Payroll Outsourcing in India: Allowances and Outsourcing

Payroll Outsourcing in India: Allowances and Outsourcing

Due to the exhaustive skillset, infrastructure and time, payroll management requires, the demand for outsourcing services is continuously on the rise. 

Payroll outsourcing involves engaging a third party for managing all your payroll-related activities. And it doesn’t stop at that. These companies deftly handle your compliance and administrative requirements as well. For you, it saves a lot of time and overhead costs! 

Who should outsource payroll?

Handling payroll management is a mammoth responsibility. Every time an employee onboards, we have to work out their salary packages. And that’s not about gross and net salaries calculations alone. Important elements like ad-hoc payments, tax calculations, allowances and benefits, need to be factored in as well. Then there are the huge tasks of roaster maintenance and monthly disbursals. 
As an employer, It’s not unnatural to feel intrigued by such responsibilities. Especially if you lack the necessary skill set and technology. 
So, who would benefit the most from payroll outsourcing in India?

  • Organizations undergoing rapid expansion - They require to invest their time and resources primarily on core competencies.
  • New market entrants - International companies and MNCs who are unfamiliar with Indian rules and regulations. 
  • Small and Medium Enterprises (SMEs) running on tight-string budgets - Financial constraints make them incapable of maintaining their own specialized HR wings. 
  • If you are one of them, payroll outsourcing is just the thing you need!

Components of payroll outsourcing in India
There are different components to payroll management. 

  • Calculation of salary packages or CTCs, based on company size and employees’ pay scale.
  • Compulsory deductions like professional taxes and employer’s provident fund. 
  • Inclusion of other variable components, which we call allowances. 

Allowance calculation is a task in itself. It differs across individuals, based on their salary. These include and are not limited to

  1. House rent allowance
  2. Dearness allowance
  3. Leave travel allowance
  4. Food allowance
  5. Education allowances (for upto two children)
  6. Mobile and telephone
  7. Monthly health allowance
  8. Meals during working hours
  9. Conveyance charges (for commuting to and from office)
  10. Special allowances

These components are exempt from government taxes, given they don’t cross pre-specified limits. 

Then again, many employers in India provide additional benefits to their employees in terms of health insurance policies and annual bonuses. In such a situation, calculating and customizing these amounts become extra headaches for payroll managers. Your outsourcing partner gets your job done hassle-free.

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