A guide to payroll Management

Jun 15, 2023 | Payroll

Payroll mistakes can happen faster than you think. For a moment, think about the employees for whom monthly salary is the only source of income. Imagine what if the salary is not paid accurately or there is a delay in releasing salary. Such irregularities can take a toll on the morale of the employees and ultimately affect the business productivity.

While ensuring accurate and timely payment of salary is important, adhering to the various laws and regulations such as labour law, Social security law and other statutory compliance is also critical. Non-adherence with these laws can attract serious legal and financial consequences.
To make sure that your employees are happy and you are law compliant, you need to have a proper understanding of what payroll is and how to run payroll effectively. We will start with the basics of payroll.

What is Payroll?

A payroll is a list of employees who get paid by the company. Payroll also refers to the total amount of money an employer pays to the employees. As a business function, it involves:

  1. Developing organization pay policy including flexible benefits, leave encashment policy, etc.
  2. Defining payslip components like basic, variable pay, other deductions like FPT (Work protection fund), IRPF (Personal income tax), and INSESO (Social security contributions).
  3. Gathering other payroll inputs (e.g., organization’s food vendor may supply information about the amount to be recovered from the employees for meals consumed)
  4. The actual calculation of gross salary
  5. Releasing employee salary
  6. Depositing dues like FPT, IRPF, and INSESO, etc. with appropriate authorities and filing returns

Set pay policy, define pay components, collect payroll inputs, determine gross and net salary calculations, distribute payslips, deposit and report dues
In short, we can say that the payroll process involves arriving at what is due to the employees also called ‘net pay’ after adjusting necessary taxes and other deductions.

The equation for calculating the net pay

Net pay = Gross income – gross deduction


Gross income or salary = All types of regular income + allowances + any one-time payment or benefit

Gross deduction = All types of regular deductions + statutory deductions + any one-time deductions

What are the Stages to Processing Payroll?

A payroll officer needs to do careful planning. There are always on-going tasks that need attention and a constant need to monitor changes to withholdings, contribution to social security funds, etc. The entire process can be split into three stages, pre-payroll, actual payroll and post payroll activities.

Pre-Payroll Activities

Defining Payroll Policy

The net amount to be paid is affected by multiple factors. The company’s various policies such as pay policy, leave and benefits policy, attendance policy, etc. come into play at that time. As a first step, such policies need to be well defined and get approved by the management to ensure standard payroll processing.

Gathering Inputs

Payroll process involves interacting with multiple departments and personnel. There can be information like mid-year salary revision data, attendance data, etc.
In smaller organizations, these inputs are received from a consolidated source or fewer teams mostly from the Human Resources department. However, in a larger organization, the task of gathering data may look overwhelming. If you are using a smart payroll system having integrated features like leave and attendance management, employee self-service portal, etc. the input collection process does not remain a problem.

Input Validation

Once inputs are received, you need to check for validity of the data concerning adherence to company policy, authorization/approval matrix, right formats, etc. You also need to ensure that no active employee is missed out and that no inactive employee records are included for salary payment.

Actual Payroll Process

Payroll Calculation

At this stage, the validated input data is fed into the payroll system for actual payroll processing. The result is the net pay after adjusting necessary taxes and other deductions. Once the payroll process is completed, it is always a good practice to reconcile the values and verify for accuracy to avoid any errors.

Post-Payroll Process

Statutory Compliance

All statutory deductions like FPT, IRPF, INSESO are deducted at the time of processing payroll. The company then remits the amount to the respective government agencies. Follow up for filing to be done by the respective government authorities is of utmost importance.

Payroll Accounting

Every organization keeps a record of all its financial transactions. Salary paid is one of the significant operating costs which need to be reported in the books of accounts. As part of payroll management, it is essential to check that all salary and reimbursement data is fed accurately into the accounting/ERP system.


You can pay your salary by cash, cheque or bank transfer. Typically organizations provide employees with a salary bank account. Once you complete payroll, you need to ensure that the company’s bank account has sufficient funds to make the salary payment. Then you need to send a salary bank advice statement to the concerned branch. This statement is issued with particulars like employee id, bank account number, amount of wages, etc. If you are opting for a payroll management software that has an employee self-service portal, you can easily publish the payslips and employees can log-in to their account and access the payslips.


Once you complete payroll run for a particular month, the finance and high management team may ask for reports such as department wise employee cost, location wise employee cost, etc. As a payroll officer, it becomes your responsibility to dig into the data and extract required information and share the reports.

Challenges in Handling Payroll Management Process

The payroll process becomes challenging due to two main reasons.

The Requirement to stay Statutory Compliant

As mentioned before, non-adherence to statutory laws can lead to levy of fines and penalties and in the worst case may even threaten the existence of the business.

Dependence on Multiple Payroll Inputs Sources

Before payroll can be processed, you need to get all the data together from sources such as attendance register, data from HR team like salary revision information, etc., making it a complicated process. For many years HR and payroll officers were managing payroll on excel sheets, but excel sheets have problems like dependency on excel formulas for salary calculation, complexity in adding and removing employees and other limitations like manual data entry, difficulty in extracting information, etc.

Various Methods Available to do Payroll for your Business

The possible options for running payroll can be

  • Excel based payroll management
  • Using payroll software
  • Payroll outsourcing

Excel based Payroll Management

Many businesses who are at an initial stage of operations and have a handful of employees usually go for excel based payroll management.

Excel based payroll management involves doing payroll calculation on excel sheets using standard payroll calculation templates. The mathematical formulas are set that help the payroll officer do the computation. While this method does not involve any cost, but it has its inherent limitations like

  • High chances of clerical and mathematical errors as data is entered manually
  • Difficulty in adding and removing employees from payroll list
  • Chances of duplicate data and omission of entries at times
  • Need to monitor tax updates and other statutory changes.

Payroll Software

As discussed above, for running successful payroll, you need to ensure that payroll inputs are coming from every source in a timely and seamless manner. The intent of using software is to reduce the friction in getting the inputs. There are advanced payroll management software available in the market that not only automates payroll computation but also serve as a holistic leave and attendance management, HR management and employee self-service portal. Depending on the size of your business and use cases you can opt for appropriate payroll software for your business.

Payroll Outsourcing

Outsourcing payroll means you want an external agency to take care of your payroll function. Many organizations who do not have a dedicated person for payroll go for this option. Based on their pay cycle, every month they provide employee salary information and other data such as attendance, leaves, reimbursement details, etc. to the payroll service provider. The service provider then computes payroll and also takes care of statutory compliance. It is better to outsource Payroll considering the expertise and exposure of the accounting firm offering the service of Payroll management.

With Bioko Accountancy & Advisory, your payroll is assured.