CHAPTER 20

HR MGT/PAYROLL CYCLE

Payroll Cycle as Part of HRM

• Context diagram

1. Inputs from
1. HRM - payroll master changes
2. Depts - time data
3. Govt - tax rates and regulations
4. Employees - withholdings and deductions
5. Insurance and others - rate changes, instructions
2. Outputs to
1. HRM - reports
2. Depts - reports
3. Govt - payroll taxes and reports
4. Employees - paychecks and earnings statements
5. Bank - payroll check
6. Insurance and benefits - checks and reports

• AIS not traditionally used to measure human assets (because they're not financial statement assets) - but this may be changing



• Payroll system design should integrate it with the HRM system, not just keep track of time and attendance data to prepare paychecks.

Payroll cycle activities

• Update payroll master file - payroll changes, new hires, terminations, pay rates, etc. - can be done on-line with edit checks, must be reflected in current pay period.



• Update tax rates and deductions - less common, but must be reflected immediately.



• Validate time and attendance data

1. Pay schemes
1. Hourly business employees normally paid from time card data; job time tickets are used to track direct labor in manufacturing companies.
2. Fixed salary employees are not required to have time cards, but in professional organizations, billable hours are accumulated for billing purposes.
3. Sales staff are often paid straight commission or salary plus commission basis; bonuses may also be paid for exceeding targets - this requires a linking of sales and payroll systems.
2. Procedures
1. Payroll dept validates employee time records.
2. Data is entered on-line and edit-checked.
3. Opportunities for IT
1. Electronic collection of employee time - badge readers, electronic time clocks, bar codes.
2. Electronic collection of billable time in professional staff can eliminate paper time sheets.

• Prepare the payroll

1. Dept supervisors sign off on hours worked by employees.
2. Pay rates obtained from payroll master.
3. Paychecks prepared for employees on payroll master file.
4. Procedures:
1. Transactions sorted by employee number.
2. Master and transaction records are matched by employee #.
3. Gross pay is calculated using the payrate and hours worked or the fraction of the annual salary for salaried workers.
4. Payroll deductions are calculated, summed, and subtracted from the gross pay.
5. Payroll register, paychecks, and earnings statements are printed; separate deduction register produced for voluntary deductions.
5. Opportunities for IT
1. Electronic distribution of payroll reports.
2. Employee access to earnings/benefits, on-line or touch phone.

• Disburse the payroll

1. Most employees paid by check or direct deposit to banks.
2. Procedures:
1. Disbursement voucher for the payroll is prepared by A/P from the payroll register.
2. Cashier reviews the register and voucher and signs the checks.
3. A check is drawn on the general account for the net pay and deposited in the bank account for payroll.
4. Unclaimed checks are noted and investigated.
5. Entry is made to the G/L from disbursement voucher
3. Opportunities for IT
1. Direct deposit of paychecks using EDI
4. Payroll service bureau
1. Outsourcing the payroll function
2. Makes integration of payroll and HRM more difficult

• Calculate employer-paid benefits and taxes

1. Employers pay half of social security tax and state/federal unemployment taxes.
2. Many employers have flexible benefit plans, which allow employees to pick and choose their benefits cafeteria style.

• Disburse payroll taxes and voluntary deductions to appropriate agencies

1. Remit payroll taxes and voluntary deductions to appropriate agencies.
2. Payments can be made by check or electronically.

Major Threats in the Payroll cycle

• Hiring unqualified or larcenous employees - implement strict hiring procedures
• Violations of employment law - documentation of compliance and mechanism for being aware of changes in employment law.
• Unauthorized changes to the payroll master file - good segregation of duties, only HRM should enter changes to master file
• Inaccurate time data - edit checks should include validity check on employee number, limit check on hours worked, reasonableness checks
• Inaccurate processing of payroll - batch totals to prevent errors/omissions, cross-footing of payroll register, payroll clearing acct
• Theft or fraudulent distribution of payroll checks - proper segregation of duties

1. Control access to blank checks and signature machine
2. Prenumber and account for payroll checks.
3. Only sign checks with proper authorization and support.
4. Reconciliation of payroll acct by someone outside of payroll
5. Distribution of payroll checks by someone independent of authorization or recording functions.
6. Match unclaimed checks to payroll master file and redeposit if necessary.

Key decisions, needs and data model

• mgt needs info for staffing needs, employee performance, employee morale, and payroll processing effectiveness and efficiency.



• Data model

1. Resources - employee skills
2. Events - recruiting, training, providing services, paying, evaluating
3. Agents - applicants, employees

• Highlights of data model

1. Table for each entity and each *:* relationship.
2. Separate table for service provided and pay employees - internal
3. Recruiting entity stores data about activities performed to notify the public of job openings
4. Employee entity stores much of the data typically found in an employee master file and the skills entity contains data about the different job skills needed.
5. Training event represents various training opportunities available
6. Services provided entity stores time and attendance data.

• Effect of data model on internal controls

1. System can identify and enforce segregation of duties by preventing one person from performing incompatible functions.
2. Effective access controls - confidential payroll information
3. Data accuracy

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