Payroll management: process, challenges, and solutions

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payroll process guide

Understanding the Payroll Process

Being paid is the definition of work. If you can’t get it right, really nothing else matters. And you have to get it right for compliance reasons, as well as for your employees. Nobody likes surprises, particularly when it comes to their money-Mollie Lombardi, Co-founder and CEO Aptitude Research

Agree or not, but payroll management is one of the most dreadful and at the same time indispensable tasks for HR personnel. In layman’s terms, payroll is the process of paying the employees. It may refer to:

• An organization’s financial records of employees

• Issuance of employee paychecks

• Annual records of employee emolument

The Three
Stages of
Payroll Process

payroll process guide

1. Pre Payroll Process

Before you start calculating pay:

• Collecting Salary Information

• Draft a well-defined pay policy

• Gather Inputs 

• Input validation

• Set up a payroll schedule 

• Establish tax payment dates

2. Payroll Process

• Computing withholdings from pay

• Decide the proper withholding amount for statutory payments

• Calculate other deductions and submit payments to taxing authorities

• Deduct other required amounts from gross pay

3. Post Payroll Process

Things to keep in mind after each pay period:

• Review, generate and issue Payslips, Statutory payments Reports, Cash Reports Access the bank reports and download them by choosing a financial year, frequency, period, and batch. 

• Keep payroll records

payroll process guide

Methods available for payroll processing

1. Using Manual System

Startups or businesses that are at the initial stages of their operations opt for a manual system for processing the payroll. Here, the payroll managers use traditional payroll ledgers, spreadsheets, and a calculator, for making entries. 

While this method doesn’t cost anything, the process is cumbersome, tedious, and error-prone.

Organizations can save all this cost by only spending a few dollars on an automated payroll system.

2. Outsourcing the payroll process

Some companies engage external parties to handle all payroll related activities. Outsourcing payroll operations is generally done to reduce the cost and time required to handle the financial tasks related to payroll. 

The external party handles payroll records and tax analysis, it also takes care of employee provident fund, insurance processing, audit planning, and procedures.

3. Implementing Payroll Management Software

Payroll management can be done effectively with online payroll services. Many companies have shifted from traditional ways of payroll management and have adopted the online payroll system. 

Besides, managing the payroll activities, automated payroll software serves as a holistic leave and attendance management system. It helps in error-free payroll processing as well as payslips can be generated in no time.

Common Payroll Challenges faced by organizations

payroll process guide

Before the emergence of the Human Resources department, companies had personnel departments that were engaged to ensure that the employees were paid timely, taxes were filed, and labor laws were followed. 

After more than a century of innovations and technological advancements, payroll is still hard and is a pain for many organizations.

While today, the HR tech has provided company leaders with timely insights on performance and other aspects, the core requirements for payroll professionals haven’t been banished.

Gratuitous management of the payroll can lead to high attrition rates, poor employee management, decreased productivity, and low employee morale.

Here are some of the payroll management challenges businesses are facing today:

1. Risk of non-compliance

One of the major challenge faced by organizations is non-compliance with the applicable rules and regulations of the state or region.

2. Poor timesheets management

In this age of digitization, if you are still relying on spreadsheets and paper timesheets to manage your employees’ working hours, project timelines, and expenses, you could be leaving enough room for inefficiencies, inaccuracies, non-compliance with working time legislation, and even employee fraud.

3. Vendor Management

Vendor management is a leading issue that is raising the payroll agenda. According to a survey conducted by Venminder, collecting documentation is the biggest challenge for small and mid-sized companies. 

For large organizations, completing vendor risk assessments is the number one challenge.

Manual vs Automated Payroll

As discussed earlier, there are different methods to process payroll. Today, most businesses have started opting for an automated payroll management system, but many businesses still rely on manual payroll processing. A manual payroll process can be ideal for small organizations, but it may be quite impractical to use this process in large enterprises. 

An automated payroll management system eliminates human intervention, ensures timely and accurate payroll processing, and provides consistent and reliable results. However, if you are still skeptical about the advantages of an automated payroll management system, then you might want to have a look at this list of differences between automated and manual payroll processing:

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