PAYROLL SERVICES

Category: Human Resource Services, Compliance Services
Written by Dewi Tri Utami on 19/09/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

Payroll is the compensation a company must pay to their employees for their work for a certain period on a specified date. A company’s finance or Human Resource (HR) department is responsible for managing payroll. However, many companies have started transferring their payroll function to other companies that specifically deal with processing employee salaries and benefits, insurance, and withholding tax.

WHAT IS PAYROLL?

Payroll is the compensation a company must pay to their employees for their work for a certain period on a specified date. The employee payroll process includes calculating working time, salary calculations, and sending the funds to the employee’s bank account. The finance or Human Resource (HR) department is responsible for managing payroll.

Following The Indonesian Wage Regulation No. 36 of 2021, Article 53 states, “Payment of wages by employers is made based on employment agreements, company regulations, or collective labor agreements.” Article 57 explains, “Wages may be paid directly to Workers/Labourers or banks. If wages are paid through the bank, the Worker/Laborer must be able to convert the wages into money on the payment date of the wages agreed by both parties.”

Generally, employee payroll is one of the bigger expenses of a business. The people responsible for payroll in a company must also calculate employees’ salaries and deductions, such as tax, health insurance (BPJS), employment insurance (BPJS Ketenagakerjaan), and other factors until each employee obtains a net salary. It takes a long time to do the calculations, especially if the company still does them manually. This process takes even more time as the number of employees in the company increases. Therefore, many companies are developing open-service payroll services to help resolve this issue.

PAYROLL SYSTEM IN INDONESIA

Indonesia implements a payroll system to manage employees’ payroll in a company. Apart from being used as a system to pay salaries, the payroll system is also used to ensure no miscalculation when paying an employee’s salary. The payroll system in Indonesia is regulated by the Job Creation Law and collected in Government Regulation No. 36 of 2021.

Several points related to the payroll system in Indonesia, as stated within the Government Regulation, are as below:

  • The minimum wage is determined according to the employee’s district or province where they work;
  • The scale and structure of wages include position, performance evaluation, company ability, time and length of service, class, education, and other subjective measures;
  • An employee who works overtime is subject to overtime payment;
  • Wages can be influenced by factors that decrease payment, such as employee loans, compensation, and fines; and
  • Wages serve as the basis for calculating an employee’s obligations, such as the amount of income tax an employee must pay.

The payroll system in Indonesia requires companies to form a salary structure and scale based on the evaluation and analysis of positions and measured based on the company’s ability and minimum wage.

Regulation of the Minister of Manpower No. 1 of 2017 describes the stages of formation of the structure and scale of wages as follows:

  • Determining the job title and job description of the employee ;
  • Create a list of positions and job descriptions based on determining factors, ranging from the level of responsibility, length of service, educational qualifications, and other factors affecting the classification of the list;
  • Create a table and structure of the wage scale containing the positions, classes, and smallest and largest wages;
  • Determine the smallest and largest wages in each Job Title column;
  • Determine the class of employee positions.

ISSUES RELATED TO PAYROLL

Below are several payroll-related problems that often occur:

  1. Payroll data leakage

    Salary information is confidential and cannot be leaked to irresponsible parties. But, irresponsible individuals often leak employee salaries data and misuse them. In addition to harming the employees, this data leakage also harms the company.

  2. Salary calculation error

    Payroll employees are prone to miscalculations when HRD has to calculate them manually. Many components of an employee's salary are difficult to calculate simultaneously.

  3. Late salary payment

    The company pays salaries to employees at the beginning or end of each month, depending on company policy. The timely salary payments also judge the company's credibility. A company that is late in paying salaries is a sign that the company is incompetent in managing employees. The company may also be subject to a fine when they are late in paying their employee salaries, as stated in Article 55 paragraph (1) in the Wage Regulation.

WHAT IS INCLUDED IN A PAYROLL SERVICE?

Aside from the main payroll service, there are also two other phases of a payroll service, pre-payroll and post-payroll. Pre-payroll covers all activities before employees receive their salary. In contrast, post-payroll is processed after the salary is received.

  1. Pre-Payroll process

    Pre-payroll process start when the company sends payroll data, and the payroll service provider checks, verify and calculates payroll data. The payroll service provider then creates a payroll summary, submits it after approval, and revises and re-submit it if needed. After the salary data is finalized, the debit note is issued, and the salary is transferred to employees. Payroll service providers also pay health insurance (BPJS) and tax on behalf of the company and employees.

  2. Post-Payroll process

    After employees receive their salary, the payroll service provider sends the salary slip to them after the salary day. The service provider will provide a list of payroll data that has been successfully transferred, along with details of taxes, health insurance, employment insurance, or other deductions that the company has approved.

BENEFITS OF OUTSOURCING PAYROLL PROCESS

Outsourcing a payroll process has many advantages. Many UMKM (Usaha Mikro Kecil dan Menengah) companies to multi-national companies use the service. Payroll service uses a system, thus minimizing the occurrence of errors that occur. Here are the advantages of using a payroll service:

  1. Monthly salary report

    Each employee is given a salary slip. The salary slip includes the number of tax deductions, health insurance, and other deductions so the employee can find the total net income earned.

  2. Process efficiency

    The existence of payroll service benefits employees and staff responsible for managing employee payroll, such as the human resource department. They can be more productive doing their other responsibilities by eliminating the time needed to calculate the salary.

  3. Automatic salary calculation & payment

    The system performs all payroll services. Therefore, companies should not be afraid of errors in calculating predetermined salaries. Payroll services help calculate net salaries after deductions in gross salaries through taxes, insurance, insurance, and other costs. In addition, payments with payroll services are also made automatically. So there is no need to bother transferring employees one by one.

  4. Ensure data safety

    All company information provided to payroll service providers is confidential. Payroll service providers protect the information in the form of employees and salaries concerned. In addition, updating and deleting data is also easy to do if there is a change in workers in a company.

DIFFERENT TYPES OF PAYROLL SERVICES

  1. In-house payroll Services

    In-house payroll service is viable when the number of employees is small. In this case, you have little data to maintain, and an employee can do that easily using payroll software. However, the one responsible for the payroll system must be updated about the employee’s laws, salary norms, tax deductions, filing, etc. The key advantage of this system is that you do not need to disclose the company’s secure data to any outsider.

  2. Bookkeeper and CPAs

    Bookkeepers and CPAs hired for the outsourcing of payroll services. They deliver accounting, tax, financial reporting, audit, and other economic services on a paid basis. In this process, a bookkeeper or CPA prepares financial statements for your business. They help review the financial declarations to maintain employees' data and deliver bank interface services.

    Just make sure whom you are hiring for service is a certified CA or accountant with a good reputation because he needs to work on your company's sensitive data, including employees’ data, joining, salary, leaves, etc.

  3. Payroll services agency

    When you hire a payroll service agency for your small business, you have a team of payroll experts who assists you with different tax and regulatory requirements. They deliver accounting and administrative services, including automatic deductions, employees’ day-to-day expenses, direct deposits, and many more.

    On behalf of your company, payroll firms make all payment decisions and protection from penalties for late filing and any wrong information. Some payroll service provider companies allow small business owners to manage and monitor payroll details online through a secure web browser.

PAYROLL SERVICE METHODS

While some companies prefer conventional manual methods, large corporations use state-of-the-art software for payroll processing. The various methods and processes are illustrated below:

  1. Employing an accountant for payroll management

    As a specialized function, many organizations often employ a qualified payroll accountant with a diploma or degree in accountancy or finance to look after payroll operations only. They are fully responsible for all company payroll activities. The professional must have a sound knowledge of basic accounting principles and globally accepted accounting standards. It, however, adds to organizational costs.

  2. Using a manual system

    Used by firms in the manufacturing and construction industries to calculate pay for onsite contractual labor or very small businesses where payments are made on a daily/weekly basis. This system involves manual entries in traditional payroll ledgers, spreadsheets, and a calculator, instead of state-of-the-art computerized aids. The process, however, is time-consuming, tedious, risky, and error-prone.

  3. Outsourcing payroll operations

    Some companies outsource their payroll activities to a 3rd party that takes full responsibility for all payroll accounting activities. The outsourcing organization takes care of payroll records & taxes analysis, processing of medical claims, employee provident fund, insurance processing, and audit planning & procedures. Outsourcing is an effective way to save costs and time, and this system works well for those organizations with more than 1,000 employees.

  4. Implementing payroll management software

    Automated, state-of-the-art software is available to perform all actions that go into the payroll process. Payable amounts and deductions are calculated in seconds with a single click. The pay slip gets generated in no time, and there is little room for error. Moreover, the data gets automatically validated by the software. However, the person using it must be trained appropriately to ensure maximum efficiency and accuracy.

HOW CAN WE HELP

Putranto Alliance’s team is kept up with the latest changes to regulations. We are equipped to advise corporate clients on employment contracts, company policies, social security programs, and related employment matters. Let us assist you with our payroll services while you focus on growing the company. We help calculate the monthly salary, withholding tax, and social security payments. In addition, we assist with the mandatory reporting and ensure you meet the compliance requirements.

With employee termination, we provide human-resource-related advisory services and drafts of termination packages. We assist with employee negotiations to ensure our clients do not face labor-related issues later on

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