“In 2006, Snowdrop carried out a survey on the relationship between HR and payroll after it witnessed first-hand some of the difficulties that can arise if the two don’t work together.
It revealed that information delivery is often at the heart of the problem: more than 60% of payroll professionals believe HR doesn’t give them accurate information, while 54% think HR doesn’t keep them up to date. That said, the survey found both sides willing to work more closely together (96% in payroll and 85% in HR)." (Source: PersonnelToday.com)
Given such a landscape, we thought it prudent to put out there a few practical tips or best practices that would help you - the HR professional - to ensure that you keep up your end of the bargain; that is, essentially, to pass on the right information with regard to various aspects of payroll to your payroll team.
The following tips should help you achieve two goals: segregate the role of HR and payroll in the various areas mentioned as well as ensure that best practices are being followed by you, the HR, when collaborating with the payroll team.
1. Send the right employee list to payroll
You need to be aware of whether all relevant employees are in fact on the payroll of your organization and that the payout has been made to all of them. Along with the question “Have I paid everyone?”, another that needs to be asked is, “If not, why was an employee missed out/paid inadvertently?”. A common reason for rolling out an erroneous payroll is that the resignations for the month have not been considered and the payout has been made here accidentally.
Another common scenario is HR having passed on the wrong employee ID to payroll. In such cases, the employee in question may get removed from the list and not receive a payout.
The best teams avoid this by having more checks in place, wherein one individual enters the values and another verifies them for accuracy. This needs to be ensured between HR and payroll and can take care of a large chunk of human errors that creep into a company’s payroll.
2. Define a policy and process for arrears
Technically, arrears refers to “money that is owed and should have been paid earlier”.
Say a new employee joins towards the end of a month. Let’s assume his/her joining date to be the 29th and salary payout date to be 31st. Here, a decision is required to be taken by the HR as to whether this employee will be paid for the 3 days worked in the current month at the end of the current month or the next month, along with the salary for the next month.
If the decision is in favor of the latter, then care has to be taken to put in place a notification to alert you, the HR, about this payment when the payroll for the next month is being processed. In case you go with the former option, then arrangements have to be made to add the new employee to the current month’s payroll without fail.
This decision then needs to be included in the policy and a process created around it to execute it smoothly.
3. Spread out the recovery of loans, salary advances, etc.
If an employee takes a loan or salary advance from the company, or recovery is due for a broken laptop, et cetera, the responsibility for collecting the amount owed to the company rests on you, the HR. You are, here, required to provide inputs to the payroll team as to the period over which the due amount is to be recovered.
Commonly seen are scenarios where it slips the HR’s mind to do this. The result is that the payroll team may decide to deduct the entire amount due from a single month’s salary. This affects the employee due to the possibly heavy impact on his/her net salary. It is the role of the HR to ensure that the employee in question receives sufficient take-home pay even after the necessary deductions are made.
Also to be borne in mind while making such recoveries is that statutory contributions as PF or ESI should not be affected in the process. It is mandatory that statutory deductions be made even if it means the employer is able to make only partial recoveries in a given month. In other words, recoveries cannot affect statutory deductions.
4. Complete salary revisions 15 days before the due date
Different companies may opt for different salary revision cycles. Sometimes this coincides with the work anniversary of the employee, at other times it may follow the financial year or vary based on the level or grade of the employee in question. Whatever the case, you need to plan to complete the process of arriving at the revisions for eligible employees around 15 - 20 days before the due date.
This time will be utilized to get budget sanctions, the necessary approvals from the employees’ business managers, and then to work with the payroll team to compute arrears, the impact on taxation and statutory contributions, recoveries, etc. The effective dates are also to be accounted for here if arrears are present.
Following this, the salary revisions (usually based on CTC) need to be translated to the salary structure of employees and the changes uploaded into the system. All this requires at the very least a week’s notice.
Apart from annual salary revisions, salaries may change in another scenario - with the confirmation of an employee. You need to be cognizant of this change and track it proactively with the help of the employee’s business manager. The effective date of salary change here may be the exact joining date of the employee. This information is to be collected by you and the necessary advice passed on to the payroll team.
5. Clean up the process of investment proof collection
The primary role of the HR with respect to income tax is to manage the collection of investment documents/proofs. Here, you need to ensure that education sessions regarding investments are conducted for the employees.
The regular collection of documents with timelines also needs to be performed. For example, rental agreements for every month is to be collected by the employer. This information has to be made available to employees right at the beginning of the year so that in case of a change of homes or so, the employee is well-informed that rental agreements are required for the purpose of tax reduction.
You also need to define a cut-off date for the submission of investment proofs for the financial year. Collect and provide the payroll team with the proofs latest by 15th March so that the salary for the month can be paid in time. A best practice here is to also let employees know what their net income tax in March is, in case they want to make more investments, etc. In other words, to make available the projection of IT liability from salary to employees is prudent.
With that, we wind up for now. However, this is by no means the end of the different areas where HR and payroll have to collaborate. Do watch this space for more!