Payroll processing consist of calculation of payments to employees for their work in the company – whether it is based on time or productivity, calculation of benefits, and statutory deductions. Payroll needs to be processed by each company periodically. It may be processed weekly, bimonthly, monthly or daily (for daily wage workers).
Payroll calculation is a complicated process that varies from company to company. Each company may have its own payroll structure consisting of various payroll components that may be unique to that company only. In addition, many location specific laws such as labor welfare act, Payment of salary and wages act, and the Minimum wages act affect the payroll calculations. Under minimum wages act, the employees need to be given some mandatory salary components such as Basic, DA, and HRA.
Payroll processing involves accurate payroll calculations, disbursal, payslip generation, and managing payroll taxes and record keeping compliance. All these activities cannot be rushed into and must be performed using a payroll software to ensure that employees do not get erroneous paychecks and all statutory compliances are met.
Let us understand how benefits and deductions affect payroll calculations.
Every employer who is paying salary to employees has to make certain payroll deductions from the salary as TDS (Tax Deducted at Source) to meet statutory compliance.
Employers need to deduct TDS under section 192 of the Income tax Act, 1961, if the salary is more than maximum amount exempt from tax. The employers also need to generate Form 24Q and Form 16 in a timely manner and submit these to the authorities. Some of the salary components that impact TDS deduction are:
The employees of the company get many payroll benefits in addition to their regular salary. Most of the benefits that employees get impact tax calculations. Some such benefits are:
Foreign nationals (except citizens of the countries of Nepal and Bhutan) require a valid passport or travel document and a valid visa to enter India. Expatriates are paid salaries several times than those of their Indian counterparts. Under India’s double-taxation agreements, salaries that a foreign company (and not its permanent establishment in India) pays for services rendered in India are taxable in India if the employee works for more than 182 days during the tax year.