One of the most important and defining processes of an organization is to with payroll. A good payroll process is something that keeps everyone, from the top to the bottom, happy and content with their work lives. Studies say that employee disgruntlement factor can go up alarmingly with every complexity addition in payroll processes. That’s no surprise. Hence, the payroll has to be very streamlined, smooth and hassle-free.
To ensure smooth sailing, Human Resource teams across organizations have payroll compliance policies. And the statutory compliance in HR in most organizations also has a payroll compliance policy. Much time and money go into ensuring compliance with these laws. And to make things even smoother, there needs to be a payroll process compliance checklist. The checklist should ideally be authored with a very good understanding of various labour laws governing payroll process in the respective country.
So, is your payroll compliant? Here is a sample checklist that an organization can use in their payroll processing. You can use this as a base and customise it according to your requirements.
Adherence to Minimum Wages
Every country has its rules and regulations on minimum wages. Does your organization adhere to this set of rules? In India, the State and the Centre have their minimum wage requirements. Wages are governed by occupation, sector and type of employee. The basic rules of the Minimum Wages Act, wherever you are, state that the employer has to pay at least minimum wage, periodically. The period can be daily, weekly or monthly.
Provident Fund
Employee savings is largely dependent on the Provident Fund. The PF is a money-saving instrument that saves a part of monthly salary. The PF is a corpus of funds built with regular, monthly contributions made by the parties, the employee and his/her employer. EPFO has a set of rules and regulations that an organization has to follow if the employee strength crosses a certain number. In India, the threshold number of employees is 20. If the organization has more than 20 employees, it has to register for PF. Failure to comply with EPFO norms will attract a penalty. Getting started with PF is easy enough and you can find the details here <Link for process>.
ESIC
The ESIC(Employee State Insurance Corporation) offers healthcare schemes to employees and their dependent family members. According to ESIC rules, organizations with more than 20 employees where gross employee salary is less than INR 21000must be registered under the ESIC Act. So, if your organization falls under this category, employee CTC will have to be restructured with provision for ESIC employee and employer contribution.
Gratuity
In India, according to the Payment of the Gratuity Act, 1972, all establishments with an employee strength of 10 or more are to pay Gratuity to employees. This includes NGOs, educational institutions and hospitals. Most organizations show gratuity as part of CTC as it is a fixed contribution from the employer.
Tax deducted at Source, Professional Taxes
The TDS is an indirect tax (Indian Income Tax Act, 1961) where a tax amount can be collected by recovering a part of the employee payment. So, the employee pays his taxes on the income he receives as part of his monthly salary. But the TDS rule is applicable only if a full-time employee falls under the Income Tax Slab. Another tax component of the payroll is the Professional Tax. This is deducted from monthly salaries. If there is a failure in collecting these components, it attracts a penalty. All of these tax deductions have to be made before the payroll is processed for the month (or the salary period). Professional taxes are different between states. If you run your organization from different states, you will have factor the differences in addition to checking each tax component.
