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What is Payroll Processing?

The payroll process is a crucial aspect of organisations. It includes various processes, such as calculating and disbursing salaries, ensuring statutory compliance, handling taxes and deductions, and others. A payroll manager needs to follow some of these steps to manage payroll effectively and efficiently. This post will discuss payroll, payroll processing, steps, challenges, various methods, and the best payroll software for your organisation.


What is the Payroll?

Payroll is the total amount an employer pays its employees on a particular date. It encompasses compensation for the work performed by the employee within a period. 

It also includes the company’s records of employee payments, such as salaries, bonuses, wages, deductions, increments, and taxes. 

Generally, company payroll is handled by human resources or the finance and accounting department. In small businesses, the payroll is managed by the owner or associates.

What is payroll processing?

Payroll processing is a recurring process that takes place between two payment disbursement dates. The process includes taking into account the total number of leaves an employee has taken, any additional payments that need to be made to the employee besides their salary and if any deductions that need to be made to come to the final payment amount. Generally, organisations choose to pay their employees on a monthly, bi-monthly, or weekly basis.

Steps to execute payroll

Three main steps under payroll processing make up the payroll process.

  • Pre – payroll process
  • Actual payroll process 
  • Post payroll process


Pre-Payroll Process

Employees’ Data collection:

The first and most important step in payroll processing is gathering employee data and creating a complete list of employees who are to be paid. This is usually done during the onboarding process when the employee joins the company.

Define Payroll Policy:

In this process, an organisation needs to define its policies covering administrative salaries, deductions, leave and attendance policies, timekeeping, and total working hours for employees. Ensure that all these policies are clearly explained by management so that there is a standard payroll performance in place.

Gather employee input:

In this process, gathering employee input from different departments is essential to ensure the payroll system is accurate. Because only the departments can provide detailed and precise information regarding salary revisions and other important details, these details shall also include attendance and leave (whether the employee is physically present or working from home or has taken any leave), salary details and deductions (variable pay components and related deductions), recruitment details (date of joining), recurring data, compensations and benefits, and other important inputs. You need to collect all this information from the respective departments.

Validation of employee input:

After receiving input from all departments, you have to review company policy to make sure that active employees are included and inactive employees are excluded from salary and compliance payments.

Actual Payroll Process

Calculation of payroll:

Once the employee input is verified, you must enter all data into the payroll system. The payroll system will calculate the net pay by adjusting all necessary deductions and increments. It is always a good practice to reconcile the values and ensure accuracy to avoid potential errors.

Net Salary = Gross Deductions – Gross Pay/Salary


Gross Salary = Basic + DA + HRA + All types of Allowances + Arrears + Reimbursements + Bonus + other payments

Gross Deductions = PT + EPF + ESI + Income Tax + Insurance + Loan repayments + any other deductions.

Post Payroll Process

Statutory Compliance:

After all these payroll processes, all statutory deductions, including PT, EPF, TDS, and ESI, will be deducted during payroll processing. These deductions are paid to the respective government bodies within the given time frame.

Payroll accounting:

Every organisation maintains a complete record of their bookkeeping, including notable entries such as salaries paid to employees and all compensations such as gross pay, commission, PF, ESI, PT, health insurance and others.


In this step, you can distribute the salary through bank transfer, cash or cheque. Before proceeding, it is vital to ensure that the bank has sufficient funds to disburse the salary into the salary account. Transfers the payment into the employee’s salary account is highly recommended. To make an accurate payment, you must provide the bank with the necessary information, such as the employee’s ID, account number, salary amount, and other information. That can be easier with the one-click salary disbursement feature of automated Saral payroll software.


As a payroll manager, it is your responsibility to ensure that the payroll process for a particular month is completed accurately and efficiently. It includes recording employee costs by department and location and providing detailed reports to the finance department and top-level management team. These steps are crucial for creating an effective and efficient payroll process.

Challenges in handling the payroll management process

There are numerous legal frameworks that every organisation has to follow when disbursing salaries to employees.  This legal framework is made based on these four components – 
  1. Provident Fund (PF), 
  2. Professional Tax (PT), 
  3. Employee State Insurance (ESI), 
  4. Income Tax / Tax Deducted at Source (IT/TDS)

Managing payroll is a complicated process that involves numerous complex calculations, which can take time to perform accurately due to the complexity of compliance. Each component is calculated differently based on the employee’s salary, and the employer has to file returns with authorised government bodies through an online portal. Many organisations use spreadsheets or external agencies to manage this process, which can be time-consuming and tedious and increase the chances of more errors.

Additionally, continuous changes in laws and regulations can be a significant challenge for organisations managing their payroll system, which can be 

  • Time-consuming
  • Complicated
  • Non-Flexible
  • Zero Data security
  • Frequent changes in the system
  • Non-availability of skilled resource


What are the various methods of Payroll Processing?

There are some methods to run the payroll processsuch as-

  • Insource payroll – Excel-Based
  • Outsource payroll – external agency 
  • Software-based payroll


Insource payroll - Excel-Based

Many small businesses use Excel-based payroll management at the beginning of their business operations, as they need more employees to manage the system.

It includes using accounting and mathematical formulas within Excel spreadsheets to calculate payments and ensure compliance.

Although the payroll system requires little investment, it has some limitations, including a higher risk of errors, the chances of duplicate data, and the need to be proficient in using formulas. Also, the cost of using a manual system over automated techniques can be significant.

Outsource payroll - External agency

Outsourcing refers to the hiring process of an external agency to handle your payroll, which requires you to provide them with all the essential monthly data. This includes employee information, salary details, recruitment information, attendance, leaves, and other service-related details. But, outsourcing may lead to data leaks and security issues for organisations. So, given that payroll is a crucial function, businesses should maintain complete transparency and control over it.

Software-based payroll

Nowadays, there are many options available in the market for businesses looking to manage their operations. However, it is important to ensure that all your important features are available, such as leave encashment, salary heads, HR services, TDS, ESI, report generation, and others. Also, it is important to choose the right software so that you can automate computations quickly and easily, freeing up time for other tasks. Before choosing the appropriate software, the size of your organisation should also be taken into consideration.

Best Payroll Software for your Organisation

Switch to automated payroll with ease and without errors. Save time and reduce human intervention.

Firstly, you will see the features of Saral software.

  1. User-friendliness – It is practical and easy to use without any complications.
  2. Transient processing- Ensure that it is not time-consuming.
  3. Automation – It is fully automated software where no need to set anything such as time or date. 
  4. ESS (Employee self-service) – The software will provide the employees all information regarding income tax deductions, investments, savings, deletion forms, TDS, flexible benefits, and all updates. 
  5. Time, leave management and attendance – The software provides all the facilities for tracking time, attendance, and leave management.

So, you can easily use the Saral payroll software, which will help you meet the goals of your organisation and yourself.


Yes,you can pay in cash, but note that the net amount is limited to Rs 10000. It’s important to keep records of all transactions, such as cash vouchers and payslips for future reference. The government, auditors, or other senior authorities may request these documents as proof.
You need The following documents for the payroll process and government purposes. Such as – 
  • Form 5: Employee Provident Fund (EPF) (for new joinees), which is filed by the employee and submitted by the employer.
  • Form 16: Annual TDS Certificate for the TDS deduction done.
  • Details of Bank Account
  • Medical Insurance Form (ESI)  
  • Job application
  • Documents for Retirement plan.
As per the order, you need to categorise your employees into contractors, employees, interns, and others. Then, follow these steps.
  1. Evaluate the nature of the work that the employees do.
  2. Direct the payroll deduction 
Include all the taxes and compensations.

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