chapter
14
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.
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-1
key terms
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annual leave
awards
clock card
employee earnings
record
• human resource
management
• leave loading
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long service leave
payroll register
payroll tax
rate of pay
sick leave
time sheet
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-2
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-3
HRM objectives
Motivation to maintain profitability and flexibility
for long-term business survival by achieving:
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organisational productivity
increased quality of work
improved quality of working life
statutory and legal compliance
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-4
HRM activities
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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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-5
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-6
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-7
Employee authorised deductions
• Employees may request a portion of their
remuneration be periodically remitted to an
organisation or agency on their behalf
• Examples:
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private medical fund payments
mortgage payment
rent
union fees etc.
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-8
Payroll cycle business activities
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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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-9
The gathering of time and
attendance data
Methods commonly used:
• Clock cards
• Time sheets
• Timebooks
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-10
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-11
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-12
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-13
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-14
Other payroll related expenses
• Payroll tax
• Superannuation Guarantee Scheme
• Fringe benefits tax
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-15
Payroll processing flow chart
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-16
Internal control procedures for the
payroll cycle
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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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-17
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
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-18
Overcoming payroll irregularities
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Improper recruitment procedures
Noncompliance with employment laws
Unauthorised changes processed
Incorrect data is input
Inaccurate calculations
© 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Accounting Information &
Reporting Systems by A. Aseervatham and D. Anandarajah. Slides prepared by
Kaye Watson.
14-19