Payroll Processing and Outsourcing in India

Payroll Processing and Outsourcing in India

What is Payroll?

Payroll is defined as the process of paying salary to a company’s employees. It starts with preparing a list of employees to be paid and ends with recording those expenses. It’s a tangled process that needs different teams such as payroll, HR and finance to work together. But, businesses can manage all the complexities effortlessly by choosing modern technology and also to manage this process various kinds of software are also available in the market.

The process involves arriving at what is due to the employees after adding in monthly emoluments various items like incentives, bonuses, leave encashment etc. for a particular payroll cycle and adjusting the necessary deductions like leaves, Withholding Tax (TDS) as per Country’s tax regulations, employees’ Social Security contributions like Provident Fund, Insurance, meal coupons etc. It is further adjusted for deduction of any advance given to employees.

A payroll cycle is the time gap between two salary disbursements. Businesses can opt to pay salaries on a daily basis, weekly, bi-weekly, or monthly basis. Generally, it is processed every month worldwide.

Nowadays, many businesses, both big and small, consider outsourcing their payroll processing function to a third party. These third party consultants are generally experts in the field of payroll processing. Outsourcing payroll helps businesses minimize expenses and quantify visible and hidden costs around payroll management. By hiring professionals whose sole responsibility and focus is payroll, you minimize the chances of errors, missed deadlines, omissions, or late payroll tax filings.

Some benefits of Outsourcing Payroll are:

 

1. Time Savings / Productivity

Payroll processing in-house is a time-consuming process. Keeping track of benefit deductions, new hires and terminations, paid time off as well as federal and state regulation changes can be frustrating tasks. Outsourcing payroll allows employers to concentrate on their core business and frees up the business owner, human resources or accounting personnel to work more on strategic tasks that could ultimately affect your bottom line.

2. Reduce Cost

The direct costs of processing payroll can be greatly reduced by working with a payroll provider. Big businesses can afford to maintain robust payroll departments. However, Small/medium sized businesses, having an in-house payroll process is a money burner. If your business has fewer than 500 employees, there’s a very good chance that you can save money by outsourcing your payroll operations. Do the math. Figure out how many labor hours your employees are devoting to payroll-related activities (calculating payroll for each time period, printing, signing, and distributing paychecks, computer software and program maintenance, training and support, keeping up with changes in tax rates/laws, preparing and remitting payroll taxes and returns to government agencies, new hire reporting, generating reports for in-house and accountant use). Calculate how much you’re spending and compare the amount to the plans offered by several payroll services providers. 

3. Avoid Penalties & Mistakes

Government rules and regulations are always changing and business owners can’t be expected to stay on top of these changes. Professional payroll providers, on the other hand, must stay current with rules, regulations and changes in tax rates. A good payroll services provider is far less likely to make a serious error than your in-house staff.  Many outsourced payroll providers calculate payroll taxes, and manage filings and payments so long as you provide the necessary information and funds on time.

4. Team of Experts

Most business owners and payroll-related staff don’t have time to research and study constantly changing regulations, withholding rates, and government forms. By outsourcing payroll, a small business can take advantage of expertise that was previously available only to big companies.  The most valuable payroll companies have a team of experts who handle many areas of Human Resources and Payroll.

5. Enhanced Security

Payroll processing is a complex and potentially risky business operation. Most payroll services have technologies that can spot and alert clients to various types of payroll fraud. Additionally, online payroll solutions offer a “safe haven” for your confidential payroll data. In addition to redundant backup and multiple server locations, a quality payroll provider invests in state-of-the-art systems for storing and protecting data, simply because it’s part of the service provided to clients.

6. Employee Access / Gaining a Human Resource Information system (HRIS System)

Human Resource Information Systems (HRIS) have become one of the most important tools for many businesses. Even a small, 20-person office needs to realize the benefits of using HRIS to be more efficient. Many firms do not realize how much time and money they are wasting on manual human resource management tasks until they sit down and inventory their time.  It allows companies to cut costs and offer more information to employees in a faster and more efficient way. Below are some examples of how employers and employees gain access to HR Information:

Employers Gain the ability to:

  • View Invoices and Payroll Reports
  • Access and Update Employee Information
  • Enter New Employees
  • Enter Time Reporting Information
  • Offer Benefit Open Enrollment
  • Communicate with Employees
  • Track PTO ( Paid Time Off)
  • Upload Benefits Plans and Custom Benefits Documents
  • Upload Employee Handbooks and other HR PDF
  • Track Licenses / Certifications for Employees
  • Performance Reviews
  • Training Records
  • Total Compensation Reports

Employees gain access to:

  • Payslips
  • Tax Information
  • Expenses claim
  • Review Checks
  • Review Benefit Information
  • Update Information
  • Any Corporate Documents
  • Online Benefits Enrollment

7. Avoid Technology Advancement costs

A constant question for small business owners is whether they have the latest version of their payroll software and the most recent tax tables installed on their computer. Using the wrong tax tables can result in stiff penalties. Paying a maintenance fee and having to upgrade software is a fixed cost ongoing.  Outsourcing payroll removes those costs/headaches and keeps payroll running smoothly.

8. Losing Payroll Expertise 

Multi-tasking payroll responsibilities with an overworked office manager or accounting employee,  depending on a inexperienced subordinate to run payroll. Whatever the situation, every business with in-house payroll runs the risk of receiving notice that your payroll person is taking an extended vacation, FMLA, fell ill, took another job or is not able to do payroll.   If your bookkeeper or controller gets a new job, they will walk out the door with their knowledge of the payroll process and how you do it. Outsourcing your payroll will assure retaining the knowledge of all the ins and outs of payroll-related tax laws and regulatory mandates on the federal, state and local levels.

9. Offer  Direct Deposit

Providing direct deposit to employees is difficult if a company doesn’t use an outside payroll service. Increasingly, small businesses recognize that employees want direct deposit. Not having to make a trip to the bank is an important convenience for them. More importantly for business owners, direct deposit eliminates time-consuming and error-prone paper handling and the need to reconcile individual payroll checks every month. Using direct deposit reduces the risk of fraud by eliminating the use of paper checks that could be altered or counterfeited. Unlike a paper check that bears your account number for all to see, when you use direct deposit your account number remains confidential to your financial institution or payroll provider. Confidentiality is another benefit of outsourcing payroll.

10. Peace of Mind

With the help of a professional payroll service provider, the hassle and pain often associated with processing payroll is gone.  You provide the basic information, and your payroll company takes care of the rest. And with guarantees of error-free payroll and tax filings and payments, you can eliminate the worry that many experience when it comes to paying employees and taxes correctly and on time.

 11. Key Takeaways

In Conclusion, when you encounter a business owner or manager who can identify with 1 or more of these 10 factors that prevent productivity and hinder profitability centered around the time and cost associated with administering your own payroll, one can usually find a business case to make the switch for outsourcing payroll.  These are the key benefits of outsourcing payroll. Assuming the payroll provider does a quality job and serves the client, these outsourcing relationships become long-standing business partnerships. Outsourcing of the Payroll process also makes the owner of the business tension-free about any breach of law regarding payroll laws and error-free and hassle-free payroll is processed.

About the Author: This article is contributed by CA Rajeev Gupta, Partner – SIGMAC & Co, Chartered Accountants,  Location- Delhi NCR and Gurgaon.

In case of any query please feel free to contact us at: rajeev@sigmac.co.in

Disclaimer: This content has been prepared for the general guidance of the reader on matters of interest only. It should not be treated as professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information or provisions of the law contained in this article. Author and/ or SIGMAC & Co., Chartered Accountants, its members, employees and agents accept no liability and disclaim all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.

Cryptocurrency and its Taxability in India

Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Cryptocurrency are decentralized networks based on block chain technology. Cryptocurrency is not issued by any Central Authority, so there is no interference of the Government in their trading. A Cryptocurrency is a form of digital asset based on a network.

Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions. Cryptocurrencies can be purchased from Crypto exchange.

Types of Cryptocurrencies

 

There are many different types of Cryptocurrency, but these nine are among some of the more well-known currencies

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Tether (USDT)
  • Binance Coin (BNB)
  • Ripple (XRP)
  • Tera (LUNA)
  • Dogecoin (DOGE)
  • Shiba-inu (SHIB)
  • Litecoin (LTC)
  • Ethereum Classic (ETC)

How to Buy Cryptocurrency

 

Any investor can purchase Cryptocurrency from popular crypto exchanges such as Coinbase, apps such as Cash App, or through brokers.

Is Cryptocurrency Legal in India?

 

Taxing Cryptocurrencies does not give them legal status in the country, finance minister Nirmala Sitharaman clarified in the Parliament. It’s the country’s sovereign right to tax Cryptocurrency transactions.

Advantages of Cryptocurrencies

 

  • Cheaper and faster money transfers with decentralized systems.
  • No involvement of Third Party such as Banks.
  • Investment in Cryptocurrency generates huge profits.

Disadvantages of Cryptocurrencies

 

  • Cryptocurrency includes high price volatility that can lead to major loss to the investor
  • Leaves a digital trail which allows authority to track financial transactions.
  • Because of digital nature transactions can be hacked.

Tax Implications on Virtual Digital Asset

 

Following section 115BBH shall be inserted by the Finance Act, 2022, w.e.f. 1-4-2023:

Tax on income from virtual digital assets:

(1) Where the total income of an assessee includes any income from the transfer of any virtual digital asset, notwithstanding anything contained in any other provision of this Act, the income tax payable shall be the aggregate of—

(a)  The amount of income tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent; and

(b)  The amount of income tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).

(2) Notwithstanding anything contained in any other provision of this Act,—

(a) No deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and

(b) No set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.

(3) For the purposes of this section, the word “transfer” as defined in clause (47) of section 2, shall apply to any virtual digital asset, whether capital asset or not.

Key points about Virtual Digital Asset from Budget speech given by Finance Minister 

 

There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime. Accordingly, for the taxation of virtual digital assets, the Finance Minister proposes that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.

  • No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital assets cannot be set off against any other income.
  • Further, in order to capture the transaction details, the Finance Minister  proposes to provide for TDS on payment made in relation to transfer of virtual digital assets at the rate of 1 percent of such consideration above a monetary threshold.

Points to Remember

 

  • TDS needs to be deducted under section 194S by the person paying for the Transfer of Cryptocurrency if the consideration paid during the FY does not exceed Rs 50,000 (in case of specified person) or Rs 10,000 (in any case other than a specified person). Provisions of Section 203A (Tax Deduction and Collection number) and 206AB (higher TDS rates for non–filers of ITR) will not be applicable to payments made by specified persons.
  • Assesses is not allowed any basic exemption limit in case the only income during the year is from the transfer of digital assets.
  • Meaning of Specified Person: For the purposes of this section “specified person” means a person,—
(a)   being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
(b)   being an individual or a Hindu undivided family, not having any income under the head “Profits and gains of business or profession”.’.

Key Takeaways

Cryptocurrency is a digital virtual asset which is very popular nowadays. Cryptocurrency has its own advantages and disadvantages. Before investing in a cryptocurrency, be sure you understand how it works, where it can be used, how to exchange it and how it is taxed in India. In some cases, rules made under FEMA by RBI are also involved due to involvement in Foreign Currency in the transaction of sale and purchase of Cryptocurrency. Use a trustworthy wallet. It is going to take some research on your part to choose the right wallet for your needs. Have a backup strategy. Think about what happens if your computer or mobile device (or wherever you store your wallet) is lost or stolen. People should do all the research before investing. And should be aware of all risks that arise from trading in Cryptocurrency.

About the Author: This article is contributed by CA Rajeev Gupta, Partner – SIGMAC & Co, Chartered Accountants, Location- Delhi NCR and Gurgaon.

In case of any query please feel free to contact us at: rajeev@sigmac.co.in

For more information and updates, you can contact CA Rajeev Gupta or visit our website www.sigmac.co.in

Disclaimer: This content has been prepared by the author for general guidance of the reader on the matters of interest only. It should not be treated as advice for investing in Cryptocurrencies. It should not be treated as professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information or provisions of the law contained in this article. Author and/ or SIGMAC & Co., Chartered Accountants, its members, employees and agents accept no liability, and disclaim all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.