How to Handle Payroll for Out of State Employees

March 30, 2021
How to Handle Payroll for Out of State Employees

Out of state employees are employees of an organization in any of the following instances:

  • When an employee moves out of state and has to travel for work,
  • When an employee works remotely for an organization
  • When an employee is designated by the company to carry out tasks in another state by the company.

Managers have had to adapt to competitive working conditions to expand their organization’s interests across regions. Third-party payroll came to the rescue of managers and companies to help them deal with payroll related tasks for out of state employees. Here are some practices managers can use in effectively dealing with out-of-state employees.

Calculate Minimum Wage

India’s minimum wage and salary structure differ based on the following factors:

  • The state the employee is located in.
  • The area within the state based on development level (zone).
  • The industry that the employee is involved in.

The minimum wage mechanism in India is extremely complex, defining nearly 2,000 different types of jobs for unskilled workers and over 400 categories of employment. There is a minimum daily wage for each type of job. Which includes the variable dearness allowance (VDA) component, and where applicable, the house rent allowance (HRA).

Payroll Taxes

Payroll tax in India is used by organizations to fund programs for the welfare of employees and workers. Taxation for employees differs from their salary slabs. The Indian government recently revised the amount of taxation levied on salary slabs for the financial year 2020-2021.

The government collects taxes by TDS (Tax Deducted at the Source), TCS (Taxes Collected at the Source), and voluntary payment by taxpayers to designated bank branches. TDS is delineated in Section 196 of the Income Tax Act (1995). Some of the laws concerned with the governance of payroll taxation include the Minimum Wages Act (1948), (ESI Act) Employee’s State Insurance Act (1948) EPFO (Employee Provident Fund Organization), and Payment of the Gratuity Act (1972)

Maintaining Records

Ensuring that all transaction records are in order is an effective step that managers can take in the event of a financial audit. Managers can advise their out-of-state employees to maintain records of all their transactions as well as business and work-related documents to save time & claim out-of-pocket expenses. Having work-related documents at hand and in order will save time and effort for both the organization and employee.

Providing Adequate Labour Conditions

Labour law compliance is adhering to laws such as the Factories act (1948), the Mines act (1952), the Dock Workers act (1986), the Contract Labour act (1970) and the Inter-State migrant workers act (1979) wherever applicable. In some cases, organizations have to be aware of state labour laws. India’s labour laws protect its workforce but, in some cases, some states may amend certain labour laws. For instance, the Industrial Employment (Standing Orders) Act, 1946, affects all industrial establishments where 50 or more workmen are employed and in establishments where the Shops and Establishments Act is applicable. There are however cases where state governments may amend this act to better suit industries in their states.

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