the human resources management (HRM)/ payroll cycle - a recurring

set of business activities and related data processing operations

associated with effectively managing the employee workforce

important tasks of HRM/payroll cycle:

recruiting and hiring new employees 2. training 3. job assignment 4.
compensation (payroll) 5. performance evaluation 6. discharge of
employees due to voluntary or involuntary
payroll systems primary function: compensating employees
five major sources of inputs to the payroll system:
1. HRM department 2. employees 3. various departments (hours
worked) 4.government agencies 5. insurance and other companies

1.

activities in the HRM/payroll cycle:

1. updating payroll master file:
- new hires, terminations, changes in pay rates, or changes in
discretionary withholdings-edit checks, records of employees
who quit or are fired should not be deleted immediately
2. update tax rates and deductions:
- payroll department receives notification of changes in tax rates
and other payroll deductions from government agencies,
insurers, unions
3. validate time and attendance data:
- time and attendance info comes in various forms depending on
the employees
- pay scheme
- time cards: records total hours worked during a pay period
- badge readers: used to collect job time data for production
employees
4. prepare payroll:
- employees department provides data about hours worked.
- A supervisor confirms the data.
- Pay rate information is obtained from the payroll master file.
- Procedures: (a) payroll transaction file sorted by employee
number (b) For each transaction, the payroll master file is read
for pay rates (c) Payroll deductions are summed and subtracted
from gross pay to obtain net pay. There are two types of
deductions: Payroll tax withholdings (SSS, HDMF, Philhealth),
Voluntary deductions

Year-to-date totals for gross pay, deductions, and net pay are
calculated, and the master file is updated
- payroll register lists each employees gross pay, deductions,
and net pay in a multi-column format
5. disburse payroll
- Most employees are paid either by: check, direct deposit, cash
- Procedures:
i.
Paychecks prepared - payroll register is sent to accounts
payable for review and approval
ii.
disbursement voucher is prepared to authorize transfer of
funds (For control purposes, checks should not be drawn on
the companys regular bank account)
iii.
approved disbursement voucher and payroll register are sent
to the cashier.
6. Calculate employer-paid benefits and taxes:
- employer pays some payroll taxes and employee benefits
directly
7. disburse payroll taxes and miscellaneous deductions:
- The company must periodically prepare checks or EFT to pay tax
and other liabilities.

Outsourcing options
Many entities outsource payroll and HRM to:
o Payroll service bureaus
-

Maintain the payroll master file and perform payroll

processing activities

o Professional employer organizations (PEOs)

Perform the services of the payroll service bureau

Also administer and design employee benefit plans

Generally more expensive than payroll service bureaus

When organizations outsource payroll processing, they send the

service bureau or PEO at the end of each period:
o Personnel changes
o Employee time and attendance data

The service bureau or PEO then:

o Prepares paychecks, earnings statements, and a payroll register
o Periodically produces tax documents

Reasons to outsource: (1) reduce cost (2) broader range of benefits

(3) free up computer resources

THREATS

Threats in employment practices:

a. HIRING UNQUALIFIED OR LARCENOUS EMPLOYEES
o Controls: (1) State skill qualifications for each position explicitly;
(2) Ask candidates to sign a statement confirming the accuracy
of the information on their application
b. VIOLATION OF EMPLOYMENT LAW
o Controls: (1) Carefully document all actions relating to
advertising, recruiting, hiring new employees, and dismissal of
employees, to demonstrate compliance; (2) Provide employees
with continual training to keep them current with employment
law
Threats in payroll processing:
a. Unauthorized changes to payroll master data
o Controls: (1) segregation of duties; (2) access controls
b. Inaccurate time and attendance data
o Controls: (1) Source data automation for data capture; (2) Biometric
authentication; (3) Segregation of duties; (4) Supervisory review
c. Inaccurate processing of payroll
o Controls: (1) batch totals; (2) cross-footing of payroll register
d. Theft or fraudulent distribution of paychecks
o Controls: (1) Restrict access to blank payroll checks and check
signing machine; (2) All checks should be sequentially
prenumbered and accounted for periodically
General threats:
a. Loss, alteration, or unauthorized disclosure of data
o Controls: (1) Payroll files should be backed up regularly; (2)
access controls should be utilized

b. Poor performance

o Controls: Prepare and review performance reports