If you operate your business anywhere in the world, you will need to set up a payroll process in your organization. You may have only a couple, dozens, hundreds, or thousands of employees at your office, shop, school, hospital, or factory, but they need to be paid. Most importantly, they need to be paid correctly and regularly at the same time each time.
This process of payments and record keeping is long, complicated, time consuming, stressful, but very crucial for you to run your business. You need the knowledge, skill, and acumen to set up the payroll process system at your office. In case you are thinking of a start up or are already running a business but find it very difficult to manage paying your employees, you need to read on further to understand the entire process of payroll systems.
Payroll is a comprehensive term and has many components under its umbrella. It is not simply the paying your employees the wages. It is much more with components like pay cycles, documentation, taxation, employee records, man hours, leave records, compensations, deductions, and much more.
A good payroll process system is highly beneficial to the organization in many ways. This mainly strengthens and enhances the running of your office. It makes the administration of all related processes smoother and simpler. With the processes in place, it reduces man hours and man power directly reducing the cost implications.
An effective payroll process in Dubai, UAE may be set up by hit and trial methods. You may make several mistakes on the way like losing out on minor details, miscalculating the final payments, facing legal hurdles, and stressing yourself out too much on the way. Therefore, it is in the best interests of you and your office to understand the payroll process and set it to run your business efficiently.
Follow these basic payroll system processes and administer your business well.
- Divide Employees in Categories
The first thing to do is to divide your employees into various categories like the department they work in and the nature of their employment. This means that you need to sort out whether they work as contractual, part time, full time, temporary, permanent, or on probation. This is important as it will help you to fix wages and payouts and calculate them accordingly. Study their employment letters/contracts and fix their categories. But remember to follow the labour laws of your land. - Keep Employee Records
In the payroll process system, then make files and soft ware to maintain records of the employees. Collect their personal information as well as the components mentioned above. The software should be such that it can be easily updated and data pulled out whenever needed. This will help you keep track of the employees as well as their production or service output. It will also help in the performance appraisals for the employees and the raises that you may be planning for them periodically. - Lay Down Policies and Regulations
Ensure that you lay down policies and regulations that your employees and you too need to follow. This will include rules and guidelines for leaves, overtimes, bonuses, deductions,taxes , attendance, benefits to the employees etc. Share this with the employees and preferably, take their signatures to make sure that each employee has read these. - Create Pay Heads
After this, create Pay Heads in the system so that calculations and deductions become easy and accurate. You must be surely paying your different employees different emoluments under various heads. Some of the Pay Heads could be:- Wages as fixed in the employment terms and conditions
- Deductions from the employee for various areas
- Statuary Deductions for employees
- Statuary contributions by the employers
- Gratuity to be paid to the employee
- Loans taken by the employee
- Advances taken by the employee
- Claims and Compensations for the employee
- Final Reimbursements to the employee
Divide the wages fixed for each employee into further sub heads like the basic wage, overtime charges, leave and holiday payments, any food and travel allowances, etc.
- Create Pay Cycles with Wages and Man Hours
According to the terms and conditions of employment, create and store pay cycles for each employee. This means you need to decide whether the employee has to be paid per daily, weekly, bi weekly, fortnightly, monthly etc. You have to follow this cycle in your payroll process. Also decide the number of hours that the employees have to clock in during each cycle. Remember that the employees have to be paid within seven days of the end of the pay cycle. - Make Bank and Employee Ledgers
For easy record keeping, reference, and legal compliance, you have to maintain bank legers and employee ledgers. Enter all financial transactions done with the bank as well as with the employees. These ledgers are important documents and you have to keep them updated at all times. - Maintain Employee Attendance and Leave
Since you have to keep certain terms of employment, you have to track the attendance of the employees. Maintain their daily attendance, entry and exit timings, as well as the leaves that they take. This is needed to calculate their wages for each pay cycle. - Maintain Records of Production and Man Hours
Apart from clocking in attendance for each employee, you also have to keep track of the service or production output that he or she does. This is important to make sure that the employees actually work for what they are being paid as well as to ensure that they get what is due to them. - Calculate Insurances, Deductions, Claims, Bonuses, Compensations, Gratuity, Employee and Employer Contributions
Wages are only a part of the money that you pay to an employee at the end of a paycycle. There are several other calculations that need to be done before the final payment. You have to study their medical and other claims, any overtime dues, and bonuses that they deserve. Further, there are components like gratuity, insurances, employer and employee contributions to the gratuity, provident funds etc. The payroll process system takes into account all these heads and then gives the final figure to be paid. - Calculate and Pay Taxes
Additionally, you have to make deductions for their taxes to the state or central governments. Keep in mind the employee and the employer contributions toward taxes. These deductions have to be made in the pay cycles as well. If you are setting up a payroll process in Dubai, make sure that you calculate the taxes correctly as there are many tax exemptions here like in some other countries of the world. - Prepare and Deliver Payslips
Once the final deductions and additions are done to the pay cycle calculations, you have to prepare the pay slip statements as well as the actual pay slips. Make entries in the Band and Employee ledgers. - Pay Out
Check for corrections along the way and go in for the final pay outs. Make the payments to the banks or the individuals as per your office policy. Take signatures on the pay slips and pay statements for records. Pay outs, like mentioned earlier, have to be done within seven days of the end of the pay cycle as fixed for each employee. - Maintain Payroll Records
The payroll processes do not end with simple pay slips and pay outs. It is imperative to maintain records of all the payroll transactions for each employee that you have. It does seem a herculean task when you employ people in large number, but it has to be done. Balance the accounts ledgers and make sure that there are no discrepancies in the records and payments. You need to keep payroll records of at least the following:- Statements of the payroll
- Statements of payroll slips
- Payroll payout slips
- All the pay sheets
- All the payment advices given to each employee
- Payroll registers
- Profiles of each employee
- Track of total employees with entries and exits
- Records of all Pay Heads and the breakups
- Leave and absences
- Daily attendances and clocking in and out
- Details of any Expats working for you
- Gratuity
- Compensations, Claims, and Bonuses
- Tax deductions and tax statements
There are many ways by which you can maintain your payroll systems and records. You may have a Payroll Software, maintain Excel sheets, or even do them manually on paper. You may choose what suits you, but follow these general payroll processes for a hassle free administration of your business.
Hire and train the staff you have ear marked for maintaining your payroll process systems in the office. Keep them updated with the local rules and policies of the government. Ensure that the systems are in place and functioning without getting into legal issues with the employees as well as the state and central governments.
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