Using LEDGERS to Manage PF, ESI, Gratuity & TDS Following Labour Law Reforms

The trend in payroll in India is rapidly changing:

The way payroll operated in the past is changing significantly. Previously, you were able to manage compliance relatively easily; for example: deduct PF when the employee was paid, deduct ESI when the employee was paid, deduct TDS at the end of the year, and only account for gratuity when the employee left your company.

Keeping track of all this compliance was as simple as keeping one or two spreadsheets and using your memory, correcting problems as they arose.

That is not the case anymore.

The way everything works is now interrelated. The salary structure of an employee, the type of employee they are, the types of statutory deductions taken from them and how they report their income to the tax authorities, all tie together.

A single change in the payroll structure will now impact several other payroll compliance issues.

Although most employers understand the compliance requirements that are mandated in the law, they do not know how to be compliant from month to month without error.

The major changes made to the labour law reform legislation

The reforms have implemented four new labour codes that standardise the way in which employers are to comply with the various statutory deductions they are required to make from payroll.

In the past:

• Workers were required to deduct PF, ESI, gratuity, and TDS separately.
• Salary structures were typically flexible in terms of how they were structured and were sometimes inconsistent.
• The way in which you treated your contract and fixed-term employees was done on an individual basis.
• Corrections to payroll were manually performed.

Currently:

• The definitions of wages are clear.
• Social Security covers more types of work.
• Employees who work on an occasional basis or on contract are no longer exceptions to receiving benefits.
• Employers now have to pay correctly every month.
• Payroll is now the basis of compliance, whereas it used to be the other way around.

What most companies fail at

It's not that the companies intend to fail, it is executing it correctly.

These are real questions that companies are asking:

• Is PF applicable on my salary structure?
• Is ESI an ongoing benefit if I exceed the limit?
• Who is now eligible for gratuity?
• Why does TDS change every time my salary is modified?
• Are our records clear enough if we have an inspection?

You can maintain all of this with Excel or memory for only a limited time.

How LEDGERS will help you to manage the day-to-day payroll activities

Let's think about it realistically.

Provident Fund (PF)

PF is a more complicated product. It is now based on defined wages rather than loosely tied to allowance-based wages.

With LEDGERS, you will receive assistance as follows:

• You'll automatically receive PF Eligibility in our software.
• Our software will generate your company's contribution limits accurately.
• There will be no manual calculations for both employer and employee contributions.
• Any Voluntary PF contributions that you make will automatically be recorded correctly within our software.
• All contribution summaries are always available and prepared on your behalf.
• You'll never have to verify your formulas manually.
• You will not need to state "We will fix it later" if you use our services to manage your payroll activities.

Employee State Insurance (ESI)

It is very common for ESI errors to occur because of changes in the amount of wages.

Turnover of an organisation's accounting ledgers to maintain records for :

• Check eligibility of employees
• Action the correct contribution amounts, based on employee salary
• Continue doing ESI deductions for the correct contribution times as required
• Create "Filing Ready" ESI Reports

Also, it provides significant relief from compliance anxiety.

Gratuity

Employee gratuity has frequently been tracked by companies on an informal basis or only when an employee resigned, which, given the rise of Fixed Term Employment Contracts, is relatively risky.

LEDGERS enables employers to:

• Track employee service history in the background
• Maintain Clean Service Records
• Monitor Gratuity Eligibility
• Provide employee documentation that is audit ready
• Remove the need to rely on individuals' recollections of what happened and/ or dusty file cabinets.

TDS on Wages

After Increment, Bonus and/or Regime changes, payroll systems usually experience a failure due to TDS.

With LEDGERS employers :

• Automatically project the estimated annual taxable income of employees
• Use old/new versions of current income tax regime(s) equally
• Calculates deductions for TDS when employees change their income mid-year.
• Ensures that Bonus, Arrear, and LOPs are accurately reflected in TDS.
• Provide reports that mirror Form 24Q and Form 16.

This will improve employee/mgmnt open communication regarding year-end anxiety and employee relations disputes.

The authentic benefit of LEDGERS

The authentic benefit of LEDGERS is not merely individual capabilities. Rather, the positive overall impact of LEDGERS comes when everything works together harmoniously.

What does this harmony of function mean?

LEGDERS has designed the payroll system in such a way that every item that is accounted for in Employee Classifications (PF/ESI/TDS) will automatically be computed in the payroll based on Salary Structure, which saves significant time and effort in the monthly computing of payroll.

When LEGDERS makes corrections to payroll, it also automatically updates audit compliance documents.

When LEGDERS generates payroll reports, they will have the same content as HR Reports, Finance Reports, and Compliance Documents.

In essence, the Payroll System created by LEDGERS will automatically ensure compliance with the New Labour Framework.

A Very Strong Contrast

Without the use of LEDGERS

Payrolls consist of numerous spreadsheets and numerous people are manually calculating the statutorily required deductions from Employee Pay (PF, ESI, TDS).

Additionally, Gratuity is not being accurately accounted.

Every month Manual Adjustments are made to TDS.

Payrolls that are not using LEDGERS are exposed to a higher level of risk for non-compliance.

LEGDERS Deployed For a Payroll System

The Number Of...

• Single Source Of Truth
• Automated Statutory Logic
• Passive Tracking of Gratuity
• Accurate TDS Calculations
• Audit-Ready Records

Reasons Why This is Important Now

There is an ever-increasing number of Inspections and Audits of Payrolls, and under the New Labour Framework it is the responsibility of the Employer to:

• Ensure that Accurate Records are maintained;
• Ensure that Statutory Dues are paid on time; and
• Classifying Employees correctly for Statutory Purposes.

At this point in time, compliance in Payroll is no longer about convenience, but instead about reducing risk.