• Payroll is one of the series of accounting
transactions dealing with the process of
paying employees for services rendered by
• It is used and maintained by accounting
COMPONENTS OF PAYROLL
• It is necessary to understand the various components of payroll before
designing or selecting the available payroll software.
• The most common data required to generate payroll are –
– Basic pay (fixed salary part)
– Dearness allowance (DA) (the allowance for increased cost of living)
– House rent allowance (HRA) (for house )
– Other allowances (travel allowance, special allowances etc.)
– Leave travel allowance (LTA) (for travelling expenses)
– Medical allowances (self, family …)
– Leaves entitled (CL, SL etc.)
– Deductions under various heads (as per tax norms)
– Incentives or bonus (for profits they make for company)
– Overtime payments (for more than 8 hours a day)
– Contribution to provident fund (12% of basic pay; employer adds the same)
– Contribution to pension scheme (for a better old age)
– Income taxes (Net salary = gross salary - deductions)
• Payroll can be generated through computers
by using packages available or outsourcing its
design as per the requirements of the
• Package like : tally
• Introducing computerized payroll system in the system/
business or organization can bring positive changes
saving hours producing and updating physical payroll
journals and records.
• Computerized payroll system come in the form of
software packages that let you install on company’s
• Whether you are a small/ medium or large
organization, this type of the system creates efficiency
as all records can be stored, organized and maintained
FUNCTIONS OF PAYROLL DEPARMENT
For questions or problems related to-
• Sick and Vacation Leave balances
• Workers Compensation claims processing (HR)
• Workers Compensation benefits (HR)
• WEB Reporting/Timesheets
• Lost warrant/stop payment
• Payments to vendors for withholding taxes, voluntary deductions etc.
• Voluntary deductions set-ups
• State Disability Insurance calculations
• Workers Compensation calculations
• Enrolling/changing direct deposit
• Union dues changes
FUNCTIONS OF PAYROLL DEPARMENT
– Capturing time efficiently
– Auditing procedures prior to processing
– Correcting errors prior to processing
– Record retention
– New hires
– Payroll reconciliation, tax deposits and quarterly
Assignment: write more functions from below link
PAYROLL REPORTS GENERATED BY
• Pay slip
• Salary sheet/ pay sheet
• Employee’s salary structure
• Annual salary statement (annual sheet)
• Department-wise summary of earnings and
• Bank statement
• Cash/ cheque/ DD statement
• Loan balance statement
• Loan installment statement
• Leave balance statement
• Monthly leave statement
• Bonus statement
• Bonus provision for the year
• Gratuity statement
• Perquisite register
• Attendance statement
• Arrears break up report
• Professional tax cumulative statement
• Professional tax detailed statement
• Total man days report
• Over time payment statement
OTHER MIS REPORTS
• List of new joinee
• List of employees resigned
• List of employees on rolls etc.
METHODS OF PAYMENT OF WAGES
• TIME WAGE METHOD:
– Wages are paid on the basis of the time spent on the job
irrespective of the amount of work done.
» It is the simplest and the old method
» It is easy to understand
» Earnings of workers are regular and fixed
» A worker can show his skills
» No pressure of time on worker so quality can be raised
» It is an objective method
» Learners can concentrate on the learnings
» No incentive for the better performance
» Guaranteed remuneration makes workers dull and non
» Calculation of the labour cost/ unit is difficult as the total
wage bill does not change
» In the absence of the motivating and challenging rewards,
workers performance declines.
» Control over the labour becomes difficult as they feel
• PIECE WAGE METHOD:
– Under this method the remuneration is based on the total
work done rather than the amount spent on it.
» There is a direct relation between the effort and the
» The method is just and fair for all
» Management can distinguish between all types of
» The cost of labour/ unit can be easily calculated.
» Cost of supervision is low
» It is very difficult to fix rates
» Employer can also cut at times the work if they find
employee is producing more.
» Earnings of the workers are not stable
» Workers feels insecure and dissatisfied
» Quality can be compromised in order to achieve the high
» A feeling of jealous can be there between performing and
non performing workers
» Trade unions don’t like it.
Final exam oriented assignment on
Payroll system (UNIT - 3)
1. What are the different reports generated by
2. Describe various items that should be
considered for developing a payroll program.
Explain the various inputs requirements for
3. “payroll system is customer specific”. Do you
agree with the statement.
4. Design a screen for entering data related to
employees in master file.
Design a suitable computerised wage
accounting system for a large firm employing
various types of labour.
5. Basic functions of pay roll department.
6. What is meant by pay roll ? Explain the process of
computing gross income, pension and gratuity. What
are the precautions which should be kept in mind
while making the wage payment?
7. Explain the process of computerisation of pay
8. Explain time wage and piece wage system of
wage payment. Explain the advantages and
disadvantages of each method.