Setting Up Payroll in Tally: The Complete Guide

Managing payroll is a complex and time-consuming task for businesses of all sizes. Some of the challenges include ensuring accurate calculations, timely payments and compliance with tax regulations. One of the best tools to streamline payroll management is Tally, a popular accounting software used by businesses worldwide. In this guide, we’ll walk you through the process of setting up payroll in Tally, covering everything from employee records to payroll calculations and reports.

1. What are Wages in tally?

Payroll in Tally is a feature that helps businesses manage their employees’ salary, allowances, deductions, bonuses and other compensation-related data. It enables seamless payroll processing, tax calculations and legal compliance. By using Tally’s payroll module, businesses can automate a significant portion of payroll tasks, reducing errors and saving valuable time.

2. Pre-requisites for setting up payroll in Tally

Before you start setting up payroll in Tally, make sure you have the following prerequisites:

Tally ERP 9 or TallyPrime: Payroll feature is available in both versions, but you need to ensure that your software is updated to the latest release.
Employee Details: Collect required information for each employee including name, title, bank account details, tax details and salary structure.
Salary Related Configurations: Know the components of salary like basic salary, allowances, deductions, bonus and gratuity.

3. Running pay in tally

To start using the Payroll feature, you need to enable it in your Tally configuration:

Open Tally: Open Tally and open the company for which you want to set up payroll.
Go to Features: Tap F11 Open the Features menu.
Enable Payroll: Under “Payroll Features”, set the option to Enable Payroll to Yes. It implements the payroll function.
Set up the payroll ledger: Next, go to the Account Info menu and select Payroll Info. Here, you can create salary ledgers like Basic Salary, HRA, Bonus etc.

4. Creation of employee hierarchy

After enabling the payroll feature, the next step is to create an employee master. Every employee must be registered as a principal in Tally to process payroll.

Go to Payment Details Information: In Gateway of tally, go to Payment Details Information.
Create a new employee: Select Employees and click Create.
Enter employee details:
- Name: Enter the name of the employee.
- Position: Define the employee’s job role or position.
- Pay Band: Select the appropriate pay band (eg, salary, part-time etc.).
- Date of Joining: Set the date of joining.
- Salary Structure: Specify the basic, HRA and other salary components of the employee.
Bank Details: Under the Bank Details section, enter the employee’s bank account number and branch name for payment of salary.

5. Formation of wage bands

Tally allows you to define different pay categories that determine how an employee’s salary is structured. This includes earnings, deductions, taxes and other benefits.

Create income and deduction ledgers: Go to Payroll > Income/Deductions. Here, create ledgers for each salary component:
- Basic Salary
- House Rent Allowance (HRA)
- Special Allowance
- Provident Fund (PF)
- Tax Deduction at Source (TDS) etc.
Set up salary details for each employee:
- Enter the monthly salary component for each employee mentioning the amounts of basic salary, HRA and other allowances.
- Mention any deductions such as Employees Provident Fund (EPF), Profession Tax (PT) or Income Tax.

6. Salary processing in Tally

After you set up employee skill and pay types, you can start processing employee salaries. This step involves generation of pay vouchers for calculation of salary.

Go to Payroll Vouchers: In Gateway of tally, go to Accounting Vouchers > Payroll Vouchers.
Select Employee and Salary Components: Select the employee whose salary you want to process. Tally automatically pulls previously defined salary components.
Enter Salary Details: Tally displays the salary structure. If there are any changes or bonuses, you can manually add or change them here.
Process Salary: After entering all the details, save the voucher. Tally automatically calculates TDS, Provident Fund and other deductions based on configured tax brackets.

7. Generating payroll reports

Tally offers several reports to help track and manage payroll details:

Employee Payslip: This report shows a breakdown of an employee’s salary including income, deductions and final net pay. To generate this report, go to Appearance > Payroll Reports > Payslip.
Payroll: This report provides a summary of payroll for all employees, showing each employee’s earnings and deductions. To create a payroll register, go to View > Payroll Reports > Payroll Register.
Tax Computation Reports: These reports show tax related deductions including TDS for each employee. To view tax reports, go to View > Payroll Reports > Tax Calculation.

8. Salary and Bank Transfer

Tally also facilitates seamless salary payments through bank transfers:

Create Bank Payment Vouchers: Go to Accounting Vouchers > Payment. In this payment voucher, select the bank ledger, enter the salary amount and select the employee name.
Bank Payment Report: View total salary payment in Bank Payment Report.

9. Compliance and Legal Notices

tally’s payroll module ensures your business is compliant with government regulations:

Provident Fund (PF): Employee and employer contribution to provident fund can be calculated and PF challan can be generated.
Gratuity: Tally can track gratuity payments for eligible employees.
Professional Tax (PT): Tally helps to calculate and deduct professional tax as per state norms.
TDS on Salary: Tally integrates TDS calculations, ensuring that the correct TDS is deducted from the employee’s salary and credited to the government.

10. Payment customization

Tally also offers the flexibility to customize payroll for various situations:

Overtime: Customize overtime pay calculation based on company policies.
Bonus/Advance: Include bonus payments or advances for specific employees in a given month.
Salary Balances: Add salary balances or retroactive salary adjustments when needed.

Conclusion

Setting up payroll in Tally simplifies the process of managing employee salaries, deductions and legal compliance. By following the steps outlined in this guide, businesses can automate their payroll system, reducing manual effort and the risk of errors. The Payroll module in Tally provides an efficient way to perform complex payroll calculations while ensuring compliance with tax laws and regulations. With features like employee master creation, salary processing and detailed reporting, Tally simplifies and streamlines payroll management.

This guide serves as a complete solution for setting up payroll in Tally, but it is important to regularly update the software and review configurations to keep up with changing regulations.