How A Payroll Systems Works

March 22, 2018

When we consider systems, we always think of an application – offline or online. But, that is a narrow way of looking at things. Many systems, such as production systems, train systems etc incorporate a much broader set of activities and structures.

In the case of a Payroll System, we are essentially looking at how the activities related to payroll are handled by a computer application. To understand this well, let us move back a bit to understand what payroll is.

Payroll is the process by which an employer pays his employees for the work done. Most payroll consists of earnings and deductions. Earnings are the money the employee gets that consists of salary or wages, allowances, bonuses, medical benefits, etc. Deductions are what the employer withholds from paying to the employee. This consists of reduced salary or wages, Provident Fund, income tax and other statutory payments.

At the end of a payroll period, the employer calculates the exact earnings and deductions of each of his employee and pays the amount due to the employee. Detailed records are kept of the calculations and payments made.

Computer-Based Payroll System

Payroll is bookkeeping at the best and needs a set of standard calculations to be done a day or two before the disbursement of salaries. This is where a computerized payroll system offers immense help. Once the attendance records are fed, a payroll system calculates all earnings and deductions correctly. Modern payroll systems can also be linked to bank accounts for auto disbursement of salaries. Most banks in India transfer funds based upon instructions they receive from the employer. This usually consists of a list of employee codes and names, bank name and account number, IFSC or similar code and the amount to be transferred. This list can be generated by the payroll system and sent to the bank.

At the least, a good payroll system such as the one from TalentPro should be capable of the following:

  • Handle regular payslips, tax slips, reimbursement slips, etc
  • Handle flexible benefit plans
  • Handle multiple pay structures
  • Handle travel and other immediate allowances
  • Handle dynamic earnings or deduction component creation
  • Handle multiple salary revisions
  • Support bank uploadable formats
  • Generate customized reports including JVForm 16/12BA with digital signature
  • Handle investment proof for and calculate the correct deductions
  • Online reimbursement entry & approval
  • Online investment proof verification
  • Handle queries from employers and employee
  • Handle periodic income tax return processing and filing
Online versus Offline?

Offline payroll systems are usually part of payroll or ERP software and run on internal computer systems. In India, payroll rules and regulations differ from state to state. The government passes new rules that have to be incorporated. Software vendors have to find a way of incorporating such changes and updating the software at their client’s end. If the client has implemented some customization to the software, updation has to be done carefully to not destroy such customization. More important, employer users have to find a way of maintaining all employee-related information for a period of time which is at least 7 years.

Online payroll systems run on the Cloud. The software is maintained and updated by the vendor on a regular basis. Internally, the employer has to have an attendance management system that is linked to the online payroll system. Once the attendance system updates monthly information to the payroll system, the online payroll system will calculate and generate employee wise earnings and deductions that can be used to pay the employees. Online payroll systems also have flexible report generation that will allow you to analyse your payroll pattern and link it to employee and company productivity.

Online payroll systems are easier on you infrastructure particularly if you have a number of offices, and employee spread across geographies. Choose the payroll system for you carefully.


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