## Payroll Procedure — The End-to-End Flow
```
Time-Keeping Dept → Attendance/hours data
Personnel/HR Dept → Approved employee list + pay rates
↓
Payroll Department → Computes gross wages + incentives; prepares pay slips
↓
Cost/Accounts Dept → Applies statutory deductions; pays net salary
↓
Statutory Bodies → Employer deposits PF, ESI, TDS, Professional Tax
```
Anti-fraud check: Payroll cross-verifies the HR employee list to ensure no bogus/ghost employees are paid.
---
## Deductions from Payroll
### Statutory Deductions (Mandatory by Law)
| Deduction | Description |
|---|---|
| Provident Fund (PF) | Employee's share (typically 12% of basic wages) deducted from salary |
| Employee State Insurance (ESI) | Employee's contribution deducted from salary (applicable where ESI Act applies) |
| Tax Deducted at Source (TDS) | Employer deducts income tax monthly if net salary exceeds the exemption limit; remitted to Income Tax Department |
| Professional Tax | State-level tax on employment; rate and applicability vary by state |
### Voluntary / Other Deductions
| Deduction | Description |
|---|---|
| Voluntary PF contribution | Employees may contribute above the mandatory rate |
| Benevolent Fund | Optional contribution to employee welfare fund |
| Loan repayment instalments | Recovery of loans advanced by the employer |
| Advance adjustments | Festival advances, unadjusted previous advances |
---
## Treatment in Cost Accounts
- Employer's share of PF and ESI → Added to employee cost (not a deduction — it is an additional cost over gross salary)
- Employee's deductions → These reduce take-home pay but do not reduce employee cost to the company
- TDS is not an employer expense — it is the employee's tax liability, collected by the employer as an agent of the government