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The Payroll Training (Core) course equips professionals with essential skills in managing end-to-end payroll operations, including salary computation, statutory deductions, tax compliance, and final settlements. It covers payroll policies, reporting, and software usage for efficient processing. Ideal for HR, finance, and payroll executives, the course ensures accuracy, legal compliance, and streamlined payroll management in organizations of all sizes.
Payroll training (Core) Training Interview Questions Answers - For Intermediate
1. What is TDS and how is it calculated in payroll?
TDS (Tax Deducted at Source) is the income tax withheld by the employer before disbursing salary. It's calculated based on the estimated annual taxable income, considering exemptions, deductions (like HRA, 80C, etc.), and the prevailing tax slab. Payroll professionals use employee-provided investment declarations and Form 12BB to compute accurate TDS monthly, ensuring proper year-end reconciliation and timely remittance to the Income Tax Department.
2. How do you treat bonuses and incentives in payroll?
Bonuses and incentives are considered part of gross earnings and are taxable. They must be added to the month’s salary in which they are paid and taxed accordingly. Depending on the frequency (monthly, quarterly, annually), these payouts are handled as separate pay components in the payroll system. Transparent policy and proper documentation are important to avoid disputes and ensure compliance.
3. What are the challenges faced during year-end payroll processing?
Year-end payroll involves finalizing tax calculations, issuing Form 16, and submitting annual returns. Challenges include collecting proof of investments, handling last-minute declarations, adjusting TDS deductions, and ensuring compliance with statutory deadlines. Errors at this stage may lead to penalties or incorrect tax filings for employees, so accuracy and planning are crucial.
4. What is a payroll register and why is it important?
A payroll register is a detailed record that lists each employee's payroll information for a specific period, including gross pay, deductions, and net pay. It acts as a master reference for audits, reconciliations, and management reporting. Accurate maintenance ensures transparency and supports internal financial processes and legal compliance.
5. How do you handle payroll processing for contract or temporary employees?
Payroll for contract staff involves different rules, such as fixed-term agreements, varying pay structures, and separate compliance (e.g., professional tax, TDS under section 194J/194C). Payroll professionals must maintain clear contracts and apply appropriate deduction rules. Often, these employees are paid through vendor-managed payroll systems or separate modules.
6. What is the purpose of salary structure components like Basic, HRA, and LTA?
Salary is divided into components like Basic (forms a major part and is fully taxable), HRA (House Rent Allowance, partially exempt under section 10(13A)), and LTA (Leave Travel Allowance, exempt under certain conditions). Structuring salary this way helps optimize tax benefits for employees. Payroll teams must configure these components properly and handle exemptions during computation.
7. How do you manage payroll for new joiners and resigned employees mid-month?
For mid-month joiners or leavers, payroll is calculated on a pro-rata basis. Pay is computed based on the number of days worked. Other considerations include encashment of leave, pending reimbursements, and statutory deductions. Accurate joining and exit dates from HR are critical for ensuring correct computation and compliance.
8. What is a payslip and what information must it contain?
A payslip is a document provided to employees detailing their salary for a particular period. It must include employer details, employee details, pay period, earnings (basic, HRA, bonuses), deductions (tax, PF, ESI), and net pay. It's both a legal document and a record for the employee’s financial planning or loan applications.
9. What are payroll audits and why are they conducted?
Payroll audits verify the accuracy and integrity of payroll data. They check compliance with laws, correct tax deduction, benefit administration, and that proper procedures were followed. Internal or external audits help identify discrepancies, prevent fraud, and ensure financial accountability. Regular audits improve trust and regulatory readiness.
10. How do reimbursements differ from regular salary components in payroll?
Reimbursements (e.g., travel, medical, phone bills) are payments made for expenses incurred by employees during work. Unlike salary, they are often non-taxable if submitted with valid proof and within policy limits. Payroll systems handle reimbursements separately, and documentation is key to prevent tax liability or audit issues.
11. What is Form 24Q in payroll compliance?
Form 24Q is a quarterly statement submitted by employers in India to the Income Tax Department, detailing TDS deductions from employee salaries. It includes PAN, salary breakup, TDS details, and challan information. Payroll teams must ensure accurate filing every quarter, as errors can lead to penalties or mismatched Form 16 data.
12. How are leave encashments handled in payroll?
Leave encashment is paid when employees do not use their allotted leave and opt to convert it into cash. It can be processed during service, at resignation, or retirement. It's taxable under most conditions, except partially exempt upon retirement. Accurate leave balance data and policy adherence are key for correct payroll processing.
13. What is the difference between in-house payroll and outsourced payroll?
In-house payroll is managed internally using payroll software and HR coordination. Outsourced payroll involves a third-party vendor handling all calculations, compliance, and disbursements. While outsourcing reduces administrative burden, in-house offers more control and quicker customization. The choice depends on company size, budget, and complexity of payroll requirements.
14. What is gratuity and how is it calculated in payroll?
Gratuity is a statutory retirement benefit in India, paid to employees who have completed at least five years of continuous service. It’s calculated as:
Gratuity = (15/26) × Last drawn salary × Years of service
Payroll systems compute gratuity based on separation data and coordinate with finance for payment. It's tax-exempt up to ₹20 lakhs under current laws.
15. What role does technology play in modern payroll systems?
Modern payroll systems automate calculations, tax deductions, report generation, and compliance filing. They integrate with attendance, leave, and HRMS platforms to reduce manual errors and save time. Features like ESS (Employee Self-Service), mobile apps, and AI-based analytics make payroll faster, accurate, and more employee-centric.
Payroll training (Core) Training Interview Questions Answers - For Advanced
1. What is a shadow payroll and when is it used?
A shadow payroll is run in the host country for expatriate employees who remain on their home country payroll. It's used for tax reporting, social security compliance, and statutory remittance in the host country without actually disbursing salary. The main payroll handles payments, while the shadow payroll ensures legal obligations are met locally. This is common for global assignments where salary is paid in the home country but tax needs to be accounted for in the host country.
2. How do you handle payroll in a cost-to-company (CTC) structure?
In a CTC model, the total cost borne by the employer is broken into components like basic pay, HRA, bonus, PF, gratuity, etc. Payroll processing ensures each component is taxed or exempted correctly. For example, PF and gratuity are employer contributions included in CTC but not paid as take-home. Payroll systems must allocate these correctly and show clear breakup in payslips to maintain transparency.
3. What is reverse payroll calculation?
Reverse payroll calculation involves deriving gross salary from a predefined net pay. It’s commonly used during negotiations where the employee demands a certain take-home. Payroll software uses tax rules and deduction structures to estimate the gross amount that results in the required net salary, ensuring statutory compliance and cost predictability.
4. How does payroll integrate with accounting systems?
Payroll integrates with accounting through journal entries capturing salary expenses, taxes, and liabilities. Each pay component is mapped to a GL (General Ledger) account. Once payroll is finalized, the system generates entries for salary payable, TDS, PF, and other heads. Integration ensures accurate financial reporting and helps reconcile salary expenses in the balance sheet.
5. What is a payroll calendar and why is it important?
A payroll calendar outlines all important payroll dates for the year—salary disbursement, cut-off dates, statutory deadlines, and report submissions. It helps align HR, finance, and payroll teams to avoid delays, missed payments, or non-compliance. It also provides clarity to employees regarding when salaries and reimbursements will be processed.
6. What are allowances and how are they treated in payroll?
Allowances are fixed or variable amounts paid in addition to basic salary, such as HRA, travel, dearness, and education allowances. Some are fully taxable, others partially or fully exempt (like HRA). Payroll systems must apply correct tax treatment and document exemptions per employee declarations to comply with tax rules.
7. How is leave encashment taxed in payroll?
Leave encashment is taxed based on timing. During employment, it is fully taxable. At retirement or resignation, it’s partially exempt under Section 10(10AA), with exemptions depending on the type of employer. Payroll must segregate these cases and apply the correct tax treatment to avoid errors in TDS.
8. What are payroll liabilities and how are they managed?
Payroll liabilities are the amounts owed by the employer after payroll is processed, such as TDS, PF, ESI, and unpaid salaries. These must be tracked until they are remitted to the respective authorities or employees. Timely remittance is critical to avoid penalties and maintain compliance.
9. How do you handle employee reimbursements through payroll?
Reimbursements like medical, travel, and telephone bills are processed post-proof verification. If exempt under IT rules, they’re not taxed; otherwise, they are added to taxable income. Payroll integrates these with employee declarations and ensures correct treatment during TDS calculation and payslip generation.
10. What is the difference between payroll processing and payroll accounting?
Payroll processing focuses on salary calculation, deductions, and disbursement, while payroll accounting records payroll transactions in financial books. Payroll accounting involves creating journal entries for salary expense, liabilities, and provisions, ensuring reconciliation with company accounts.
11. How are incentives handled in payroll systems?
Incentives are typically non-fixed, performance-based payouts. They are added as non-recurring components in payroll systems and are fully taxable. Proper documentation and approvals are required, and they must be recorded separately for audit and reporting purposes.
12. What are perquisites (perks) and how are they taxed?
Perquisites are non-cash benefits like company car, housing, or ESOPs. They are taxable as part of salary under the Income Tax Act. Payroll calculates the taxable value based on valuation rules and includes it in Form 16 and tax computation.
13. How do payroll teams coordinate with HR and finance?
Payroll relies on HR for inputs like attendance, new hires, resignations, and salary changes. Finance oversees payroll disbursement, accounting, and budgeting. Seamless coordination ensures timely salary payments, accurate reporting, and compliance with internal policies and legal mandates.
14. What is a full and final (F&F) settlement and what are its components?
F&F settlement is the final salary processing after an employee resigns. It includes unpaid salary, leave encashment, bonus, reimbursements, and deductions (like notice pay or asset recovery). Payroll processes this based on inputs from HR and finance and ensures statutory compliance before disbursal.
15. What is payroll variance analysis?
Payroll variance analysis compares payroll data across periods to identify anomalies like unexpected salary increases or deduction changes. It helps in budgeting, fraud detection, and understanding cost drivers. This analysis is critical for internal audits and financial reviews.
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