Every month when you receive the payslip, you notice the details mentioned in it with care – the deductions, the tax structure and other benefits included. But has it occurred to you to give at times a thought on the amount of effort and the systems that work to create the payslip? Have you ever wondered whether payroll creation and compliance is the work of accounting or HR department? Do you know the considerations that are taken into effect before preparation of the payroll? Read on to understand about payroll compliance and the role of HR department in it.
Definition of Payroll Compliance
Payroll compliance is the consolidated set of activities involved in the production of the payroll, capturing the data and controlling it along with the calculation of allowances, deduction, benefits and the net wages. It also includes the process of editing and dispatching the payslips and in conformance with all legal and third party declarations. It can also be defined as the business process that includes applications and best practices that enable effective calculation of pay components and funds distribution maintaining compliance with all regulatory aspects.
Factors in Payroll Management
There are a wide variety of factors and numerous input data that determine the complexity of the payroll structure. The diversity in the calculation process can owe to factors like varying payroll frequency, varying types of work contracts and different working shifts. The various kinds of deductions and declarations; and the legal procedures that need to be maintained can also contribute to the calculation complexity.
Who handles Payroll Management?
There used to be a time when payroll calculation and management was part of the accounting department. Payroll was often visualized as a form of money payment and hence was handled by the accounting or the finance department of organizations at a point of time. Also PF and ESI compliance jobs were considered a part of the accounting ritual and hence finance departments handled them majorly. But this was about 10-15 years back when payroll was just the wages and deductions and did not include the other benefits and appraisal hikes.
In the present scenario, payroll compliance is visualized as an event whose frequency and calculation procedure are determined by the rules of the organization and the legislation. Now with the change of perception about payroll and the increasing factors contributing to its calculation, payroll management has become a part of the HR department’s administrative responsibility. Payroll is now essentially a part of the compensation and benefits feature and hence is considered to be a part of a HR function in many countries across the globe.
Also, linking salary and benefits with an employee’s performance requires a well established and prepared strategy in place for conducting appraisals. These details are to be well maintained and compensated as incentives so as to motivate and retain employees. Thus, as payroll compliance has more increasingly shifted towards a performance linked process, it has become an inevitable part of the HR functionality.
Payroll compliance not just involves complexity but also a share of sensitivity on the topic. The payroll for an employee includes his benefits, deductions and other allowances. It is hence possible that employees raise their concerns and queries over their payroll details. It becomes difficult for the finance department to manage these queries and needs the interference of human resources team who are skilled to handle employees and their concerns.
Role of HR department
Salary computation involves checking and authorising on the details of the employee before processing the payslip. These details largely include his personal details like designation and attendance. Also variables like deductions, loans and additional allowances are tracked by the HR department so as to verify the details before processing. The HR handles any kind of salary discrepancies or queries that are brought forward by the employee regarding the payroll variables and components.
As an example – special leave availed, compensation off, performance appraisal, etc. are tracked and maintained by the HR department. The HR department also takes the responsibility of maintaining all the statutory records that are required in the payroll compliance process. With the recent integration of IT and business processes, it is possible that ERP could handle the complete payroll compliance process in an integrated manner. But the system still requires inputs and details about the employees so as to process the payroll computations.