Sleepless nights, seeing dreams wide awake, keeping the short-lived fun aside, blurring the line between family time & work-life and what not? You indubitably deserve a pat on your back for all this and a lot more than you are yet to do to take your mushrooming business idea to the ultimate zenith of success, you dream of, daily!
At this stage where you have just begun working on your business idea, you would need some extra hands that can skyrocket your business growth. So, hiring employees is one another big task on the list which by default makes it necessary for you to set up payroll for your startup.
Skepticism/anxiety ran your veins till the time you didn’t set the business in place and now ecstacy is all you have. You have not just taken a step closer towards your dream but also created job opportunities. And, with that, you have also invited a set of responsibilities as a business owner.
Not setting payroll at the early stage can get you into endless legal battles because of missing tax payments, making wrong payments or not keeping the data safely. Let us look at the basic step-by-step checklist to set up a payroll below!
- Apply for TAN (Form 49B)-
TAN stands for the tax deduction and collection account number. Basically, it is a 10 digit alphanumeric number which is given by the Income Tax Department of India. This is required by the employers who deduct or collect tax at source. You can apply for TAN online or offline. Whether you will end up deducting the Tax at source or not at the early stage of your business would depend on the salary of the employees you have hired. So, it is always a good idea to get the TAN in advance as you will definitely need it later. You should also have the GST number with you.
- Collect Employee information-
As an employer, you are responsible for filing taxes on behalf of the employees working with you. Hence, you must have the details of employees working with you in place (professional and personal). Here are the information and forms you must have.
- Full name
- Aadhar Card Number
- Pan Card Number
- UAN number for PF
- Date of birth
- Current address
- Permanent Address
- Declaration form 12B
The above-mentioned information and some more depending on the state laws are required at the time of entering the employee data to run payroll. Also, don’t forget to take form 12B if the employee has left some organization in the mid of a year or so to claim a rebate on investments & expenses and get tax benefits. Otherwise, no tax is deducted at the source.
Apart, from this, information related to PF and ESI has to be shared by the employee with you. If the employee has a UAN already, you should use it.
- Group your employees- Before actually beginning the payroll process, you should start grouping the employees. The first bifurcation should be on the basis of a permanent employee, freelancer, part-time employee and hour based workers. It is essential to do this grouping as the group that the employees fall in will affect the amount you owe them and the way yo withhold their taxes. You should also mention the employee grade and the tax slab he falls in. It becomes easier to group employees when a company uses a payroll software for it.
- Decide pay structure- Fixing the CTC or cost to the company of every employee is mandatory when you want to set up payroll for your startup in India. Essentially, you should define the CTC components. Will you include health insurance? Will you give food coupons? Will you provide lunch? Will you provide pick and drop facility? Moreover, you should know that if the basic salary of the employee is above Rs.10,000 then he can refuse from getting 12% of his basic salary as the provident fund.
- Pick a payroll software- The task of managing payroll is the most cumbersome and redundant HR task. Hence, companies choose to either outsource payroll work, hire an accountant, or buy online software. The most credible of all of these is payroll software. Doing a lot of paperwork or managing the same in excel sheets increases the chances of errors and loss of data manifold. Outsourcing or hiring an accountant is not as cost-effective as investing in payroll management software is.
- Use UAN- Universal account number or UAN number of the employees should be created if they don’t have any or the one that they have already (created by the previous employer) should be used while entering the PF details.
- Remember Tax filing dates- Even though payroll software is there to calculate the salary and monthly paychecks for every month, it is essential for you to remember the tax filing dates. The tax rules and laws keep on changing and thus staying abreast and not relying entirely on the software is extremely important.
It is “The Time”!
At first, remembering the dates, buying a payroll software, hiring new employees and understanding legal requirements might take a toll on you. But, don’t forget you are a business owner! You have taken a roller coaster ride in setting your business foundation already, you cannot let this take a toll on you. Till the time you have a clear outline in your mind, all of this (payroll process) would end well, every time!
Important Note: This should not be taken as tax advice. Tax rules are subject to change over time and hence the official government sites are the most appropriate reference points for the same.