Salaries are usually the largest cost in an NGO project, and the one donors look at most closely. Who was paid, for which project, for how many days, and was it approved? This guide explains how to run NGO payroll so that every one of those questions has a clear answer.
Payroll tax and other statutory deductions in Pakistan depend on your organisation and on current rules. Confirm them with your tax advisor.
What makes NGO payroll different
In a business, payroll is a single cost. In an NGO, a salary is often shared across projects, funded by different donors, and tested at audit against timesheets and contracts. The payroll process has to produce evidence, not only a payslip.
The monthly cycle
- Update employee records. New joiners, leavers, salary changes, and changes of project.
- Collect attendance and leave. Absences and approved leave for the month.
- Record overtime, loans and advances. Anything that changes the net pay.
- Calculate the run. Gross pay, deductions and net pay for each employee.
- Review. Someone other than the preparer checks the run.
- Approve. An authorised person approves it.
- Post to the accounts. The salary cost, the tax payable and the net payable are recorded.
- Pay. Bank transfer or cash, from a bank transfer list.
- File and keep. Payslips, the register and the approvals.
Approvals are the control
The most important feature of NGO payroll is separation of duties. The person who prepares the run should not be the person who approves it. An approval trail, with who approved what and when, is what an auditor will ask for. If your payroll sits in a spreadsheet, the approval is an email or a signature on a printout, and finding it a year later is hard.
Charging salaries to projects
Each employee works on a project, activity and location, and the salary cost should follow. There are two common situations:
- One employee, one project. Easy: set the project, activity and location against the employee.
- One employee, several projects. Harder: the cost needs to be split between projects, usually by a percentage based on time. Keep the basis of the split (timesheets, a signed allocation) as evidence.
Do not leave split salaries to year end. By then, nobody remembers.
Advances and loans
Staff advances are not expenses. They are amounts the employee owes the organisation, recovered from salary over time. Record them as an asset, track the balance for each employee, and show the recovery on each payslip.
Reports a donor or auditor will ask for
- Payroll register: every employee, gross, deductions, net.
- Payslips: one per employee, per month.
- Bank transfer list: who was paid how much, into which account.
- Tax deduction summary: the tax withheld and payable.
- Attendance and leave records.
- Loan and advance balances.
Common mistakes
- No approval trail. The run changes after it was "approved" and nobody can tell.
- Posting the net pay as the salary cost. The cost is the gross amount; the deductions are liabilities.
- Advances as expenses. The recovery then never appears.
- Project not set. The salary lands in administration and the donor budget looks underspent.
- Late changes. Joiners and leavers must be entered before the run.
How OneAccounts handles it
Payroll is an optional add-on. OneAccounts keeps employees and salary components, attendance and leave, overtime, loans and advances, and payroll runs that can be submitted, approved and posted, or reversed. An approval workflow can be configured. The payroll reports include payslips, the register, a salary summary, a bank transfer list, a tax deduction report, attendance, overtime and loan and advance ledgers.
An employee can have a default project, activity and location, and the payroll lines carry them, so the salary cost follows the employee into the project. Each employee has one default set, so a salary shared between several projects is split with a journal entry. Payroll lines do not carry a donor.
Tax and other deductions are set up as components that you control. OneAccounts does not apply Pakistan tax slabs or EOBI contributions on its own, so set the rules with your advisor.
Frequently asked questions
Who should approve payroll in an NGO?
Someone with authority who did not prepare the run, such as the finance manager or the executive director.
How do I charge one salary to two projects?
Agree a percentage based on time, keep the basis, and post the split by journal entry.
Are staff advances an expense?
No. They are a receivable from the employee, recovered from future salary.
Can software calculate Pakistani salary tax automatically?
Check this with any vendor. In OneAccounts, tax and other deductions are components that you set up; it does not apply tax slabs or EOBI by itself.
Which payroll reports do auditors ask for?
The payroll register, payslips, the bank transfer list, tax deduction reports and attendance records.