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payroll process

  1. 1. Human Resources (HR) Management and Payroll Process
  2. 2. Learning Objectives <ul><li>Know the definition and basic functions of the HR management and payroll processes </li></ul><ul><li>Recognize the relationship between the HR management and payroll processes and their environment </li></ul><ul><li>Comprehend the relationship between the HR management and payroll processes and management decision making </li></ul><ul><li>Understand the logical and physical characteristics of the HR management and payroll processes </li></ul><ul><li>Become familiar with some of the technology used to implement the HR management and payroll processes </li></ul><ul><li>Know some of the plans commonly used to control the payroll process </li></ul>HR Management and Payroll Processes
  3. 3. HR/P Spoke in the AIS Wheel <ul><li>In this chapter, we spotlight the human resources (HR) management and payroll processes. </li></ul><ul><li>It will become clear later why we depict these processes with one spoke in the AIS wheel </li></ul><ul><li>We will describe the various users of the HR management and payroll processes, each having their own view of the enterprise system and enterprise database </li></ul><ul><li>In addition, we will analyze the process controls related to the payroll process </li></ul>
  4. 4. Synopsis <ul><li>Human capital management (HCM) , the process of managing how people are hired, developed, assigned, motivated and retained, presumes that employees reflect a strategic investment, rather than an administrative cost </li></ul><ul><li>Some estimates place the value of human capital between $500,000 and $5 million per person </li></ul><ul><li>Costs of such human capital, including compensation, benefits, and HR, represent 43 percent of the average corporation’s total operating expense </li></ul>
  5. 5. Synopsis <ul><li>The automation of HR (dubbed “e-HR”) may transform HR from a cost center to a highly valued, strategic, mission-critical part of the business </li></ul><ul><li>HR automation will affect evaluation and compensation programs to reflect the changing work patterns, including: </li></ul><ul><ul><li>graying workforce </li></ul></ul><ul><ul><li>virtual teams </li></ul></ul><ul><ul><li>telecommuters </li></ul></ul><ul><ul><li>consultants </li></ul></ul><ul><ul><li>contractors </li></ul></ul><ul><ul><li>part-time and temporary employees </li></ul></ul>
  6. 6. Synopsis <ul><li>In this chapter we explore three themes: </li></ul><ul><ul><li>First, we briefly examine the importance of people to the success of any organization </li></ul></ul><ul><ul><li>Next, we describe how the HR management and payroll processes assist management in leveraging its human capital </li></ul></ul><ul><ul><li>Finally, we introduce some of the technology used to implement modern HR management and payroll processes </li></ul></ul>
  7. 7. Process Definition and Functions <ul><li>Personnel management started by handling payroll and personnel administration, but evolved by adding functions to handle recruiting, employee relations, and so on. </li></ul><ul><li>HRM still viewed personnel as something that could be controlled </li></ul><ul><li>HCM philosophy is based on three major principles: </li></ul><ul><ul><li>An individual’s value to an organization is derived from his/her job-related knowledge, skills, attitude, and motivations </li></ul></ul><ul><ul><li>Human assets include full-time permanent employees, plus part-time employees, temporary employees, and independent contractors. </li></ul></ul><ul><ul><ul><li>With supply chain management , an organization’s human assets could include employees of suppliers, sales channel partners, and customers </li></ul></ul></ul><ul><ul><li>A person’s relationship with an organization, from hiring through termination, must be nurtured and managed to obtain maximum lifetime value </li></ul></ul>
  8. 8. Definition of HR Management Process <ul><li>Primary function of the HRM process is to create information flows that support the following: </li></ul><ul><ul><li>Repetitive work routines of the HR department </li></ul></ul><ul><ul><li>Decision needs of those who manage the HR department </li></ul></ul><ul><li>The HRM process supports the work routines of the HR department and provides information for management decisions by: </li></ul><ul><ul><li>Capturing, recording, and storing data concerning HR activities </li></ul></ul><ul><ul><li>Generating a variety of HR forms and documents </li></ul></ul><ul><ul><li>Preparing management reports </li></ul></ul><ul><ul><li>Preparing governmental reports </li></ul></ul>
  9. 9. The Payroll Process <ul><li>Many companies often merge payroll and HR </li></ul><ul><li>The payroll process maintains records of payroll taxes, fringe benefits, attendance/absence, time worked and employee paychecks </li></ul><ul><li>The payroll process is generally automated because computers are much faster at handling the repetitive computations necessary (payroll is also the most frequently outsourced application in accounting) </li></ul><ul><li>Current HR software reaches far beyond simply doing payroll and includes: </li></ul><ul><ul><li>Benefits admin, applicant tracking/processing, skills inventories and compliance reporting </li></ul></ul><ul><li>Much of HRM is NOT captured by GAAP </li></ul><ul><ul><li>But accountants must recognize the immense value of human capital and its affect on the long-term financial health of the organization </li></ul></ul>
  10. 10. Payroll Part of HR Module <ul><li>It is common for payroll to be part of the HR module in software (SAP example) </li></ul>
  11. 11. Figure 14.1 on page 512 <ul><li>The HR module includes options for both HR and payroll, among others </li></ul><ul><li>The advantages gained by allowing the two processes to share common data include: </li></ul><ul><ul><li>Creating a single source for obtaining HR information </li></ul></ul><ul><ul><li>Providing for faster data access </li></ul></ul><ul><ul><li>Minimizing data redundancy </li></ul></ul><ul><ul><li>Ensuring data integrity and consistency </li></ul></ul><ul><ul><li>Facilitating data maintenance </li></ul></ul><ul><ul><li>Improving data accuracy </li></ul></ul>
  12. 12. Organization Chart of the HR Function
  13. 13. Duties of HR Managers
  14. 14. Duties of HR Managers
  15. 15. Technology Trends and Developments <ul><li>HR self service systems </li></ul><ul><li>Organizations might outsource other functions to support HR management processes. </li></ul><ul><ul><li>Web-based collaboration </li></ul></ul><ul><ul><li>Payroll </li></ul></ul><ul><li>Enterprise systems play a major role in implementing required HR and payroll functionality. </li></ul><ul><li>Implementing the HRM process with an enterprise system can help recognize the benefits of integration of the HR management process with other enterprise systems modules such as: </li></ul><ul><ul><li>Financial Accounting </li></ul></ul><ul><ul><li>Logistics </li></ul></ul><ul><ul><li>Sales and Distribution </li></ul></ul><ul><ul><li>The Workflow Module </li></ul></ul>
  16. 16. Implementing the HRM Process <ul><li>Process Inputs: In general, the HR forms in the figure capture information about three HR-related events: </li></ul><ul><li>(1) selecting employees </li></ul><ul><li>(2) evaluating employees, and </li></ul><ul><li>(3) terminating employees </li></ul>
  17. 17. Implementing the HRM Process <ul><li>Selecting employees may be initiated in one of two ways: </li></ul><ul><ul><li>Departmental managers (outside the HR department) may initiate the process to satisfy their immediate hiring needs </li></ul></ul><ul><ul><li>Selection process may be started by the system automatically </li></ul></ul>
  18. 18. Implementing the HRM Process <ul><li>Evaluating employees comprises a multitude of activities </li></ul><ul><ul><li>Departmental managers and supervisors (again, outside the HR function) usually initiate evaluations or other changes affecting employees </li></ul></ul><ul><ul><li>The manager of personnel appraisal and development (in HR) typically approves the review and implements such changes </li></ul></ul>
  19. 19. Implementing the HRM Process <ul><li>Terminating employees closes the employment process loop </li></ul><ul><ul><li>Periodically, departmental managers and supervisors (in concert with HR managers) must make difficult decisions about the retention of employees </li></ul></ul><ul><ul><li>If a termination is necessary, the employee change screen is used to initiate the process of changing an employee’s status from current employee to terminated employee </li></ul></ul>
  20. 20. Implementing the HRM Process <ul><li>Processing Logic and Process Outputs. </li></ul><ul><li>HR requests initiated outside of the HR department are approved within that department and then routed to HR for approval </li></ul><ul><li>Some data may be entered within HR </li></ul><ul><li>The employee/payroll master data, skills inventory data, and labor-force planning data within the enterprise database are updated and various reports are made available </li></ul><ul><li>Several outputs are produced </li></ul><ul><ul><li>New hire: </li></ul></ul><ul><ul><ul><li>An employment letter is sent to the employee </li></ul></ul></ul><ul><ul><ul><li>Selection notice is sent to the department manager </li></ul></ul></ul><ul><ul><li>Feedback on job performance: </li></ul></ul><ul><ul><ul><li>Employee review form </li></ul></ul></ul><ul><ul><li>Termination: </li></ul></ul><ul><ul><ul><li>Employees are notified of a dismissal through a dismissal letter </li></ul></ul></ul><ul><ul><ul><li>Termination notice sent to the operating department manager. </li></ul></ul></ul>
  21. 21. Implementing the HRM Process <ul><li>HRM process prepares reports for government and non-government entities </li></ul><ul><ul><li>Payroll reports: employee federal, state, and local taxes </li></ul></ul><ul><li>HR reports might include those provided to the following: </li></ul><ul><ul><li>• Unions </li></ul></ul><ul><ul><li>• Equal Employment Opportunity (EEO) </li></ul></ul><ul><ul><li>• Occupational Safety and Health Administration (OSHA) </li></ul></ul><ul><ul><li>• Department of Labor </li></ul></ul><ul><li>There are also numerous communications to employees of HR-related information </li></ul><ul><ul><li>Job opening announcements </li></ul></ul><ul><ul><li>Training information </li></ul></ul><ul><ul><li>Phone books </li></ul></ul><ul><ul><li>Benefits literature </li></ul></ul><ul><ul><li>Policy and procedure manuals, and the like. </li></ul></ul><ul><li>Many companies have found that such materials can be disseminated effectively and efficiently through an HR portal, which serves as a central data source for such information. </li></ul>
  22. 22. HR Management Flowchart
  23. 23. Key Data Tables in the HR Process <ul><li>Though the flowchart shows only one data store, multiple database tables are contained: </li></ul><ul><ul><li>Employee/payroll master data </li></ul></ul><ul><ul><li>Labor-force planning data </li></ul></ul><ul><ul><ul><li>Staffing requirements </li></ul></ul></ul><ul><ul><ul><li>Skills required </li></ul></ul></ul><ul><ul><ul><li>Turnover data </li></ul></ul></ul><ul><ul><li>Skills inventory data </li></ul></ul>
  24. 24. The Payroll Process <ul><li>Payroll generally falls under the controller’s office with the treasurer participating in distributing paychecks </li></ul>
  25. 25. Payroll Process Context Diagram
  26. 26. Payroll Process: Level 0 DFD
  27. 28. Payroll Data and Flows <ul><li>Tax rates data </li></ul><ul><ul><li>Contains current tax rates (federal, state, county and city) for employee withholding and employer accruals </li></ul></ul><ul><li>Attendance time record </li></ul><ul><ul><li>Lists hours employee are at the job site available for work; usually kept on time card </li></ul></ul><ul><li>Job time records </li></ul><ul><ul><li>Start and stop times for particular jobs for direct labor distribution </li></ul></ul>
  28. 29. Federal Payroll Tax Reports <ul><li>941 (report of FICA taxable wages) </li></ul><ul><li>W-2 (employee wage and tax statement) </li></ul><ul><li>1099 (reports non-salary income) </li></ul><ul><li>Employee Retirement Income Security Act (ERISA) reports (reports on private pension fund assets management) </li></ul>
  29. 30. Accounting Entries in Payroll Process
  30. 31. Payroll Process Flowchart
  31. 32. Payroll Has High Fraud Potential <ul><li>Types of payroll frauds: </li></ul><ul><ul><li>Ghost employees (employees who don’t exist but are issued paychecks) </li></ul></ul><ul><ul><li>Falsified hours (employees who overstate hours worked) </li></ul></ul><ul><ul><li>Commission schemes (collecting commissions on false sales or using false commission rate) </li></ul></ul><ul><ul><li>Worker’s comp schemes (faking injury to receive compensation) </li></ul></ul>
  32. 33. Payroll System Controls <ul><li>Segregation of duties between HR (employee record creation), payroll (prepares payroll) and AP/cashier (disburses cash) </li></ul><ul><li>Direct deposit (eliminates opportunity for check fraud) </li></ul><ul><li>Review of employee master data for duplicate names and/or social security numbers </li></ul><ul><li>Comparison of actual payroll to budget </li></ul>
  33. 34. Reimbursement Fraud <ul><li>Reimbursement for employee business expenses often clear the payroll system </li></ul><ul><ul><li>Claiming personal expenses as business related </li></ul></ul><ul><ul><li>Altering receipts to increase expenses </li></ul></ul><ul><ul><li>Submitting false receipts </li></ul></ul><ul><ul><li>Submitting same expense multiple times </li></ul></ul>
  34. 35. Payroll Process Control Matrix Legend: A = Provide employees with timely paychecks. B = Provide timely filing of tax returns and other reports to government agencies. C = Comply with requirements of payroll and tax laws and regulations.
  35. 36. Payroll Process Control Matrix