The payroll cycle

1. The payroll cycle Learning objectives To learn about the human resource management (HRM) business activities and the payroll cycle business activities. To learn to flow chart HRM business activities and payroll cycle business activities. To understand the processing of HRM and payroll cycle transactions using computers. To know the control practices and procedures in HRM and the payroll cycle.

2. annual leave awards clock card employee earnings record human resource management leave loading long service leave payroll register payroll tax rate of pay sick leave time sheet key terms

3. Human resource management • Is responsible for hiring personnel • Advertises and assists in the selection process • Facilitates location of people • Is involved in personnel development and performance • Employee discipline and terminations

4. HRM objectives Motivation to maintain profitability and flexibility for long-term business survival by achieving: • organisational productivity • increased quality of work • improved quality of working life • statutory and legal compliance

5. HRM activities • Determine rates of pay • Maintain employee details • Determine employee authorised deductions • Develop and enforce appropriate human resource policies • Provide advice and information on HR issues

6. Rates of pay The reward for labour may be based on: • Supply and demand (high-income earners) • Award rates • minimum wage rates and conditions set out in a legal document • Independent negotiations for employees not covered by awards

7. Maintenance of employee details • Permanent information kept on a record card: • permanent records include full name, date of birth ,award, position etc. • Payroll register and earnings records: • also details of wages paid to date in current payroll period

8. Employee authorised deductions • Employees may request a portion of their remuneration be periodically remitted to an organisation or agency on their behalf • Examples: • private medical fund payments • mortgage payment • rent • union fees etc.

9. Payroll cycle business activities • Gathering time and attendance data • Calculation of gross amount of wages payable • Tax computation • Preparation of payroll records • Disbursement of payroll • Disbursement of PAYG, superannuation and deductions • Issue payment summaries and pay advice • Pay other payroll related expenses

10. The gathering of time and attendance data Methods commonly used: • Clock cards • Time sheets • Timebooks

11. The calculation of the gross amount payable Gross pay consists of: • pay for normal hours worked • pay for overtime worked • commissions • incentive pay • other allowances

12. Tax computation • Employer must register with ATO as a PAYG withholding entity • Must withhold appropriate amount of tax from each employee’s pay • PAYG withheld must be paid at stipulated time to the ATO

13. Disbursement of payroll • Payment usually from payroll bank account by: • cash • cheque • electronic bank transfers • Taxes, superannuation and other deductions must be forwarded by stipulated dates to appropriate agency

14. Payment summaries • Payment summaries (formerly group certificates) • Must be completed for each employee • Must be issued to employee by 14th day after financial year end • Must be issued 14 days after termination if requested by employee

15. Other payroll related expenses • Payroll tax • Superannuation Guarantee Scheme • Fringe benefits tax

16. Payroll processing flow chart

17. Internal control procedures for the payroll cycle • Only hire appropriately authorised persons • Pay rates must be authorised by appropriate person • Time records maintained • Segregation of duties practiced • HRD notified of terminations so names are removed immediately • Employee to sign timecard and receipt for cash wages • Pay distributed by responsible person not in payroll department • Safekeeping of unclaimed wages • Payroll registers serially numbered • Cheque signatories to check payroll register before authorising payment

18. Computer application systems for the payroll cycle • Saves clerical labour • Records the information in the same categories as a manual system • Quick production of the documentation required • Reduces clerical handling errors • Easily generates detailed reports for management use • Prints pay advice and payment summaries • Updates employee records

19. Overcoming payroll irregularities • Improper recruitment procedures • Noncompliance with employment laws • Unauthorised changes processed • Incorrect data is input • Inaccurate calculations