Human Resources (HR) Management and Payroll Process

1. Human Resources (HR) Management and Payroll Process

2. Learning Objectives • Know the definition and basic functions of the HR management and payroll processes • Recognize the relationship between the HR management and payroll processes and their environment • Comprehend the relationship between the HR management and payroll processes and management decision making • Understand the logical and physical characteristics of the HR management and payroll processes • Become familiar with some of the technology used to implement the HR management and payroll processes • Know some of the plans commonly used to control the payroll process HR Management and Payroll Processes

3. HR/P Spoke in the AIS Wheel • In this chapter, we spotlight the human resources (HR) management and payroll processes. • It will become clear later why we depict these processes with one spoke in the AIS wheel • 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 • In addition, we will analyze the process controls related to the payroll process

4. Synopsis • 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 • Some estimates place the value of human capital between $500,000 and $5 million per person • Costs of such human capital, including compensation, benefits, and HR, represent 43 percent of the average corporation’s total operating expense

5. Synopsis • 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 • HR automation will affect evaluation and compensation programs to reflect the changing work patterns, including: • graying workforce • virtual teams • telecommuters • consultants • contractors • part-time and temporary employees

6. Synopsis • In this chapter we explore three themes: • First, we briefly examine the importance of people to the success of any organization • Next, we describe how the HR management and payroll processes assist management in leveraging its human capital • Finally, we introduce some of the technology used to implement modern HR management and payroll processes

7. Process Definition and Functions • Personnel management started by handling payroll and personnel administration, but evolved by adding functions to handle recruiting, employee relations, and so on. • HRM still viewed personnel as something that could be controlled • HCM philosophy is based on three major principles: • An individual’s value to an organization is derived from his/her job-related knowledge, skills, attitude, and motivations • Human assets include full-time permanent employees, plus part-time employees, temporary employees, and independent contractors. • With supply chain management, an organization’s human assets could include employees of suppliers, sales channel partners, and customers • A person’s relationship with an organization, from hiring through termination, must be nurtured and managed to obtain maximum lifetime value

8. Definition of HR Management Process • Primary function of the HRM process is to create information flows that support the following: • Repetitive work routines of the HR department • Decision needs of those who manage the HR department • The HRM process supports the work routines of the HR department and provides information for management decisions by: • Capturing, recording, and storing data concerning HR activities • Generating a variety of HR forms and documents • Preparing management reports • Preparing governmental reports

9. The Payroll Process • Many companies often merge payroll and HR • The payroll process maintains records of payroll taxes, fringe benefits, attendance/absence, time worked and employee paychecks • 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) • Current HR software reaches far beyond simply doing payroll and includes: • Benefits admin, applicant tracking/processing, skills inventories and compliance reporting • Much of HRM is NOT captured by GAAP • But accountants must recognize the immense value of human capital and its affect on the long-term financial health of the organization

10. Payroll Part of HR Module • It is common for payroll to be part of the HR module in software (SAP example)

11. Figure 14.1 on page 512 • The HR module includes options for both HR and payroll, among others • The advantages gained by allowing the two processes to share common data include: • Creating a single source for obtaining HR information • Providing for faster data access • Minimizing data redundancy • Ensuring data integrity and consistency • Facilitating data maintenance • Improving data accuracy

12. Organization Chart of the HR Function

13. Duties of HR Managers

14. Duties of HR Managers

15. Technology Trends and Developments • HR self service systems • Organizations might outsource other functions to support HR management processes. • Web-based collaboration • Payroll • Enterprise systems play a major role in implementing required HR and payroll functionality. • 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: • Financial Accounting • Logistics • Sales and Distribution • The Workflow Module

16. Implementing the HRM Process • Process Inputs: In general, the HR forms in the figure capture information about three HR-related events: • (1) selecting employees • (2) evaluating employees, and • (3) terminating employees

17. Implementing the HRM Process • Selecting employees may be initiated in one of two ways: • Departmental managers (outside the HR department) may initiate the process to satisfy their immediate hiring needs • Selection process may be started by the system automatically

18. Implementing the HRM Process • Evaluating employees comprises a multitude of activities • Departmental managers and supervisors (again, outside the HR function) usually initiate evaluations or other changes affecting employees • The manager of personnel appraisal and development (in HR) typically approves the review and implements such changes

19. Implementing the HRM Process • Terminating employees closes the employment process loop • Periodically, departmental managers and supervisors (in concert with HR managers) must make difficult decisions about the retention of employees • 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

20. Implementing the HRM Process • Processing Logic and Process Outputs. • HR requests initiated outside of the HR department are approved within that department and then routed to HR for approval • Some data may be entered within HR • 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 • Several outputs are produced • New hire: • An employment letter is sent to the employee • Selection notice is sent to the department manager • Feedback on job performance: • Employee review form • Termination: • Employees are notified of a dismissal through a dismissal letter • Termination notice sent to the operating department manager.

21. Implementing the HRM Process • HRM process prepares reports for government and non-government entities • Payroll reports: employee federal, state, and local taxes • HR reports might include those provided to the following: • • Unions • • Equal Employment Opportunity (EEO) • • Occupational Safety and Health Administration (OSHA) • • Department of Labor • There are also numerous communications to employees of HR-related information • Job opening announcements • Training information • Phone books • Benefits literature • Policy and procedure manuals, and the like. • 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.

22. HR Management Flowchart

23. Key Data Tables in the HR Process • Though the flowchart shows only one data store, multiple database tables are contained: • Employee/payroll master data • Labor-force planning data • Staffing requirements • Skills required • Turnover data • Skills inventory data

24. The Payroll Process • Payroll generally falls under the controller’s office with the treasurer participating in distributing paychecks

25. Payroll Process Context Diagram

26. Payroll Process: Level 0 DFD

28. Payroll Data and Flows • Tax rates data • Contains current tax rates (federal, state, county and city) for employee withholding and employer accruals • Attendance time record • Lists hours employee are at the job site available for work; usually kept on time card • Job time records • Start and stop times for particular jobs for direct labor distribution

29. Federal Payroll Tax Reports • 941 (report of FICA taxable wages) • W-2 (employee wage and tax statement) • 1099 (reports non-salary income) • Employee Retirement Income Security Act (ERISA) reports (reports on private pension fund assets management)

30. Accounting Entries in Payroll Process

31. Payroll Process Flowchart

32. Payroll Has High Fraud Potential • Types of payroll frauds: • Ghost employees (employees who don’t exist but are issued paychecks) • Falsified hours (employees who overstate hours worked) • Commission schemes (collecting commissions on false sales or using false commission rate) • Worker’s comp schemes (faking injury to receive compensation)

33. Payroll System Controls • Segregation of duties between HR (employee record creation), payroll (prepares payroll) and AP/cashier (disburses cash) • Direct deposit (eliminates opportunity for check fraud) • Review of employee master data for duplicate names and/or social security numbers • Comparison of actual payroll to budget

34. Reimbursement Fraud • Reimbursement for employee business expenses often clear the payroll system • Claiming personal expenses as business related • Altering receipts to increase expenses • Submitting false receipts • Submitting same expense multiple times

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.

36. Payroll Process Control Matrix