In a couple of weeks, another financial year 2020-21 will come to an end, paving way for a new, fresh and more challenging new year.
Here are some critical steps that you need to be aware of for completing the end of year payroll checklist
Remind employees to submit their investment proofs and to claim their reimbursements
It is important for employees to be made aware of the fast approaching year end and that is time for them to submit their investments proofs, which will provide them tax relief. Additionally, they will need to claim their reimbursements as per their earlier allocations towards various tax-free allowances. Ensure that a timely communication is sent to them with appropriate links to portals (if any) and detailed steps on how to submit their documents. It will be a good idea to prepare a FAQ with appropriate responses in anticipation of a common queries and share it along with the communication. Hot topics like types of investments, documentation requirement, rules for claiming an allowance or limits for investments, timelines for submission, etc could be covered in the FAQs. Be aware that generally employees have a tendency to submit their documents only during the last day. This will apply a lot of pressure on the Payroll department and hence a couple of reminders would be advisable.
RELATED: Here’s how much time your payroll team can save this year-end!
Tax reconciliations
An important step that needs to be taken care of much before the year end is the tax reconciliations. A 3-way match between the pay register, the payment challans/returns and the books of accounts (statutory liability accounts) must be performed to ensure all values are in sync. This exercise should cover all statutory liabilities. Any difference must be resolved immediately either by way of additional remittance or supplementary filing of tax returns or by passing correction entries in books of accounts. It is advisable to keep the relevant Management staff informed of any such major differences or rectifications to avoid surprises.
Filing & issuing of Form-16
It is common knowledge that all organisations who have paid any income to it’s employees during the financial year will have to issue Form-16 to them without fail. Each Form-16 should contain the employee’s PAN, which in turn helps the employee to receive tax credit in case the employer has deducted taxes and remitted it to the government. Once the said form is received from the employer, the employee has an obligation to file the same with the income tax department within prescribed timelines. In order to provide a better employee experience, it would be a good idea if the Payroll department could facilitate any assistance to employees in filing their individual returns, though it is not mandatory to do so. There are many service providers who render this service for a nominal fee and would be prepared to set up help desks at the office premises.
Accounting for all costs & book liabilities
Payroll department has the responsibility to accurately account for all salary costs in the books of accounts before end of the year. The gross income, the statutory deductions and the net pay as displayed in the pay registers need to be accounted. In addition, payroll related liabilities/costs also need to be accounted - example, gratuity, leave encashment, unpaid salaries, insurance or benefit costs not yet due, bank payment entries, etc.
Salary cost break up and recon for tax audit purpose
As per income tax rules, an independent auditor needs to perform tax audits to ensure that an organisation (which exceeds prescribed turnover limits) is tax compliant. Hence, the auditor will require the pay registers, relevant tax challans and the P&L to validate it for correctness. At this point, it is important to reconcile the monthly salary costs in P&L to match it with actual payouts, plus identify any accruals for future liabilities or any such cost of benefits, etc that are booked under the heading ‘salary costs’ in the P&L.
Leave management
In some organisations where the leaves are allocated as per the financial year (and not calendar year), this activity is an important item in the year end process. There are two stages to this. Firstly, depending on the Company’s policy where there is no provision to carry forward any leaves, a communication needs to be sent out to employees reminding them to avail of the same before the year ends. However, if the policy allows for such carry forward, then employees should identify the type of leave and number of days they wish to move to the next year. There are possibilities that (i) an employee has already applied or availed leaves but still not updated the system (ii) employee has applied or availed the leaves but Manager has still not actioned it out. Both lead to leave balances being wrongly reflected in the system and hence needs to be cleared out.
Secondly, once the year closes, a fresh quota of leaves for the next year needs to be allocated to individual employees. This quota needs to include any leaves carried forward by the employee. All this is possible using a leave management software.
Income tax investment declarations and fund allocation for allowances
With the advent of a new financial year, the first and foremost interactive engagement with employees is asking them if they wish to provide their investment declarations and also allocate funds from their CTC towards tax-free allowances such as LTA or Telephone reimbursements (if any). Many popular payroll softwares have employee-friendly self service portals where they can submit it electronically. A communication needs to be sent to employees with proper links or guidelines on how and when to submit.
greytHR is India's #1 HR and Payroll software on the cloud. It vastly automates and streamlines the key areas of HR, payroll management, statutory compliance, leave and attendance tracking. With more than 9000+ customers and managing over 750,000 users, greytHR understands what it takes to deliver a high quality software service on a 24 x 7 basis. Being a expert in the domain, greytHR has also empowered more than 500 payroll processors, CA firms and payroll consultancy firms across India and globally.
To know more on how greytHR can help you address and plan the new financial year in payroll, why don’t you get in touch with us.
Here is wishing you a great year end as well as a happy new financial year!
