The payroll process is a complicated but essential business procedure. Payroll processing in India comprises the whole cycle of computing the complete remuneration of every organisation employee. This overwhelming process includes the calculation of the following:
 

• Gross salary
• Net salary
• Bonuses¹
• Provident Fund (PF) payments 
• Daily wages
• TDS or Tax^* Deduction at Source 
• Professional tax^* payment
• Allowances 
• And other inclusions in the monthly salary of an employee.
   

The payroll process is a significant task of payroll exercise. The employees of any organisation depend on the company process to receive payments without delays or hassles. Despite the organisation’s size, payroll plays quite a significant role in HRM or Human Resource Management.
 

Most organisations offer life insurance coverage to their employees through group insurance as an employment benefit. Such policies are meant to cover multiple employees under a single policy where the employer or the employer-employees jointly make the premium payments to keep the coverage active. If the employer pays the life insurance premiums then only they can avail of the tax* benefits, while tax benefits are available for employees, too, if they are jointly making the premium payments. This also becomes an important part of the payroll process.
 

What is the Meaning of Payroll?
 

Payroll refers to the list of employees or workers entitled to receive payments or compensation from a company or organisation. Along with the sum an employee must receive for their services, payroll also refers to an organisation's monetary records of payments that an employer makes to its employees. Such financial records include wages, bonuses¹, salaries, incentives, etc. 
 

Now that you understand the meaning of payroll let us quickly get into understanding payroll processing services. 
 

How is Payroll Processing Done in India?
 

Here are the Indian payroll process steps followed by most companies: 
 

Pre payroll activities
 

The following steps are included in the pre-payroll activities:
 

1. Employees on-boarding
   
   

   Step one of the payroll process involves onboarding the employees and creating a list of workers entitled to be reimbursed a salary. 
    

2. Define the payroll policy.
   

   
   Organisations must define their payroll guidelines as one of the initial steps and have them sanctioned by the administration for default payroll execution.  
    

   Organisations differ in work culture, philosophy, and strategy for employee engagement. An organisation requires to clearly define the below-mentioned policies for seamlessly standardising the payroll process:
    

   • Payment Policy
   • Attendance and leave guidelines
   • Pay schedule policy
   • Salary components, including the bonuses¹
   • Employee benefits policy
      
3. Gather every employee’s input
    

   Step three involves gathering employee inputs like PAN, bank account information, investment proofs, income tax^* declarations, etc., that are required for the payroll process. Typically the concerned department collects the mentioned details from the workers at the time of onboarding or joining. However, every team or department manages and maintains its essential employee inputs required for payroll processing, including the following:
    

   • The finance department maintains every employee's financial information, such as variables like pay commissions, bonuses¹, income tax* declarations, payments, etc. 
   • The HR department maintains information regarding employees' leaves, overtime working hours, attendance, loss of payment reports, salary revision, exit date, etc.
   • The admin department maintains details like transportation, employee-related bills, expense reimbursements, etc.  
      
4. Validate the employee inputs 
    

   Once the different departments compile the employee inputs, the information is validated for correctness and accuracy. Only when the details are validated the payroll processing can begin. Validation of data entries eliminates the chances of committing errors during payroll processing.
    

Actual payroll activities






The payroll activity of any organisation majorly incorporates just one step, as described below:
 

5. Payroll calculation
    

   The concerned team of the company must securely feed the validated information of the employees into the company's system. Once the information is provided into the system, payroll processing involves accurately calculating every employee's pay cheque. The calculation involves the net compensation payment for every employee after accurately calculating the necessary deductions and due taxes*. Then, the net salary is calculated by subtracting the gross deductions from the employee's gross pay. Accurate payroll estimations are performed via payroll software or spreadsheets. 
    

   Listed below are the essential elements of a salary structure required for the calculation of the net salary:
    

   • Cost to Company (CTC)
   • Prerequisites
   • Leave adjustment
   • Form-16
   • Employee financial details
   • Reimbursements
   • Allowances
   • Arrears
   • Payslip
   • Loan repayment
   • Professional tax*
   • Life insurance deductions
   • PF
   • Employee investment declarations
   • Bonus¹, incentives, one-time payments (if any), and expenses
      

Most employees may choose to opt-out from the group life insurance plans as they may have their individual life insurance plans that offer more extensive coverage. In the case of both types of life insurance plans, the coverage will provide life cover benefits to the employee’s family in the event of their untimely demise during the policy term. However, with an individual life cover policy, the sum assured can be extensive and customised better to meet the employee’s family’s needs.
 

If the employee chooses to receive life insurance coverage from the group policy as well as their individual policy, they need to be aware of the tax implications for the premiums payable on both life insurance policies.
 

Post payroll activities
 

 

The post-payroll process steps consist of the following:
 

6. Accounting
    

   The compensations released to the organisation's employees are one of the most significant expenses. Hence, the organisation must maintain a record of the paid salaries. Payroll accounting maintains the organisation's accounts regarding its employees' wages.
    

   This can also include keeping track of any life insurance policies with group coverage for all the employees. Doing so serves two purposes - for one, it helps the company understand how many employees are availing of group insurance coverage. Secondly, it is also possible to keep track of the tax* deductions the company can claim on the premiums paid.
    

7. Initiate the salary of the employees.
    

   The company should ensure that its concerned bank account has enough funds to transfer the salary to its employees. Next, the company should send the compensation details to the concerned bank so that it can distribute the employees' payments via the salary bank account. The organisation can also automate the salary payment procedure via software featuring an in-built deposit component. In addition, the organisation must also disperse the payslips to its employees via automated software or individually. 
    

8. Reporting and compliance
    

   Every statutory deduction of the employees, like PF, TDS, professional tax*, and ESI (Employee’s State Insurance), is deducted in the payroll processing procedure. Therefore, the organisation must accurately pay the associated departments within the scheduled dates. Also, the organisation should report the deductions to the individual government departments by filling out the prescribed forms. 
    

Conclusion
 

The payroll processing procedure in India is simple if one follows the steps one after the other without making errors. However, it can get complicated, even if one makes a minor error while executing the process. Group life insurance is an essential component of employees' payroll in India. Having a trusted name to safeguard the lives of the employees of any organisation still stands to be one of the essential deliverables for an employer.
 

At Tata AIA Life Insurance, we offer suitable Tata AIA life insurance policy options that you can explore regarding individual and group life insurance plans. Our life insurance plans can be easily customised as per your needs and also be purchased online. You can also choose the premium payment options at your convenience and make the payment from anywhere before or on the due date.

L&C/Advt/2023/Apr/1295