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What are Pre-Payroll activities? A detailed overview

8 min read

Payroll Processing is a predestined set of tasks in an organization. Employee compensation payments and other expenses play a major role in work culture while running a company. An accurate Payroll Management system is proof that the workflow of the company is smooth and efficient. Employees are considered the most crucial assets of an organization. Thus, managing the Payroll Processing in an error-free manner is a must.

What do you mean by ‘Payroll’?

A company’s financial list of the salaries, wages, bonuses, net pay, and deductions of their employees. Simply, Payroll refers to the payment of employees by their employer.

What is Payroll Processing in India?

Payroll Processing is a process that involves a series of steps while issuing salaries to the employees. The process involves paying employees in the form of cheques or direct deposits. The core steps involve mainly three stages; pre-payroll activities, actual payroll, and post-payroll activities. The payroll process in India is a necessary business function since it involves calculating the ‘net salary’ or net pay of employees after making necessary adjustments as per the company’s policies and statutory compliances.

What is a Payroll Management System?

Payroll Management System is a centralized framework for the entire payroll function. PMS is a solution through which an employer or HR Manager can manage the salaries of the employees using cloud-based technology. It incorporates salary, allowances, deductions, and net payable to the employees. It additionally manages the payslip generation task automatically.

Complicated HR Tasks in payroll that are performed manually can be automated using the payroll system. A professional payroll management software is integrated with the HR software also and gives you a complete package to manage your HR and payroll-related tasks on a cloud from anywhere and any device.

Each organization will have various departments like marketing, finance, development, IT, research and development, human resources, etc. The Human Resources (HR) department is a vital part of any organization because employees are considered as the real assets and also the HR department needs to look after the employee welfare and make the facilities easier.

How is Payroll Calculated in India?

The Formula,

Net Salary = Gross Salary – Professional Tax – Public Provident Fund – Income Tax ( Gross Deductions)

Gross Salary= Basic salary + HRA + All type of Allowances + Reimbursements + Arrears + Bonus

Gross Deductions= Professional Tax +Public Provident Fund +Income Tax+ Insurance  + Leave Adjustments + Loan repayments (If Any)

What are Pre-Payroll activities?

Before reaching the actual compensation to be paid to employees, the payroll process needs pre-planning. This planning covers a major segment in the entire gamut of payroll processes. It involves setting up the salary structures, payroll cycle, gathering data for the entire month, validating the data, and then using the same to process the actual process which is the step right after pre-payroll processing. Few setups are done as per the company’s policies and few are done as per the law and regulations; “statutory compliances in India”.

Pre-Payroll Activities are as follows:

Setting up the policies as per Taxable, Non-Taxable, and Partially Taxable Allowances of Employee Salary

In addition to the basic salary, there are various other salary components such as taxable benefits offered by employers to employees. Under the IT Act of 1961, taxable benefits can be broadly classified into two broad categories – allowances and perquisites. An allowance is usually the money paid to the employees for meeting the expenses incurred by them as part of their work. Perquisites, on the other hand, are various other facilities provided by the employer to its employees. In the context of taxation, allowances or benefits can be classified into three categories – fully taxable, partly taxable and tax-exempt.

Defining Payroll Policies

This is the first stage where you establish policies to process the payroll. The policies need to be approved by the management. Examples of such policies are – pay policy, attendance policy, leave and benefits policy, and more. An organization needs an established payroll policy and procedures to run the payroll department smoothly and ensure employees of accurate and timely payment of salaries and wages.

What is a Payroll Policy?

A payroll policy describes the payroll process as it covers the administrative part of the salaries, timesheet, approval and rejection policies, payroll schedules and payment methods of the employees of an organization. A payroll policy covers the payroll processing services provided by payroll, the legislative requirements which must comply with and to determine the employment status of workers.

Different Payroll policies are shown below:

  • Attendance Policy
  • Leave Policy
  • Payment schedule (Pay Periods and Paydays)
  • Payment Methods
  • Type of Wages
  • Breaks and Lunch Policy
  • Overtime and Bonus
  • Payroll Deductions Policy
    • PT (Professional Tax)
    • PF (Provident Fund)
    • ESI (Employee State Insurance)
    • Allowances
  • Underpayment and Overpayment
  • Employee Benefits
  • Approval and rejection policies
  • Expenses

Gathering Inputs/ Gathering Data:

Gathering data of an employee for payroll processing requires coordination with multiple departments. Therefore, it is one of the most crucial and at the same time complex tasks of payroll. This task is mostly done by the HR and finance teams.

Data for calculating employee salary includes employee position, leave days, time worked, billable hours, non-billable hours, attendance management data, wage revision data, and others for the specific pay period. If an organization has a huge number of employees then it takes several hours for collecting data.

Data requirements for running Payroll

Leave and Attendance Data

Payments and Deductions

Employee information

Before an organization begins to run payroll, there is a need to collect some information from your employees. Every employee needs to fill out Form W-4. This form will provide information about each employee’s federal income tax withholding, along with their name, address, and Social Security number. You need all of this information to properly run and distribute payroll.

Input/Data Validation

Once you’ve finished gathering all the required data, you need to verify its validity. Because a single mistake here can ruin the entire payroll process. It is essential for keeping your payroll process on track and ensures that data is adhered to the right formats, company policies, authorization, and approval. This step is very important as it avoids costly payroll errors that might lead to financial mistakes, employee grievances, or legal penalties.

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    Meet the author

    Keka Editorial Team

    A bunch of inspired, creative and ambitious youngsters- that’s Keka’s editorial team for you. We have a thirst to learn new subjects and curate diverse pieces for our readers. Our deep understanding and knowledge of Human Resources has enabled us to answer almost every question pertaining to this department. If not seen finding ways to simplify the HR world, they can be found striking conversations with anyone and everyone , petting dogs, obsessing over gadgets, or baking cakes.


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