Standard payroll process – Detailed instructions from A to Z

A standard payroll process not only helps businesses comply with legal regulations but also creates trust for employees. In this article, 1C Vietnam will provide detailed instructions on the steps in the payroll process, from data collection to payment and record keeping, helping businesses operate more effectively.

1. What is the payroll process? Why does a business need this process?

Before going into details, it is necessary to clearly understand the concept and importance of the payroll process for businesses.

1.1. Concept of payroll process

The payroll process is a set of steps performed in a certain order to calculate, determine, and pay wages to employees for a specified period of time. This process includes many activities related to collecting timekeeping data, calculating allowances, deductions, and finally paying wages.

A standard payroll process typically includes the following basic elements:

• Timekeeping data collection system
• Method of calculating basic salary and allowances
• How to calculate deductions (personal income tax, social insurance, health insurance)
• Salary approval and payment process
• Salary record storage method

The payroll process includes the steps of calculating, determining and paying wages to employees.

1.2. The role of payroll process in human resource management

The payroll process plays an important role in the human resource management system of an enterprise. Building and complying with a standard payroll process brings many benefits:

• Increased transparency : Employees understand how salaries are calculated, thereby creating trust in the business.
• Minimize errors : Standard procedures help reduce errors in salary calculation and payment.
• Legal Compliance : Ensure payroll is compliant with labor and tax laws.
• Time optimization : Helps HR department save time in monthly payroll calculation.
• Decision Support : Provide accurate data for HR policy and budget decisions.

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2. Detailed salary calculation process

To build a standard payroll process, businesses need to follow the following 6 steps.

2.1. Step 1 – Collect data (timekeeping, KPI, sales)

The first and most important step in the payroll process is to collect all relevant data.

Step 1.1: Synthesize timekeeping data

• Collect information about actual working days
• Record cases of leave, sick leave, unpaid leave
• Statistics on overtime and night work (if any)

Step 1.2: Synthesize KPI data and evaluate performance

• Collect performance evaluation reports from department heads
• Determine KPI completion level to calculate bonus (if any)

Step 1.3: Collect sales data (for sales staff)

• Summary of sales during the period
• Determine commission based on sales

Collect relevant information

2.2. Step 2 – Confirm data with staff

After collecting data, HR needs to reconfirm with employees to ensure accuracy.

Step 2.1: Send preliminary timesheet to employee

• Send attendance reports to each employee via email or internal system
• Require staff to confirm or respond within the specified time limit

Step 2.2: Receive and process feedback

• Record complaints or requests for adjustments (if any)
• Verify information and make adjustments if necessary

Step 2.3: Complete input data

• Update and close attendance data after confirming with employees
• Store confirmation evidence for reference when needed

Confirm data with staff

2.3. Step 3 – Create a salary table on Excel or software

After having accurate input data, the HR department proceeds to create the payroll.

Step 3.1: Set up payroll

• Use Excel spreadsheet templates or HR management software
• Enter basic parameters: basic salary, salary coefficient, fixed allowances

Step 3.2: Calculate actual salary

• Apply salary calculation formula based on actual working days
• Calculate variable allowances (overtime, travel allowance...)

Step 3.3: Calculate deductions

• Calculate social insurance, health insurance, unemployment insurance according to regulations
• Calculate personal income tax according to progressive tax table
• Minus advances and loans (if any)

Step 3.4: Summary of payroll

• Determine net salary after deductions
• Create a summary table for all employees

Create salary table on Excel

2.4. Step 4 – Check and approve payroll

The payroll process requires a thorough review before it is officially approved.

Step 4.1: Internal Audit

• Review all payroll for errors
• Check against previous pay period to ensure consistency

Step 4.2: Submit to leader for approval

• Prepare a summary report of salary fund to present to the leader
• Explain special cases (unusual salary increase/decrease)

Step 4.3: Process feedback and adjust

• Make adjustments as required by management (if any)
• Finalize final payroll after approval

Check and approve payroll

2.5. Step 5 – Payment by bank or cash

Once the payroll is approved, the accounting department makes salary payments to employees.

Step 5.1: Prepare payment

• Make a list of salary payments by payment method
• Prepare transfer file for employees receiving salary via bank

Step 5.2: Make payment

• Transfer salary to employee bank account
• Cash payment to direct salary employees (if any)

Step 5.3: Confirm payment

• Save proof of payment (receipt, transfer confirmation)
• Resolve issues arising during payment (if any)

Paying wages to employees

2.6. Step 6 – Record keeping and reporting

The final step in the payroll process is to keep records and generate the necessary reports.

Step 6.1: Store salary records

• Backup of paid payroll as required
• Store relevant documents (payslips, timesheets, approvals...)

Step 6.2: Prepare reports as required

• Prepare personal income tax report
• Prepare social insurance report

Step 6.3: Analyze salary data

• Synthesize and analyze salary fund fluctuations
• Provide analytical reports to management for salary policy decisions

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3. Factors affecting the payroll process

A company's payroll process is influenced by many different factors, from the form of payment to legal regulations.

3.1. Popular forms of salary payment

Each form of payment has a different impact on the business's payroll process.

Choosing the right form of payment will directly affect the steps in the payroll process, especially the data collection and salary calculation steps.

3.2. Legal regulations on wages

The payroll process must comply with current legal regulations in Vietnam.

Regulations on social insurance, health insurance and unemployment insurance:

• Employees pay social insurance: 8% of basic salary
• Employees pay health insurance: 1.5% of basic salary
• Employees pay social insurance: 1% of basic salary
• Enterprises pay social insurance: 17.5% of salary fund
• Enterprises pay health insurance: 3% of salary fund
• Enterprises pay social insurance: 1% of salary fund

Regulations on personal income tax:

• Taxable income = Income - Deductions
• Tax rates apply according to progressive tax schedule from 5% to 35%
• Family deduction: 11 million VND/month for yourself and 4.4 million VND/month for each dependent

These legal regulations directly affect how deductions are calculated in the payroll process. Businesses need to regularly update policy changes to ensure compliance with the law.

A standard payroll process is a key factor in helping businesses operate an effective human resource management system. By following 6 steps from data collection to record storage, businesses can ensure transparency, accuracy and efficiency in payroll. In the current digital transformation trend, applying technology to the payroll process is becoming an inevitable trend. At 1C Vietnam, we provide automatic payroll software 1C:Company Management. For more information about this software, contact 1C Vietnam immediately for the best support and advice.

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