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Accounting For Payroll and Payroll System

Payroll processing requires specialized procedures due to differences in employee types and payment schedules. It also involves special accounting for taxes and deductions. The accounting department handles payroll but coordinates with HR for employee data. Controls are needed to authorize payroll and segregate duties between timekeeping, personnel, and payroll functions to prevent fraud. Payroll systems have evolved from manual to automated and further improved processes.

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Maria Licuanan
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211 views4 pages

Accounting For Payroll and Payroll System

Payroll processing requires specialized procedures due to differences in employee types and payment schedules. It also involves special accounting for taxes and deductions. The accounting department handles payroll but coordinates with HR for employee data. Controls are needed to authorize payroll and segregate duties between timekeeping, personnel, and payroll functions to prevent fraud. Payroll systems have evolved from manual to automated and further improved processes.

Uploaded by

Maria Licuanan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCOUNTING FOR PAYROLL AND PAYROLL SYSTEM

Payroll processing is a special-case purchases system in which the organization purchases labor rather
than raw materials or finished goods for resale. The nature of payroll processing, however, creates the need
for specialized procedures, for the following reasons:

1. A firm can design general purchasing and disbursement procedures that apply to all vendors and inventory
items.
Payroll procedures, however, differ greatly among classes of employees. For example, different procedures
are needed for
1.1 hourly employees, (per hour)
1.2 salaried employees, (monthly basis)
1.3-piece workers, and (per unit basis)
1.4 commissioned employees. (portion of sale)
Also, payroll processing requires special accounting procedures for employee deductions and withholdings
for taxes that do not apply to trade accounts.

2. General expenditure activities constitute a relatively steady stream of purchasing and disbursing
transactions Business organizations thus design purchasing systems to deal with their normal level of activity,
Payroll activities, on the other hand, are discrete events in which disbursements to employees occur weekly,
biweekly, or monthly. The task of periodically preparing large numbers of payroll checks in addition to the
normal trade account checks can overload the general purchasing and cash disbursements system.
But normally it is made by bi-weekly or so called per cut-off-Kinsenas. Other establishments like government
paid employees on monthly basis to lessen the work on disbursements.

3. Writing checks to employees requires special controls. Combining payroll and trade transactions can
encourage payroll fraud.
But on Actual work it is made on a memorandum letter that instructs the bank to disbursed such
amounts to respective payroll accounts of employees which is another example of Debit memo. Why? Debit in
bank accounts means deduct then after credited to payroll accounts to employees.

Matters Related to Payroll


1. Government Contributions

 Social Security System (SSS) for private employees or self-employed individual/voluntary


 GSIS for government employees
 Philippine Health Insurance corporation (PHIC or Phil health)
 Home Development Mutual Fund (HDMF or commonly known as Pag-Ibig)

2. Taxation

 Taxes withheld on compensation monthly


 Involved payroll department in preparation on 2316 and 1601-C BIR Tax forms

Human Resource Department (HRD)


- Matters involved

 Employee management
 Training and development
 Daily Time record (DTR) - Attendance (Late, Undertime, absences) - some uses 12-hour format and
24-hour format

Sample DTR

 Leave Credits monitoring (Sick leave and Vacation leave)


 Payroll Preparation - But why it is mistaken who should be the one responsible on it? In a proper
process and internal control, it should be process first by the payroll department or
HRD then checking and disbursement on the part of the accounting especially in terms of computation of
the withheld tax
PAYROLL SYSTEM

PAYROLL CONTROLS
Transaction Authorization
A form of payroll fraud involves submitting time cards for employees who no longer work for the firm. To
prevent this, the personnel action form helps payroll keep the employee records current. This document
describes additions, deletions, and other changes to the employee file and acts as an important authorization
control to ensure that only the time cards of current and valid employees are processed.

Segregation of Duties
The time-keeping function and the personnel function should be separated. The personnel function
provides payroll with pay rate information for authorized hourly employees. Typically, an organization will offer
a range of valid pay rates based on experience, job classification, seniority, and merit. If the production (time-
keeping) department provided this information, an employee might submit a higher rate and perpetrate a fraud.
For purposes of operational efficiency, the payroll function performs several tasks. Some of these are in
contradiction with basic internal control objectives. For example, the payroll function has both asset custody
(employee paychecks) and record-keeping responsibility (employee payroll records). This is the equivalent in
the general purchases system of assigning AP and cash disbursement responsibility to the same person.
Segregating key aspects of the payroll transaction between AP and cash disbursement functions return control
to the process. AP reviews the work done by payroll (payroll register) and approves payment. Cash
disbursements then writes the check to cover the total payroll. None of the employee paychecks is a
negotiable instrument until the payroll check is deposited into the impress account.
The Physical Payroll System
In this section we examine the physical payroll system. This begins with a very brief review of manual
procedures.2We then move on to review examples of automated and reengineered payroll systems.

MANUAL PAYROLL SYSTEM


Figure 6-8 presents a flowchart detailing the previous procedures in the context of a manual system. The
following key tasks are discussed.
1. Payroll authorization and hours worked enter the payroll department from two different sources: personnel
and production.
2. The payroll department reconciles this information, calculates the payroll, and distributes paychecks to the
employees.
3. Cost accounting receives information regarding the time spent on each job from production. This is used for
posting to WIP account.

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