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Big or small, all businesses with employees need to have a system in place for handling payroll activities such as paying employees, paying taxes, filing necessary returns and reports, etc. This edition will provide you with an insight into the most common payroll mistakes that HRs need to be aware of.
The Burning Tale
1. OFFERING CTC/IN HAND BASED CONTRACTS
As a common practice, companies offer CTC based contracts to employees as the CTC compensation appears more attractive. However, it is not a good practice because salary in CTC has many components such as ESI, EPF, and gratuity, etc, which can fluctuate with the change in rules. In case, due to such changes, the CTC is reduced, then it is considered as a breach of contract.
2. TOO MANY ALLOWANCES
This is the most recurrent issue in the HR world. We often add too many allowances just for the sake of it. Moreover, sometimes some companies bifurcate at their whim and fancy or to save PF. Such practices are not healthy and might unknowingly land the company in trouble.
3. MONTHLY BONUS & GRATUITY
Bonus under the Payment of Bonus Act,1965 is determined on the basis of the performance of the industrial establishment in the accounting year and is calculated as a percentage of the total earnings of the eligible employees in that accounting year. It is neither inappropriate nor legally incorrect to give out a bonus every month. How can a company determine its profit before the accounting year ends? Moreover, monthly payment of bonus may attract PF & ESI deductions whereas iit is exempted from these deductions when given once on an annual basis.
4. NOT KNOWING APPLICABLE ACTS
Law and HR practice are intertwined. Many HR managers perform payroll tasks without understanding or having any clue about the legal aspects of these functions. Most fresh candidates who have specialized in HR have precisely little practical knowledge about labor and employment laws, or any other law that may be relevant to their work. This can be quite risky for a company. One may have to pay a huge price in the form of penalties & interest for such mistakes.
5. NOT KNOWING THE CALCULATION & RULES
Simple errors can have serious consequences. Not knowing working days rule / total day rule / daily wage rule, confusion in weekend salary payment, deducting pension for non eligible employees, round off errors in ESI or giving flat 8.33% bonus with calculation etc. All these are examples of basic mistakes made by HRs and employers. One needs to be fluent not just with legal rules but also calculation of all the components of salary.
6. DELAY IN FILING DUES
Delay in filing returns due to the delay by the employer or due to the HR is the most unfavourable mistake one can ever make. Such delays result in heavy penalties and damage accumulation. There is also a possibility that it may lead to severe punishment or imprisonment.
7. RELYING ON SOFTWARES ONLY
The use of software as a black box is not recommended as this software needs input from the user regarding the deduction of PF, ESI, calculation of TDS, etc. Another issue with such software is that either they are outdated or some rules and regulations are missing due to the complexity of Indian laws. Every state has its own rules and compliances and such customizations are not possible in every software.
8. PROPER RECORD KEEPING
Your office’s records act as a key tool in protecting your organization’s liability and provide an essential audit trail. Not maintaining a muster roll, tax statements, organizing files, shredding unnecessary documents, etc. can land your company in a soup.
BONUS: Have you made these mistakes? Click here and watch the video to know how you can correct and avoid such mistakes.
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