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The payroll system is used in organizations is nowadays fully automated. The system uses different databases, software, and intranet and login systems. The data required is usually of employees and their daily and permanent details. The system takes these data as input from corresponding databases. After getting inputs, the data is processed according to some predefined rules as fed in the software and then the system gives output in the form of salary information and other MIS reports corresponding to employee and salary related information. It also sends an email to employees their salary slip on the day of the month the organization disburses salary. These systems have been automated and have made the work of a Payroll manager very simple. These have also helped in reducing time and cost in activities relating to Payroll Management.
OBJECTIVE OF THE STUDY
The objective is to study how a payroll management system functions and how organizations are leveraging technology to automate processes. We learn how there are various tasks involved and how they are streamlined. This study aims to create an understanding of modern payroll systems which are automated.
The task of calculating the salary for each and every employee and then disbursing salary slips to employee on a specified day every month is a non value adding task. Also it is structured and there is rule for every situation. There is a rare chance of being in a situation where there is not a structured task. Thus the tasks of calculating salary using designation, band, attendance record, tax benefits, and other charges can be fully automated by use of software. Also the data required by the software can be stored in databases and the system can be automated to do this task as per requirement. There will be a need to update the database in case of changes like promotions, increments, change in the method of calculating variable pay etc.
Earlier payroll systems used to be manual which were very cumbersome and time consuming. This system was usually as follows:
Manual payroll system:
Traditional system to calculate payroll when there were no computers/computerized systems.
Involves spreadsheets like worksheet, timesheet etc. e.g. the time-wise worksheet we often find on the back of door of washrooms in various offices multiplexes etc.
Also used in case of construction and manufacturing labor.
In case of sophisticated payroll system it also involves tax calculations, insurance and gratuity deductions, etc.
All these are handled by the accountant. He has the knowledge of accounting principles and standards.
Advantages: It is inexpensive, with no start-up cost
Disadvantage: Amount of time to calculate is proportional to number of employees, hence larger the organization more the time. Also since everything is done manually there is always a scope of human error and rectifying the errors is a tedious and non-value addition job. Hence a lot of resources get wasted for a repetitive and standardized job.
After the advent of IT systems all processes which involved structured decision making were automated.
The payroll system has also been automated and also all manual work is done automatically by the system thus saving costs, effort and time.
A payroll system usually requires databases, web application and a login system.
A database is a system intended to organize, store, and retrieve large amounts of data easily. It consists of an organized collection of data for one or more uses, typically in digital form.
Login systems typically are web pages which ask for user information and password. The user has to enter these fields and then if they are correct then access to the requested page is given.
Otherwise the user is asked to try again. And maybe after a few failures the system is locked which only admin can unlock.
Databases will have employee information which is constantly updated and well maintained. The database has to be consistent so as to give relevant and accurate information.
A payroll system requires employee database which will have the following fields:
Position in Org.
Band Based on Perf.
No. of Unpaid Leaves
No. of Paid Leaves
Another table will have mapping for employee position and employee basic pay.
Employee Basic Pay
Also another table will have mapping for employee band and variable pay.
Variable Pay Table:
% of Basic Pay
Another will be a benefits table basically having the following fields:
Tax Bene. (if any)
Travel Allow and Reimburs.
Thus we have these tables in the payroll database.
A payroll manager will typically first have to login to his company intranet. The intranet will show him all the modules he needs to do his work.
E.g. If any employee is leaving then the payroll manager has to update that in the database. Also he will update if any employee has been given promotion or increment. Thus after updating the system will calculate the pay for the employees and also generate salary slips for all employees and email it to them on the last day of the month. This process of calculating is entirely automated and done by software codes (explained in detail in description of the system). Then the process of sending the salary slip is also done by the system automatically on a predefined date.
The calculated information is all put in a final database.
Finally values from this database are finally written to pdf file and sent to the employees as attachment in an email.
DESCRIPTION OF THE SYSTEM
The Payroll Management system calculates the amount that has to be paid to an employee at the end of the month. The system has predefined steps which it follows for all its employees. The employee is loaded from the employee database based on his unique Employee Id. The detail of the employee is used by the Payroll Management System to calculate the amount of salary that has to be paid to the employee.
The following set of steps is followed by the system in order to process the payroll of an employee:
The system can be accessed only by the authorized personnel from the HR. These employees have to use a password to authenticate themselves to enter into the system. They are not allowed into the system unless their login is accepted.
Once an employee has successfully logged into the system, he has to enter the Employee identification code for which the payroll has to be processed. This is in terms of an Employee Id which is unique to all employees.
The Payroll Management System uses this Employee Id to fetch the details of that employee from the Employee Database. It includes various details about the employee such as his name, address contact details, emailed, position & band in the organization, other misc facilities availed etc.
The Payroll Management System then checks whether the timecard for the employee is submitted & approved by the manager or not. The timecard provides details regarding how many hours the employee has worked in that particular month, how many unpaid leaves he had taken etc. which is used to calculate the final amount payable to the employee at the end of the amount.
Get the employees position i.e. his level from which his Basic Pay is determined by the system.
Get the employees band from which his variable pay is determined by the system.
On this amount various benefits given to the employee are added such as:
House Rent Allowance
Also amount for the services provided to the employee have to be deducted. These include:
Then the system checks whether the employee has taken any unpaid leaves during the month. If he has then the basic & variable salary for those days is deducted from the total amount.
If the income of the employee is taxable, appropriate deductions are made as some tax is paid by the employee to the government.
Thus the payroll is now processed for that employee.
The Payroll management System then generates the pay slip for the employee for that particular month.
Similar steps are carried out for each employee by the system.
Thus payroll management being a structured process it can be automated. The various calculations and other tasks can be done through software. The payroll system thus helps in saving time tremendously as every month all the tasks are done automatically. It also saves a lot of cost as only one manager can handle all the tasks of updating and checking in case of discrepancy. There is considerable reduction in effort. Thus HR manager can focus on main core issues like motivation, designing of jobs, deciding about increments and can leave this non value adding but important task to the automated payroll system.