Monthly Archives: January 2015

Why buy software when you can rent software?

By | Human Resource, Payroll | No Comments
Buy Rent

The prime objective of a business enterprise is to maximize productivity in minimum time and reduced cost, thereby resulting in higher profit margins. For this, they need to do an assessment of their capital and operational expenses and figure out whether it would be in the interest of the enterprise to buy or rent the resources required to carry out the operations. These resources aren’t limited to office furniture or computers. Today, it extends to software that a company uses for managing work and other resources. Therefore the question: Why buy software when you can rent it?

CapEx vs OpEx: Buying a software license for a company is a capital expense and involves high up-front investment. When a firm buys software, it must also spend on resources required for software installation, troubleshooting as well as maintenance activities. This might incur some degree of overhead costs. Rental software saves the business enterprises from paying a high upfront cost at the beginning. The expenditure incurred on rent for the software comes under operational expense of the enterprise. This also leads to tax saving, thus benefiting the organizations.

Agility to respond to market changes: The advancement in the technology domain and the changing business requirements make the installed software become obsolete over a period of time. The enterprises striving to meet their business goals are left with two options – either to replace the existing software with the new software or to upgrade the current software. Going with any of the options involve an additional company expense, having a direct influence on the company’s profit margins. However, rented software offers the enterprises with latest software upgrades that have been rolled out recently, without charging any additional fee.

Improved service and cost-efficient technical support: Purchasing software by a business enterprise entails an additional cost of maintaining the software application. Rented software offers the business users with enhanced service and technical support, thus saving the organization from the human efforts, time and costs that otherwise account for in-house software maintenance.

Pay-as-you-use: The business firms will be required to pay the rental charge for accessing software on the systems on which it has been installed. This is very helpful in tackling scalability issues.

It might also help business enterprises in challenging situations when they need to lay off some of their workforce. If the firm purchased the software, it would continue to pay for it irrespective of the number of employees utilizing the software licenses. But, when the firm rents software, it can cancel the software subscription on those servers and computer systems in use by those employees, saving costs. Alternatively, in case of a seasonal spike in workload, a company might need to increase the users for a short period, which can be done easily by paying more for that period and then scaling down.

No vendor lock-in: Earlier business firms were left with no option but to buy software license from vendors for running business processes smoothly. This made the business users dependent on their software vendors for products and services. Now, with the advent of cloud, many software firms are offering software licenses to business enterprises on rent or pay-as-you-use model to help reduce the impact faced by companies in buying software. By renting software, an enterprise can get the software installed and removed on any number of computer systems depending on the firm’s business needs. It is more convenient for the business firm as compared to purchasing a software license. Most importantly, the buyers are given the freedom to move to other vendors without worrying about any lock-in clauses related to data or migration costs.

Flexible payment options: Rented software also lends flexibility to the companies with regard to the payment options. The enterprises can make payments for the software on monthly, quarterly as well as yearly basis.

In a nutshell, getting software on rent is a profitable proposition for a business enterprise since it does not involve high up-front costs or long-term commitment, thus saving both time and money, leading to increased productivity. Taken together, rented software can play an instrumental role in helping the firms meet their business objectives.

What is CTC? What is Take home Salary?

By | Employee Attendance, Leave Management, Payroll, Provident Fund | No Comments
What-is-CTC

Business organizations are bound by an obligation to pay their employees a particular sum of money in return for employees’ services to the company. For the employers, this sum of money, called salary, can be described as the cost of acquiring and retaining human resources for running business operations. From the point of view of the employees, salary can be viewed as the money and/or benefits earned under the employer-employee relationship to meet their personal expenses.

Usually, the salary for all employees performing similar work in similar industries in the same region is in a particular range. They are governed by the market pay rates and the minimum permissible wages according to the laws and regulations governing the area of operations. But, it should be understood that specific skills, competency and certifications are factors that may result in difference in salary structures.

It is common knowledge that salary consists of basic pay, housing allowance, dearness allowances, and others. While some allowances are taxable, others are either fully or partially exempt. New entrants of the corporate world may be fascinated at first by the astronomical salaries that they are hired at. But they are often disappointed when their first salaries turn out to be lower than their expected calculations.

So, what makes up for this difference? It is necessary to understand that the take home salary is not what is mentioned on your appointment letters. Let us discuss some aspects of the break-up of your salary structures to be able to make out the difference between similar sounding technical terms related to salary.

What is CTC?

Cost to Company (CTC) is in fact the salary package that is offered to an employee. What most employees do not understand in their first jobs is the fact that the CTC is an indicator of the total amount of expense that an organization is incurring for an employee in a year, including all the facilities an employee is getting during the service period.

This means that the CTC is not the actual salary of an employee, but a sum total of all the costs associated with an employment contract. It signifies the cost that a company would incur on you as an employee. Quite surprisingly, a major part of CTC comprises of compulsory deductibles, including those for provident fund, medical insurance etc.
It is to be noted that the salary and other perquisites that your company pays you, actually translate to some cost for them and hence the term. So, they form a part of your compensation structure but you do not get them as a part of in-hand salary. In other words, benefits increase your CTC, but they do not increment your net salary.

What constitutes your CTC?

Your basic salary, Dearness Allowance (DA), HRA, Medical Allowance, Conveyance Allowance, Medical Allowance, Incentives and bonus all come under the direct benefits that you get from your employer. These direct benefits coupled with indirect benefits such as Interest free loans, Food Coupons, Medical and Life Insurance premiums paid by company, Income tax savings, and Company Leased Accommodation and saving contributions such as Superannuation benefits, Employer Provident fund Contribution, and gratuity form your total CTC.

As a rule of thumb, CTC = Direct benefits + Indirect benefits + Saving Contributions

What is Take Home Salary?

Take home salary is the amount of money that an individual actually receives after the employment taxes and the cost of benefits and retirement contributions are deducted. While your gross salary is the CTC minus other benefits, your net salary can be calculated by making deductions such as income tax, Social Security and Medicare taxes, contribution to provident fund and so on from your gross salary.

Your take home salary is usually the net salary unless there are some personal deductions like loan or bond repayments, in which case, it becomes even lesser than your net salary.

Take Home pay = Direct Benefits – Income tax – Employee PF – Other deductions, if any

Why is there a difference in CTC and take home salary?

A common reason for difference in the CTC and take home salary is that some portions of your CTC, such as Gratuity, Employer provident fund and Superannuation benefits are added to your long term savings account but do not add up to your monthly take home pay. The other reason of reduced take-home salary is that the income tax is deducted at source by your employer, generally referred to as Tax Deduction at Source (TDS).

So, before being taken away by some seemingly lucrative new job offer, or when considering a salary appraisal or promotion raise, employees should look at what their take home salary will be and not their plump CTCs. Employees should also ensure that they have calculated their tax liabilities with the new income in accordance with the tax policies to figure out the amount they will receive in their paychecks.

We hope this post clears the doubts around understanding the salary break-ups and jargons. All the best for exciting new job offers and pay raises!

Payroll System in India

By | Employee Attendance, Leave Management, Payroll | One Comment
Simplify Payroll

Payroll System is one of the core functions of a business enterprise. It entails working out all the details pertaining to the compensation of the employees which include attendance management, leave management, advances, taxable deductions, and statutory compliance in accordance with the company policies. Payroll System in India could become complex due to many laws enforced on organizations.

Payroll is a crucial human resource function as a slight discrepancy in salary processing might generate dissatisfaction among the employees, resulting in decreased productivity, efficiency, and also high turnover rate.

Earlier, payroll management in India, was done involving a lot of paperwork which was a cumbersome procedure to follow for the employees of the human resource and finance department. Apart from documenting and managing files, the chances of committing errors were high. This procedure was time-consuming and impacted the overall productivity of the company.

Apart from disseminating paychecks to the employees, a lot of time went into other areas of payroll management such as calculating tax deductions, statutory compliances, and working out employee benefits.

This system of payroll management was also not very convenient from the employees’ perspective. Since this system did not lend much transparency to the employees with respect to their attendance and leave details, deductions from the salary by way of taxes and absenteeism, they had to depend on the HR and finance department employees for information. Flipping through numerous files to respond to the employee queries was again a time-taking task.

With the advent of information technology, the companies in their endeavour to make the payroll less tedious and to avoid paperwork, switched to spreadsheet applications such as Microsoft Excel. The employees of the concerned department were able to process payroll in a better way and it consumed less of their time. The spreadsheet made calculations simpler and quicker for the employees as it features formulas and other essential tools such as VLOOKUP and pivot tables for managing large amounts of data.  It also brought down the chances of making mistakes to some extent.

Payroll management on an Excel spreadsheet allowed the employees to get all the information they want with regard to their salary processing, deductions, attendance and leave management faster and with more accuracy. Though, payroll management done on an excel spreadsheet somewhat simplified the procedure, it still remained a time-taking and slow process.

This was the time when the companies felt the need to automate their payroll system in an attempt to resolve the day-to-day issues faced by the employees as well as the business enterprise.

The advancement in the sphere of information technology led to the development of online payroll software which helped the companies streamline their payroll management. The payroll software made computation of salary and recording other financial details very easy for the employees in the human resource and finance departments.

A payroll software helps the employees in the HR department to process salaries of the employees faster as compared to the earlier traditional methods deployed for payroll management. This system is more reliable and consistent with 100 percent accuracy. Hence, the chances of committing errors are negligible.

An online payroll software imparts more clarity in salary processing as it classifies salary under different heads such as deductions and gross earnings and leaves no scope for any sort of confusion. It does not require the employees to enter the ad-hoc earnings manually every month as the payroll software considers the same, prior to salary computation. It also efficiently calculates all the deductions pertaining to statutory compliances such as Provident Fund, ESI, and Professional Tax as well as TDS. The data from an Excel spreadsheet can also be imported directly into the payroll software.

With payroll software, it is easier to lend transparency to the employees with respect to their salary computation. The automated payroll management helps them to track their compensation details in terms of deductions that have been made or the ad-hoc earnings that have been added. It also gives the employees the flexibility to view their salary slips online and also take a print of it, if they so desire.

Upgrading to payroll software offers ample benefits to the company not just in terms of saving time, energy and finances, but also in computing deductions, loans, and advances apart from leave and attendance management.