APA – Fundamentals of PayrollAPA – Fundamentals of Payroll

Chapter 2 – Payroll SystemsChapter 2 – Payroll Systems

March 10, 2012

IndexIndex

2.1 – The Payroll System2.1 – The Payroll System

2.2 – Processing Methods2.2 – Processing Methods

2.3 – Interfaces2.3 – Interfaces

2.4 – Controls2.4 – Controls

2.5 – External Audits2.5 – External Audits

2.6 – Paying Employees2.6 – Paying Employees

2.1 – The Payroll System2.1 – The Payroll System

Components:Components: HardwareHardware SoftwareSoftware Network (provides communication)Network (provides communication) OperatorsOperators

Computerized Payroll System: Computerized Payroll System: Improves efficiency of payroll department Improves efficiency of payroll department and assists with: 1. Compliance, Timely and assists with: 1. Compliance, Timely and Accurate Pay, Reporting, Record and Accurate Pay, Reporting, Record Retention, Security and ControlRetention, Security and Control

2.2 – Processing Methods2.2 – Processing Methods

Processing MethodsProcessing Methods Batch – Batch – System codes and combines items System codes and combines items

into groups of similar data. Typically do not into groups of similar data. Typically do not have access to data as the batch is being run.have access to data as the batch is being run.

Real-time – Real-time – System runs calculations and System runs calculations and updates records as the information is being updates records as the information is being entered. Results are available immediately.entered. Results are available immediately.

Additional Methods:Additional Methods: ESS – Employee Self ServiceESS – Employee Self Service MSS – Manager Self ServiceMSS – Manager Self Service

2.3 – Interfaces2.3 – Interfaces

The term IThe term Interfacenterface refers to the refers to the capability of two data processing capability of two data processing elements to communicate.elements to communicate.

HR/PayrollHR/Payroll BenefitsBenefits Data Collection (job costing, labor, Data Collection (job costing, labor,

equipment)equipment) Bank (Check Reconciliation/ACH)Bank (Check Reconciliation/ACH) Time and AttendanceTime and Attendance General LedgerGeneral Ledger IntegrationIntegration ReconciliationReconciliation

2.4 – Controls2.4 – Controls

EditsEdits Balancing and ReconciliationBalancing and Reconciliation DocumentationDocumentation Data Auditing and ValidatingData Auditing and Validating Batch ControlsBatch Controls Correction ProceduresCorrection Procedures Accumulator TotalsAccumulator Totals System Updates/UpgradesSystem Updates/Upgrades SecuritySecurity

2.5 – External Audits2.5 – External Audits

Primary focus of External Audits is to Primary focus of External Audits is to determine the following:determine the following:

Whether the financial statements are appropriateWhether the financial statements are appropriate Whether the financial assets are being properly Whether the financial assets are being properly

safeguardedsafeguarded Whether there are risks to the financial well-being Whether there are risks to the financial well-being

that will affect the future balance sheets or income that will affect the future balance sheets or income statementsstatements

Internal Benefits of an AuditInternal Benefits of an Audit Don’t be afraid of an audit. Use the process as a Don’t be afraid of an audit. Use the process as a

time to review your controls and procedures.time to review your controls and procedures. Discuss opportunities for improvement to controls Discuss opportunities for improvement to controls

and procedures with the auditor. Their agreement and procedures with the auditor. Their agreement may assist you with your management.may assist you with your management.

2.5 – External Audits – cont.2.5 – External Audits – cont.

Frequently Asked Auditor QuestionsFrequently Asked Auditor Questions

1.1. Where are the blank checks stored?Where are the blank checks stored?2.2. Who signs checks?Who signs checks?3.3. Who approves payroll?Who approves payroll?4.4. Where are files retained?Where are files retained?5.5. How is the accuracy of payroll verified?How is the accuracy of payroll verified?6.6. Who reconciles the payroll checking account?Who reconciles the payroll checking account?7.7. How do you ensure that taxes are withheld How do you ensure that taxes are withheld

accurately?accurately?8.8. Are timely deposits made?Are timely deposits made?9.9. Are managers complying with new tax rules?Are managers complying with new tax rules?10.10. Are all payroll transactions properly recorded in Are all payroll transactions properly recorded in

the general ledgers?the general ledgers?11.11. Are accrual accounts handled properly?Are accrual accounts handled properly?

2.6 Paying by Check2.6 Paying by Check

• Separate payroll checking accountSeparate payroll checking account

• Care of voided checks and manual checksCare of voided checks and manual checks

• Storage and access to blank checksStorage and access to blank checks

• Safeguarding against “Phantom Employees”Safeguarding against “Phantom Employees”

2.6 Paying by Direct Deposit2.6 Paying by Direct Deposit

• No check signing equipment to guardNo check signing equipment to guard

• No checks to get lostNo checks to get lost

• More advantageous for employeesMore advantageous for employees

• Loss of “float time” for employersLoss of “float time” for employers

• Not practical for company with high turnoverNot practical for company with high turnover

2.6 The Direct Deposit 2.6 The Direct Deposit ProcessProcess

• Setting up new enrolleesSetting up new enrollees• Educating employeesEducating employees• Promote direct depositPromote direct deposit• Need three pieces of informationNeed three pieces of information

• The employee bank routing numberThe employee bank routing number• The type of account the payroll will be The type of account the payroll will be

deposited intodeposited into• The account numberThe account number

• Checking the routing numberChecking the routing number• Determining transmission methodsDetermining transmission methods• Sending a prenotificationSending a prenotification• Correcting mistakesCorrecting mistakes

2.6 Automatic Clearing House 2.6 Automatic Clearing House FlowFlow

• EmployeeEmployee• AuthorizationAuthorization• CompanyCompany• ACH FileACH File• Originating Financial InstitutionOriginating Financial Institution• ACH FileACH File• ACH FilesACH Files• Receiving Financial InstitutionsReceiving Financial Institutions• Periodic StatementPeriodic Statement

2.6 Direct Deposit Issues2.6 Direct Deposit Issues

• Resolving late deposit issuesResolving late deposit issues• Direct deposits should be available on the day Direct deposits should be available on the day

settledsettled• Stopping direct depositStopping direct deposit• Reversing direct depositReversing direct deposit• Federal bank holidaysFederal bank holidays

2.6 Paying by Payroll Card2.6 Paying by Payroll Card

• All the benefits of direct deposit without the bank All the benefits of direct deposit without the bank accountaccount

• Gives the employee independence, prestige, safety, Gives the employee independence, prestige, safety, freedom, convenience and timefreedom, convenience and time

• Reduced costs for employersReduced costs for employers

• Employers need to work with bank to establish Employers need to work with bank to establish individual accounts for each enrolled employeeindividual accounts for each enrolled employee

2.6 Payment Timing and 2.6 Payment Timing and Unclaimed WagesUnclaimed Wages Each State requires employers to pay employees Each State requires employers to pay employees

within a certain time framewithin a certain time frame Most states also limit the time between the end of a Most states also limit the time between the end of a

pay period and paydaypay period and payday Most states do not allow more than 10 days Most states do not allow more than 10 days

between the end of a pay period and paydaybetween the end of a pay period and payday

Escheat laws deal with unclaimed wagesEscheat laws deal with unclaimed wages Most states dictate how long the employer must Most states dictate how long the employer must

hold unclaimed wageshold unclaimed wages Both state laws and company procedures dictate Both state laws and company procedures dictate

how and when unclaimed wages are recordedhow and when unclaimed wages are recorded

2.6 – Paying Employees2.6 – Paying Employees

Paying by CheckPaying by Check Paying by Direct DepositPaying by Direct Deposit Direct Deposit ProcessDirect Deposit Process Late Direct Deposit issuesLate Direct Deposit issues Stopping Direct DepositStopping Direct Deposit Reversing Direct DepositReversing Direct Deposit Federal Bank HolidaysFederal Bank Holidays Paying by Payroll CardPaying by Payroll Card Regulation of Payment TimingRegulation of Payment Timing Unclaimed WagesUnclaimed Wages