Understanding the Payroll System for Employees in a Company

Understanding the Payroll System for Employees in a Company

Employee salary payment is a crucial aspect for business owners or entrepreneurs. Every business owner employs several staff members or employees to carry out economic activities. With employees, all company activities can run smoothly, even without obstacles.

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Certainly, all these employees eventually receive payment as compensation for their contributions to the company. This payment can be made at regular intervals, as agreed upon between the business owner and the employees. Of course, the salaries given to employees should align with the initial agreements.

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Therefore, salary payments must be handled accurately, and calculations must be done meticulously. All components of the salary, including the payroll system, should be managed appropriately to ensure that salary payments do not cause any harm to any party. For a clearer understanding of the payroll system for employees in a company, refer to the information below.

Components of Employee Salary

Understanding the Payroll System for Employees in a Company

Firstly, let’s understand the common components of employee salaries typically included in the payroll system:

1. Basic Salary

One of the primary components in employee payroll is the basic salary. This salary is predetermined by the company and is an agreement between both parties. Generally, the amount of basic salary depends on certain factors, such as the employee’s competence, or it may be based on their job position and grade within the company.

2. Fixed Allowances

In addition to the basic salary, there are usually fixed allowances provided concurrently with the payment of the basic salary. This type of allowance is regularly given to employees, similar to the payment of the basic salary. Examples of fixed allowances that employees typically receive include holiday bonuses (THR), health benefits, and possibly pension benefits.

3. Variable Allowances

Complementing the basic salary, many companies also include variable allowances for employees. Variable allowances are calculated based on the number of days an employee is present at the workplace within a specific period. An example of this type of allowance is transportation allowance, which is received by employees according to their attendance at the workplace.

4. Commission

Commissions can also contribute to the total salary received by employees in specific periods. Companies typically grant commissions to employees who have successfully achieved specific targets. Therefore, commissions are provided when employees demonstrate work results and achievements aligned with the company’s expectations.

5. Overtime Pay

The calculation of employee salaries needs to be done with precision, not only considering basic salaries, allowances, and bonuses. There is also overtime pay, which is rightfully due to employees. Since overtime work is not a daily occurrence, the calculation of overtime pay must be accurate to ensure employees are compensated correctly.

6. Deductions

In employee salary payments, the salary components do not only cover income. There are also deductions that can reduce the amount of employee salaries. Deductions may be mandatory and imposed by the government or the company. Examples include income tax (PPh), health insurance contributions (BPJS Kesehatan), or social security contributions (BPJS Ketenagakerjaan).

Company Payroll System

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For a clearer understanding, below is information about the payroll system for employees in a company in general.

1. Salary Calculation

Payment of employee salaries needs to be accurately recorded to ensure the company’s financial system is not hindered. Every company must calculate the amount of basic salary and allowances received by employees. Additionally, all commissions for a specific period and certain bonuses should be added.

2. Tax Calculation

After calculating the total income for each employee, proceed to calculate the obligations for each employee. Sum up all the obligations that are the responsibility of each employee. After that, you can subtract the obligations from the total income of each employee. The final amount obtained is what the company can provide to each employee in each period.

3. Payroll Listing

Every salary received by employees is not provided instantaneously. Instead, each payroll period needs to be recorded by the company’s financial department. Here, the financial department can create a payroll list containing all employee payroll transactions for a specific period.

4. Journal Entry

The last step typically undertaken by a company in the employee payroll system is the creation of a journal. In this journal, each component needs to be classified into debit and credit columns. For instance, the employee salary cost is placed in the debit column, while assets and liabilities can be placed in the credit column.

The gross salary given to all employees can be included in the profit and loss statement. Meanwhile, the company’s assets and liabilities can be included in the balance sheet. This system helps the company record the payroll journal in the general ledger.

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Paying employee salaries might initially seem complex, especially for the Human Resources Department and the financial department responsible for employee management and payment. However, today, this process is not as complicated as before, thanks to numerous payroll applications that assist in accurate and practical employee salary payments.

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These applications not only ensure accurate calculations but also facilitate practical salary payments, allowing employees to receive their salaries correctly and on time. Consequently, the company’s economic activities can continue to run smoothly, leading to potential business expansion.

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