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Database of employees is maintained. Employee’s details such as name,
employee ID, bas ic sa lary,dai l y a t te ndan ce , e tc are reco rded . Gros s Sala ry
is ca lc ul at ed af te r ad di ng th e al l ow an ce s an d incentives to the basic salary of the
employee. Net salary is calculated by deducting the tax and other calculated deductions (loan
installments, etc).
Components Of Payroll
Payroll refers to the administration of employees' salaries, wages, bonuses, net pay, and
deductions. Itconsist o f the employee ID, employee name , date of joinin g, dai ly
att endance record, basic salary, allowances, overtime pay, bonus, commissions,
incentives, pay for holidays, vacations and sickness,value of meals and lodging etc.
There a re some deductions such as PF, t axes, lo an inst allments or advances takenby employee.
Payroll is administered on monthly basis and annual basis.
W h i l e a d m i n i s t r a t i n g t h e m o n t h l y p a y r o l l b a s i c s a l a r y , H R A ,
co nv ey an ce , an d ot he r s pe ci al allowances such mobile, etc are considered.
There are some deductions which are provident fund(12%) of the salary, taxes and
other deductions.
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Deductions such as tax and loan/advances taken by the employee from organizations arededucted onlywhere applicable. Dearness Allowance and House rent allowance is provided at
a fixed rate stated bythe employment law. Provident fund is deducted from the gross
salary of employee on the monthly bas is as pe r the emp lo yme nt law , w hi ch
is pro vid ed lat er to the emp lo yee . Org an iza t i ons als o contribute the same
amount to the provident fund of the employee.A n n u a l p a y r o l l c o n s i s t s o f
l e a v e t r a v e l a l l o w a n c e s , i n c e n t i v e s , a n n u a l b o n u s e s ,
m e a l vouchers/reimbursements, and medical reimbursements.Allowances, incentives,
bonuses and reimbursements are based on o rganizational policies.
Someorganizations provided the allowances on a fixed rate say 10% or 12% of
the basic sa la ry. Some organizations go for performance based incentives.
Payroll Management ProcessesCalculation of gross salaries and deductible amounts is a tedious task which
involves r isk. Some of the orga niza t io ns use the t rad i t io nal manu al
m e t h o d o f p a y r o l l p r o c e s s i n g a n d s o m e g o f o r t h e
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a d v a n c e d p a y r o l l p r o c e s s i n g s o f t w a r e . A n o r g a n i z a t i o n o p t s f o r a n y o f
t h e fo l l o w in g pa yr o l l processing methods available::
1 . M a n u a l S y s t e m
Manual payroll system is the traditional payroll system which involves pen and ink, adding
machine,spreadsheet, etc instead of computers, software and other computerized
aids . The process was very popular when there were no computerized means for payroll
processing. Now-a-days i t is onl y few small scale or ganizat ions in the remot e
areas that use t he manual payroll .Sometimes the construction industry and
manufacturing industry also use the manual payroll systemsfor the contractual labour, as
theses contracts are on daily/weekly basis.There is full control in the hands of owner. But the
process is tedious, time consuming and risky as it ismore prone to errors.
2 . A c c o u n t a n t
A c c o u n t a n t i s a p r o f e s s i o n a l h a v i n g a d e g r e e / d i p l o m a c o u r s e i n
fi na nc e/ ac co un ta nc y. He / sh e i sresponsible for all the activities related to
payroll accounting. He/she has the sound knowledge of accounting principles and
globally accepted standards.Th e pr oc es s ad ds co st s to th e or ga ni z at io n . It
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in vo lv es pa yi ng so me on e wh o is re sp on si bl e fo r calculating the salaries of
others. The financial control regarding salary goes in the hand of accountant.
3 . P a y r o l l S o f t w a r e
I n t o d a y ’ s c o m p u t e r iz e d e n v i r o n m e n t , p a y r o l l s y s t e m h a s a l s o
d e v e l o p ed i t s e l f in to au tom at ed software that performs every action needed by the
payroll process. It helps in calculating the payableamounts and deductions very easily. It alsohelps in generating the pay slips in lesser time. Automatedcalculations result in no errors.
Data is validated automatically by the software.It needs professionals to make use of the
software for its efficient working.
4 . P a y r o l l O u t s o u r c i n g
Payroll outsourcing involves a third party (an outsourcing company) in the calculations of
salaries anddeductions. The outsourcing organization is responsible for all the activities of the
payroll accounting.It saves time and cost for the organization. If there is more number of
employees (say more than 900-1000) in the organization, payroll outsourcing would be very
much beneficial.The data is provided to the consultants/outsourcing firms. The various
payroll functions undertaken bythe outsourcing organizations are as follows:
• Analysis of Payroll records, payroll taxes
•
Medical claim processing
•
Employee Insurance & Provident fund processing
•
Quality Audit procedures & planning