While establishing a product-based startup, business owners often focus on operations, marketing and product development. However, one critical area might be overlooked in this checklist, which is payroll management. A poorly managed payroll system can lead to legal complications. It can also lead to employee dissatisfaction and reputational damage for the business.
To avoid this, a strong payroll management system establishes a transparent and compliant HR foundation from day one. In this regard, this blog will discuss the best practices of payroll management that all business owners should follow.
India’s payroll compliance framework
India’s labour law and tax ecosystem is complex and comprehensive. Implementing strong payroll management best practices starts with complying with statutory requirements. Some of them are presented below:
- Provident Fund (PF): Businesses with more than 20 employees have to contribute to this fund. The PF contribution of an employee is around 12% of their basic income.
- Employee State Insurance (ESI): It is applicable to businesses with more than 10 employees who are earning equal to or less than ₹21,000 per month.
- Professional Tax: This tax varies according to salary brackets and is imposed by each state. Professional tax is deducted on a monthly basis from an employee’s salary. Then it is paid to the state government by the employer. For this tax, the annual maximum payment amount is capped at ₹2,500.
- TDS (Tax Deducted at Source): This amount is deducted under Section 192 of the Indian Income Tax Act, and may vary as per the salary slabs.
The above-mentioned information may be subject to change as per the notification from tax authorities or any Indian employment legislation. Maintaining compliance with these regulations ensures legal protection and builds employee trust towards the employer. Always stay updated about the latest updates with notifications from the EPFO and the Income Tax Department of India.
Automate payroll with reliable software
Payroll automation tools can extensively reduce errors and save time spent on calculating each employee’s monthly wages. Most of these tools offer auto calculation of salaries and statutory compliance tracking. These tools also support automated payslip generation and integration with the attendance system.
Automation ensures accuracy in PF, ESI, TDS or professional tax deductions. For startups launching a business with limited HR facilities, such software to offer a scalable solution.
Maintenance of a transparent salary structure and policies
Transparency in payroll is essential for fostering employee satisfaction. It also helps you to keep organised on expenses made towards employees. A well-defined salary structure is an essential part of payroll management best practices. A transparent salary structure breakdown includes:
- Basic Pay
- House Rent Allowance
- Bonuses or Incentives
- Deductions such as PF, ESI, Professional Tax or TDS
Besides these factors, develop clear leave polices, overtime rules and reimbursement guidelines. Share these during onboarding and include them in an employee handbook or offer letters.
This process helps employees to understand how their salary is calculated and improves trust towards the employer.
Keep records and audits regularly
According to Indian labour laws, employers are required to maintain payroll records such as:
- Salary registers
- Payslips
- Tax filings
- Leave and attendance records.
Along with that, conducting regular internal payroll audits ensures alignment with legislation requirements. It is specifically important when launching a business or seeking funding.
Conclusion
Following payroll management best practices is important to keep employees satisfied. It also helps to keep compliant with the legislation’s requirements. Investing in building a robust payroll process can reduce the likelihood of errors in calculating salaries, taxes and deductions.
It also helps generate reports on payroll expenses, tax withholdings and other financial data. This process can help in budgeting and long-term business planning, which gives a great start to businesses.
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