Payroll is a very important and strategic part of the HR function as it requires great skills and attention while processing; hence there are certain difficulties associated with payroll.

As India has gained prominence in international business, there are also complicated tax and social laws that hold out a challenge to the payroll departments. From numerous complicated calculations and rules to state-level laws, there are plenty of things to be considered by a payroll vendor. Payroll service providers have a major role to play while handling difficulties in payroll processing. Let us see some of the major obstacles in payroll processing.

1) Collection of investment declaration and proofs

This may be considered a major challenge faced by the payroll management system. The Payroll service providers must make sure that the employees should know how to submit their declaration and collect them on time to avoid disruption. It is also the responsibility of the payroll department to collect and verify proofs of employee investments against previously submitted declarations.

2) New Joiners

In case of a new joining, the payroll team must obtain details about the previous employer. This will allow the employee to be taxed correctly in their new role. These details are very must even in case of an online payroll management system. The tax calculation information is necessary on the employee’s full and final settlement, which they receive when they leave their previous employer. In the absence of the required information, it is the employee who will pay the difference when they file their income tax return.

3) Employees leaving the company

Payroll service providers also must keep track of employees who are leaving the company. As similar to the end of the year investment proofs, employees who are leaving the company need to provide payroll department with proof documents so that investment figures can be verified and tax calculated accordingly.

4) Flexible Benefits

Income Tax regulations in India allow employees to design their salary structures by including a flexible benefits plan with tax-free expense components. The payroll department must know how to handle them correctly to ensure that the tax is withheld correctly. The department must also collect proof of expenses from granting tax exemptions.

5) Filing Returns

This is one of the most common tasks of payroll service providers. Some of the major tax returns and supporting documents that any payroll management system will have to deal with are:

• Tax Deducted at Source or TDS: TDS needs to be filed by payroll in July, October, and May. Full tax computation must be included in the last quarter’s return.
• Form 16: Issued by Employers to employees for income tax returns
• Employee income tax return: Post issuance of Form 16, employees need to complete their tax returns.

6) Provident Fund

The payroll department has several duties and responsibilities regarding the PF and should be familiar with the process of communicating with the PF authority.

7) State Taxes, Insurance, and Labour welfare fund

Tax and insurance rules many a time vary from state to state and payroll departments must know what contributions to withhold and when. Both ESIC and PT are not applicable in all states. Labour welfare fund is managed by state boards, which generally decides if anything needs to be contributed by the employees or the employers.

Payroll service providers must be updated with the required knowledge to overcome these limitations for the smooth and effective functioning of the company. The right payroll vendor can take care of all your payroll.