Making a payroll is considered as a cumbersome process and is often outsourced to a third party consultant. A payroll is the cumulative sum of financial records for employee salaries, which includes work salaries, withdrawal of Provident Fund, claiming ESI, LWF (Labor Welfare Fund), calculating correct taxes, deductions and any bonuses. Hence, it is very important to pay close attention to how it is managed.
Here are some of the issues a company faces and should avoid while making a payroll. Let’s also talk about how one can take care of the same.
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Inexperienced Payroll Processing- Due to inaccurate client’s workforce information, processing of employee salaries might get delayed. It can also result into making crucial errors while processing such information.
Hence, it is very important to provide the business with all the accurate information for timely and sound payroll processing.
Making Incorrect Deductions- While payroll processing, making deductions are considered one of the most complex parts as there are both State and Central laws to be applied while making deductions like Employee’s Provident Fund (EPF), Professional Tax (PT), Employee’s State Insurance (ESI), Labour Welfare Fund (LWF) and Income Tax (IT)/TDS deduction. Excessive deductions can lead to lower take home salaries for employees.
Hence it is necessary for companies to be thorough and updated with all the laws regarding deductions.
Misclassifying Employees- In a company, all employees are not actually considered the same. There are independent contractors, freelancers, interns or temporary employees which are to be treated differently when it comes to payroll. Diversity in employees can lead to payroll issues.
Therefore, at the time of hiring, it is important to understand how they’ll work within an organization and treated according to applicable laws.
Not Accessing the Right Leave and Overtime Information- Leaves are managed differently across different organizations and there are also several rules for overtime according to State and Central Laws with certain exceptions. All of this is usually overlooked while computing payroll which leads to mistakes.
It can be avoided by knowing the importance of this rule for the business as it directly affects its employees.
Not keeping up with Regulatory Changes- Over time, payroll regulations keep changing. And keeping up to date with the change in significant regulations is very important for a business to avoid errors.
Hence, a company should try to be regularly updated with all the new or changed regulations regarding payroll.
No Proper Filing of Tax Returns- There are different set of rules for filing tax returns. It sometimes becomes a complicated process and directly impacts employees’ take home salary.
Therefore, all the tax deductions should be carefully made in accordance with the applicable tax rules so that the correct amount is reflected in employee’s accounts.
These are some of the issues a company can keep in mind to avoid making errors in a payroll. Though mistakes can be corrected but avoiding them is always considered better than wasting time and money in correcting them.
Learn more about finance and accounting outsourcing, payroll services, virtual cfo at Aristotle Consultancy.