serve as a reliable, consistent and supportive system, especially for the HR section.

6 Payroll Compliances

Payroll compliance is a comprehensive term that describes all the procedures adopted to produce the payroll processing of the company. It is worked out on the basis of all the relevant data collected and analyzed to arrive at the accurate details of the salary, permissible allowances, mandatory deduction, etc. It also involves the preparation and dispatch of pay slips and declarations to other agencies, as legally required.

Some of the key components are:

1 Provident Fund (PF)

Provident fund is a form of pension fund or security that is popular in countries like India. At the time of retirement or exit, the staff gets a lump sum. The company makes a contribution of 12% of basic wages plus dearness allowance. A similar amount is paid by the employee towards this fund. The rules are well laid down and governed by the Employees’ Provident Fund Organisation (EPFO).

2 Employee State Insurance (ESI)

The Employee State Insurance (ESI) a total and self-financed social security scheme for employees. This scheme protects and provides financial support to the workers covered at times of sickness, injury, disability or death at work. The scheme is administered by the Employees’ State Insurance Corporation (ESIC), a government body.

3 Processing Monthly Salaries - Process and Solution

Payroll management services and processing cover all the administrative aspects of managing the financial records of all the employees of a company. These include details of salaries, various allowances, bonuses, mandatory deductions, and the take-home pay. It is an ongoing process. The payroll process is one of the most important activities in any company, whether it is a small or big enterprise.

4 Professional Tax (PT)

Professional tax is a tax imposed by a state government on all employees. It is not only for professionals such as engineers and doctors, as you might think. The rate of tax may vary from state to state but the upper limit is Rs. 2500 per annum.

5 Cost To Company (CTC)

This is a term popular in Indian private sector companies. CTC refers to the overall amount a company has to spend to hire staff. This would be the total remuneration offered.

6 Labour Welfare Fund (LWF)

Labour welfare fund is a fund managed by each state. The state can spend from this fund to improve the working condition of the poorer sections of the workers. There are clear laws governing the use of this fund.


Government Process

Payroll management services in a private or public enterprise are the responsibility of the specific company. It has to also carefully implement the prescribed government processes and regulations in force. It has to correctly deduct from the salary to deposit with bodies like the Provident Fund Authority and the Employees State Insurance scheme. Most important is the deduction of income tax at source remits it periodically to the Income Tax Department.

Step 1: Quarterly Returns Filing: (Form 24Q)

It is the responsibility of the payroll department to deduct the tax due from employees while paying their salary. This is done as per the TDS (Tax Deduction at Source) as regulated by the 192 section of the Income-tax rules.

The company has to furnish the details in the in Form 24Q, which has to be submitted to the Income-tax department on a quarterly basis. Of the two annexure –Annexure I is for all the quarters, while the Annexure II is for the final quarter alone.

Step 2: End-of-Year process (Form 16)

The company issues a certificate to the employees in Form 16. This helps employees to have a record of the tax they have paid as TDS. This will be very useful when they file their annual income tax return.

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Frequently Asked Questions (FAQs)

  • Companies have a big responsibility in complying with various rules and regulations formulated by the Government. They have no choice in this matter. A good option is to go for payroll outsourcing services and pass on the responsibility to the service provider. The HRMS will be most benefitted by this step.

  • By relying on payroll outsourcing services, the company gains in several ways. These include saving costs, better confidentiality of records, and greater staff job satisfaction. Most importantly, the Company and HR personnel can save a lot of time and effort and focus on more productive activities. The compliance aspect is also taken care of.

  • Any company that uses standard payroll software gains in several ways. It is more cost- effective, employee calendar can be kept updated smoothly, and tax updates alerts received promptly. It helps to save a lot of time for HR Department, generate payslips easily and can be managed without highly specialized personnel.

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  • Yes. definitely.

    It saves a lot of company time, improves productivity and reduces overall costs. Expert help comes from an outside agency, not the company. The compliance angle is better looked after by the agency and the data security is also ensured well.