We all know, all businesses spend a surplus amount of money on labor and administration. The payroll process and payroll deductions are the two important crucial facets of any organization that are required to keep the organization running. The payroll process has its own importance when it comes to the expansion and advancement of business models.

As the payroll process can require many expenses and investment plans, the whole process and its management can become quite complex for many entrepreneurs. Payroll deduction plans are even more time-consuming and complicated to understand because they have many aspects underlying them. However, one can make the best decisions related to the payroll process if the numerous hidden elements of the payroll process are understood well. Getting familiar with the payroll process is another thing that can help the whole organization to understand the numerous payroll processes and labor laws.

What is the payroll process?

The payroll process can be defined as the process through which the employer pays the salary to the employees. The payroll process can seem like an easy task, but its components are a bit complicated as it requires whole calculations, salary analysis and different labor laws that get applied to the salary. There are numerous terms that can be used for the payroll process such as yearly and monthly wages. Some organizations call the payroll process the financial record of the business or the distribution of salaries.

The payroll process is not just a single module, it consists of many types of payroll deductions regulated by the government. There is a total of nine types of payroll deductions that are done in almost every organization, and these nine types of payroll deductions are subject to change from time to time. Below are the top 9 payroll deductions that are most seen.

1. Employees’ Provident Fund

In India, the EPF was brought in order to help employees they can save some money for their retirement corpus, and it is almost similar to 401(K) in the USA. The EPF gets deducted from the salary of the employee which is pretax pay. The complete EPF plan was Implemented in the 1960s. In numerous organizations, employers also put the same amount of monetary input into the employee EPF.

The basic rule of EPF says that only 12% of the salary can be cut from total pre-tax pay. Companies usually deduct the same fixed amount of salary from employees’ pay. The total EPF amount collected throughout the job tenure is received by the employees at the time when they leave the company.

2. Professional Tax

Professional tax is the most known tax which the government of India raises. Professional tax is the most common tax that can be implemented on almost all members of various professions from all states.

Professional tax is subjected to professionals from all occupations, and businesses. People who are salaried can belong to different professions and apply for professional tax. Professional tax is basically the small amount of tax that is deducted from the monthly wages of employees. The professional tax deduction is restricted to the maximum deduction of Rs.2500 per year.

3. Employees’ State Insurance

The employee’s state insurance plan usually consists of contributions from both the employer as well as the employee. The basic maximum amount of state insurance is currently restricted to Rs. 15000 per month. The employee’s state insurance is 1.75% of the employee’s official monthly salary and it gets deducted directly from the employee’s monthly wage. However, the employer puts 4.75% of the total monthly salary in the state insurance plan. State insurance is a mandatory tax deduction, and this is usually done for the tax benefit of the employee.

4. Income Tax or TDS

The basic term that we all use for Income tax is called Tax Deducted at Source. The income tax is a principal tax that employees pay to the central government. However, unlike a professional tax, this tax can vary from individual to individual depending upon the total gross compensation of a person. This tax is totally based on different salary aspects such as monthly wages, commissions, gains, bonuses, and dividends.

5. Health Insurance Premiums

Many organizations nowadays provide their employees with health care plans by connecting them with insurance providers. These health insurance premiums involve deductions from the monthly wages of employees to keep the total health insurance scheme going which can be carried out throughout the year.

6. Retirement Plans

Retirement plans are not mandatory EPF deductions, and employees can also join the plans based on their own decisions. Retirement schemes require employees to pay monthly premiums to maintain retirement plans. These schemes are done from the perspective of security. Employees usually get a monthly pension with a retirement plan amount at the time of retirement.

7. Life Insurance Premiums

Life insurance premiums are also a common thing in leading companies nowadays. Life insurance premiums can be the most reliant way to maintain the financial security of an employee’s family. Life insurance plans can deduct a monthly premium from the salary of the employee and this total sum can be received by the family members of a company if there is an untimely death.

8. Job-Related Expenses

Job-related expenses are another payroll deduction that is common practice for almost all businesses. Job-related expenses consist of various common expenses that are required during job tenures such as rental charges, travel expenses, food and accommodation, everything can come under job-related expenses. This payroll deduction is also deducted from the employee’s total compensation.

9. Investment Plans

Investment plans are a classic payroll deduction that provides investment opportunities to employees, and through these plans, employees can invest in the company’s stocks at discounted rates. Many organizations are now offering their employees stock opportunities to invest in company stocks. However, the investment amount is totally decided by the employees.

Payroll deductions are not just mere deductions, but they contain various aspects that promote the overall expansion of a company. Payroll deductions and the process can be a complicated task, but it is an important part of every company that assists the company’s overall business growth. If you would like to hand over your payroll duties to us, call us today and get in touch with the professionals who are there to support you in your payroll process.

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