• Questions to be addressed in this chapter

include:
– What are the basic business activities and data
processing operations that are performed in the
human resources management (HRM)/payroll
cycle?
– What decisions need to be made in this cycle, and
what information is needed to make these
decisions?
– What are the major threats and the controls that can
mitigate those threats?
• The HRM/Payroll cycle is a recurring set of
business activities and related data processing
operations associated with effectively
managing the employee workforce.
• The most important tasks performed in the
HRM/payroll cycle are:
– Recruiting and hiring new employees
– Training
– Job assignment
– Compensation (payroll)
– Performance evaluation
– Discharge of employees (voluntarily or
involuntarily)
• Payroll costs are also allocated to products and
departments for use in product pricing and
mix decisions.
• There are five major sources of input to the
payroll system:
– HRM department provides information about
hirings, terminations, and pay-rate changes.
– Employees provide changes in discretionary
deductions (e.g., optional life insurance).
– Various departments provide data about the
actual hours worked by employees.
– Government agencies provide tax rates and
regulatory instructions.
– Insurance companies and other organizations
provide instructions for calculating and remitting
various withholdings.
• Principal outputs of the payroll system are
checks:
– Employees receive individual paychecks.
– A payroll check is sent to the bank to transfer funds
from the company’s regular account to its payroll
account.
– Checks are issued to government agencies,
insurance companies, etc., to remit employee and
employer taxes, insurance premiums, union dues,
etc.
• The payroll system also produces a variety of
reports.
• Employees are an organization’s most valuable
assets:
– Their knowledge and skills affect quality and
quantity of goods and services.
– Labor costs are a major expense in generating
revenues and a key cost driver.
• The traditional AIS has not measured or
reported on the status of a company’s human
resources:
– Financial statements do not regard employees as
assets.
– Under GAAP, the value of human services is not
measured until they have been consumed.
• However, some companies are now creating
positions for a direction of intellectual
assets.
• Some may even include HR info in their
annual report, including reports on:
– Human capital: The knowledge employees
possess, which can be enhanced.
– Intellectual capital: The knowledge that’s been
captured and implemented in decision support
systems, expert systems, or knowledge
databases, so that it can be shared.
• Employee morale is also important.
– Bad morale leads to high turnover.
– Employee attitudes affect customer interactions
and are positively correlated with profitability.
– Employees need to:
• Believe they have the opportunity to do what they do
best
• Believe their opinions count
• Believe their coworkers are committed to quality
• Understand the connection between their jobs and the
company’s mission.
• The seven basic activities in the payroll
cycle are:
– Update payroll master file
– Update tax rates and deductions
– Validate time and attendance data
– Prepare payroll
– Disburse payroll
– Calculate employer-paid benefits and taxes
– Disburse payroll taxes and miscellaneous
deductions
• The HRM department provides information on new
hires, terminations, changes in pay rates, and
changes in discretionary withholdings.
• Appropriate edit checks, such as validity checks
on employee number and reasonableness tests are
applied to all change transactions.
• Changes must be entered in a timely manner and
reflected in the next pay period.
• Records of terminated employees should not be
deleted immediately as some year-end reports
(e.g., W-2s) require data on compensation for all
employees during the year.
• The payroll department receives
notification of changes in tax rates
and other payroll deductions from
government agencies, insurers,
unions, etc.
• These changes occur periodically.
• Some employees are paid on an hourly
basis.
– Many companies use a time card to record their
arrival and departure time.
• This document typically includes total hours worked during a
pay period.
– Some use electronic time clocks, where employees
swipe their badge through a reader when they
come and go.
– Manufacturing companies may use job time tickets
to record not only time present but also time
dedicated to each job.
• Some employees earn a fixed salary, e.g.,
managers and professional staff.
– Usually don’t record their time, but supervisors informally
monitor their presence.
– Professionals in accounting, law, and consulting firms must
track their time on various assignments to accurately bill
clients.
• The employee’s department
provides data about hours worked.
• A supervisor confirms the data.
• Pay rate information is obtained
from the payroll master file.
– The following are printed:
• Paychecks for employees--often accompanied by an
earnings statement, which lists pay detail, current
and year-to-date.
• A payroll register which lists each employee’s gross
pay, deductions, and net pay in a multi-column
format:
– Is used to authorize the transfer of funds to the company’s
payroll bank account.
– May be accompanied by a deduction register, listing
miscellaneous voluntary deductions for each employee .
• Most employees are paid either by:
– Check
– Direct deposit
– In some industries, such as
construction, cash payments may still
be made, but does not provide good
documentation
• Benefit programs increase the demands on the
HRM/payroll system for gathering employee data,
disbursing payments and information, etc.
• Providing access to payroll/HRM information through a
company intranet can help reduce costs.
• The company must periodically prepare
checks or EFT to pay tax and other liabilities.
• You’ve learned about the basic business
activities and data processing operations that
are performed in the HRM/payroll cycle,
including recruiting, hiring, training, assigning,
compensating, evaluating, and discharging
employees.
• You’ve also learned about key procedures in
payroll processing.
• You’ve learned how IT can improve the
efficiency and effectiveness of these
processes.
• You’ve learned about the basic business
activities and data processing operations that
are performed in the HRM/payroll cycle,
including recruiting, hiring, training, assigning,
compensating, evaluating, and discharging
employees.
• You’ve also learned about key procedures in
payroll processing.
• You’ve learned how IT can improve the
efficiency and effectiveness of these
processes.