New to Payroll in a Startup? Seeking Guidance on Building a Salary Structure

Strategic compensation is determining and providing the compensation packages to the employees that are aligned with the business goals and objectives. In today's competitive scenario organizations have to take special measures regarding compensation of the employees so that the organizations retain the valuable employees. The compensation systems have changed from traditional ones to strategic compensation systems.



Today's compensation systems have come from a long way. With the changing organizational structures workers' need and compensation systems have also been changing. From the bureaucratic organizations to the participative organizations, employees have started asking for their rights and appropriate compensations. The higher education standards and higher skills required for the jobs have made the organizations provide competitive compensations to their employees.

Compensation strategy is derived from the business strategy. The business goals and objectives are aligned with the HR strategies. Then the compensation committee or the concerned authority formulates the compensation strategy. It depends on both internal and external factors as well as the life cycle of an organization.

Evolution of Strategic Compensation



In the traditional organizational structures, employees were expected to work hard and obey the bosses' orders. In return they were provided with job security, salary increments and promotions annually. The salary was determined on the basis of the job work and the years of experience the employee is holding. Some of the organizations provided for retirement benefits such as, pension plans, for the employees. It was assumed that humans work for money, there was no space for other psychological and social needs of workers.



With the behavioral science theories and evolution of labour and trade unions, employees started asking for their rights. Maslow brought in the need hierarchy for the rights of the employees. He stated that employees do not work only for money but there are other needs too which they want to satisfy from there job, i.e. social needs, psychological needs, safety needs, self-actualization, etc. Now the employees were being treated as human resource.

Their performance was being measured and appraised based on the organizational and individual performance. Competition among employees existed. Employees were expected to work hard to have the job security. The compensation system was designed on the basis of job work and related proficiency of the employee.



Today the compensation systems are designed aligned to the business goals and strategies. The employees are expected to work and take their own decisions. Authority is being delegated. Employees feel secured and valued in the organization. Organizations offer monetary and non-monetary benefits to attract and retain the best talents in the competitive environment. Some of the benefits are special allowances like mobile, company's vehicle; House rent allowances; statutory leaves, etc.


Calculation of gross salaries and deductible amounts is a tedious task which involves risk. Some of the organizations use the traditional manual method of payroll processing and some go for the advanced payroll processing software. An organization opts for any of the following payroll processing methods available


Manual payroll system is the traditional payroll system which involves pen and ink, adding machine, spreadsheet, etc instead of computers, software and other computerized aids. The process was very popular when there were no computerized means for payroll processing.

Now-a-days it is only few small scale organizations in the remote areas that use the manual payroll. Sometimes the construction industry and manufacturing industry also use the manual payroll systems for the contractual labour, as theses contracts are on daily/weekly basis.
There is full control in the hands of owner. But the process is tedious, time consuming and risky as it is more prone to errors.


Accountant is a professional having a degree/diploma course in finance/accountancy. He/she is responsible for all the activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted standards.
The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of others. The financial control regarding salary goes in the hand of accountant.


In today's computerized environment, payroll system has also developed itself into automated software that performs every action needed by the payroll process. It helps in calculating the payable amounts and deductions very easily. It also helps in generating the pay slips in lesser time. Automated calculations result in no errors. Data is validated automatically by the software.
It needs professionals to make use of the software for its efficient working.


Payroll outsourcing involves a third party (an outsourcing company) in the calculations of salaries and deductions. The outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the organization. If there is more number of employees (say more than 900-1000) in the organization, payroll outsourcing would be very much beneficial.

The data is provided to the consultants/outsourcing firms. The various payroll functions undertaken by the outsourcing organizations are as follows:

<ul>Analysis of Payroll records, payroll taxes
Medical claim processing
Employee Insurance & Provident fund processing