By Ananth Balaraju

A Simple Payroll Processing Guide for SME’s:

If you have employees, you need to process payroll. Payroll refers to the process of calculating an employees’ net pay and paying the same to the employees at the end of each pay cycle. Payroll processing is a critical process for organizations irrespective of their size or scale. It is complex and involves many steps. It is tedious and needs inputs from multiple data sources like attendance, leave, new employee additions & exits, incentives, investment proofs, loans & advances to name a few. 

Post processing, it also needs to generate various statuary reports, payslips, tax calculations and bank authorizations. It gets further complicated if the workforce is geographically dispersed in multiple cities. On top of it, if all this is manual it is prone to errors leading to faulty payroll and extensive reworks. It gets further complicated for SME’s due to resource and cost constraints.

In this article we focus on simple, practical and straight forward steps for SME’s to execute a smooth, accurate and statuary compliant payroll.


Step 1 : Design your payroll 

This is the first and significant step of your payroll process. In this phase, you strategize and design your payroll policy. This includes, defining your leave and attendance policies, working hours, overtime, incentives, allowances and statuary deductions. It should also include any insurance covers that you provide to your employees. Based on the policy, you can create your pay heads and pay structures for all your employees.

Step 2: Gather Data

In this step, based on your pay cycle (monthly, weekly or biweekly), you should collect all the data from different departments/systems/employees to process the payroll.

Step 3: Cross Check or Validate Data Inputs 

In this step, you need to validate the data inputs received in the previous step and also cross check for loans & advances recoveries, incentive pay-outs, withholding and bonus pay-outs and arrears.

Step 4: Calculate or Process Payroll 

This is a crucial step so it is better to follow a maker-checker concept. One person can process the payroll for all the employees and the other can check or validate the same. If you are using a software, you can automate this process thereby eliminating any errors due to manual calculations. Post calculation, if you are using bank transfer as a way to pay, then you should generate bank authorizations for salary transfers to all employee bank accounts. 

Step 5: Publish to Employees 

Once the salary is processed by the bank, you can generate & publish salary slips to all employees. If you are using a payroll software, it will have employee self-service portals through which you can publish pay slips to employees and other calculations like tax. If not, you can share payslips using emails. Either case you should be ready to address any questions/doubts that employees may have with regard to their pay-outs. So setting up a helpdesk would be a good idea. 

Step 6: Statutory Reporting, Accounting and Analytics 

During payroll processing, the payroll processor needs to rigorously adhere to the statutory compliances. Various statutory deductions like EPF, TDS, ESI – are deducted during payroll processing. These deductions are then paid to the respective authorities/government bodies and records are maintained for future auditing. In addition to this, once the salary is paid, it needs to be entered into the books of account. Salary expenses is one of the significant entries in the books. If you are using a software for payroll and accounting (ERP), you can integrate the same to make automated or seamless entries. 

Last but not the least is the metrics. Every organization/management needs to have various payroll metrics for better decision making. Some of the key payroll metrics include, cost per employee, across various levels and geographies, cost of various allowances or perks etc. The payroll administrator needs to prepare these reports and send it to management for further action.


Payroll is a critical process in every organization and needs to be handled carefully to minimize errors. If the above step by step process is followed, it will be easy for the payroll administrator to calculate and process the payroll and also to be statutory compliant.

Manual payroll processing is time consuming, resource intensive and error prone. Ideally automation of this whole process helps significantly in streamlining and running an efficient payroll.

Payroll Processing in hrEntries

hrEntries provides an integrated payroll application that automates the entire payroll process. With hrEntries platform, SME’s HR and Finance teams should be able to efficiently collaborate and manage a wide variety of business processes such as payroll, expense reimbursements, statutory compliance maintenance, incentives management, leave and attendance administration, centralized helpdesk, employee self-service portal etc with ease on a single unified platform, thus eliminating the need for discreet point solutions that need extensive integrations and IT management.

For more information, Demo, or free trial, please reach out to us at info@hrentries.com

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