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Payroll is defined as the process of paying salary to the employee of a company/organization. It starts with preparing the list of employees to whom salaries must be paid and ends with recording those expenses.
The payroll process involves calculating what is due to the employees for a specific payroll cycle after adjusting the required deductions like employees’ PF contribution, TDS, meal coupons, etc. The payroll cycle is the gap between two salary disbursements of an employee. Generally, payroll is processed every month in India.
The payroll process requires different teams, such as HR, payroll and finance, to work together. However, due to modern technology, businesses can effortlessly manage all the payroll processing complexities.
In India, companies have to follow the legal regulations in their payroll management while disbursing salaries to their employees. There are many statutory requirements that Indian companies must adhere to, and they must ensure compliance with these legal regulations. If companies fail to adhere to these statutory compliances, they will have to face heavy penalties.
Thus, detailed knowledge of legal expertise and compliance is required to minimize the risk associated with the non-compliance of statutory requirements. The general statutory compliances that every company has to follow for their payroll management in India are:
ESI fund and PF funds
TDS (Tax Deduction at Source)
EPF stands for Employees' Provident Fund. It is a retirement benefits scheme where both an employer and employee contribute equally to this scheme. The Minimum contribution of both Employer and Employee together is 12%(Basic salary Plus Dearness allowance). At the time of retirement, the employee gets a lump sum and interest on it.
The EPF eligibility criteria are as follows:
Any company with more than 20 employees must register with the Employees' Provident Fund Organisation of India compulsorily.
Companies with less than 20 employees can also register for the Employees' Provident Fund voluntarily.
All employees drawing a salary are eligible for EPF.
Moreover, it is compulsory for all employees earning less than ₹15,000 to register for the EPF. However, employees earning more than ₹15,000 can also voluntarily stay in the EPF scheme.
Employees’ State Insurance Corporation (“ESIC”) is a statutory corporate body set up under the ESI Act 1948, which is responsible for the administration of the ESI Scheme.
The ESI scheme is a self-financed comprehensive social security scheme devised to protect the employees covered under the scheme against financial distress arising out of events of sickness, disablement or death due to employment injuries.
The social security scheme under the ESI act which is self-financing in nature is effectively applicable to all factories and other establishments which are covered under this act.
Has a total employee strength of 10 or more
The monthly wage of such employees does not exceed Rs. 21,000/-.
The amount of Rs. 21,000 has been recently amended with effect from 1 January 2017 from a previous coverage amount being Rs. 15,000/-. The scheme for the state of Maharashtra and Chandigarh, require the minimum employee to be 20 in an establishment for coverage under this act.
An institution covered once in this act will always be covered in this act, even if the number of employees at any time goes below 10 or 20 as required. If the amount of 21,000 is increased at any time, then he continues to be covered under this scheme until the end of that contribution period.
The contribution period has two parts: one from 1st April to 30th September and second from 1st October to 31st March.
The contribution is made both by employer and employee. The amount of insurance is deducted by the employer on behalf of the employee. Employee’s contribution is 1.75 percent of the gross salary of the employees and employer contribution is 4.75 percent. The gross salary does not include overtime wages. The contribution should be deposited with the authorized bank of the corporation within 15 days of the last day of the calendar month
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