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PAYROLL FUNCTION - Coggle Diagram
PAYROLL FUNCTION
1. Human Resources (HR)
Function:
To ensure that all matters relating to the personnel department are properly maintained. Deals with all aspects of the human capital of the company and therefore, should be skilled in recruiting, counseling, negotiating and labour law. Are responsible for keeping all employee records (i.e. employee permanent file), focus on the hiring and dismissal of staff, and ensuring that pay rates and changes thereto are implemented promptly.
Accounts affected: Statement of Comprehensive Income
- Gross Salaries;
- Wages;
- Commissions;
- Bonuses;
- Manufacturing wages;
- Directors' emoluments;
- Employee contributions
Accounts affected: Statement of Financial Position
- Employees for remuneration accrued;
- Accounts Payable (Payroll deductions, e.g.: Medical Aid, Taxes & Pension funds);
- Accounts Payable (Employer contributions);
- Various bank accounts
Documentation:
- Employee's File;
- Payroll amendment forms;
- Updated list of employee details
Controls
- Changes to pay rates, promotions to higher employment grades and any other changes in service conditions should be decided upon by the human resource department after consultation with all interested parties (e.g. unions) and consideration of relevant laws and regulations (e.g. minimum wage regulations).
- All changes should be documented and approved by the authorizing body (e.g. wage committee)
- All appointments and dismissals/resignations should be authorised and approved by a senior official on supporting documentation
- All these amendments should be recorded on sequentially pre-numbered payroll amendment forms and supported by further documentation. These documents should also be authorised and signed by senior management.
- Interviews should be conducted with all applicants & the head of the department in which the applicant is going to work should be present.
- All of the above documents should be maintained in each employee file. This will include documents such as application form, personal details of each employee, letter of appointment, authorisation in respect of deductions, employment contracts and payroll amendment forms.
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3. Payroll Preparation
Function:
To calculate gross wages, deductions from employees (which must be paid over to the relevant authorities) and net wages.
Documentation:
- Clock cards;
- Updated list of employees;
- Payroll (wage journal);
- Week-to-week reconciliation
Controls
- The calculations and castings should be reviewed by an independent person (e.g. one wage clerk checks another clerks work/edit checks)
- The hours recorded on the payroll should be obtained directly from the clock card or computer-transaction file
- All personnel should sign payroll as proof of functions performed
- Before payments can be authorised, the senior personnel should inspect the payroll and the week to week reconciliations performed
- The wage rates, deductions should be obtained from personnel records or master files
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2. Time Keeping
Function:
To keep an accurate and complete record of valid hours worked for which the company must remunerate employees, i.e. the company needs to ensure that all employees are paid for only the hours that they worked. This relates mainly to wage earners. Wage earners get paid weekly and their remuneration will vary depending on the hours that they have worked during that specific week.
Documentation
- Blank clock cards;
- Hours recorded on clock;
- Bath control sheet and batch register
Controls
Clock cards should:
- Be numerically accounted for;
- Be issued by the personnel department & prepared from personnel records/master file;
- Be stored at clock machine, under supervision, not with employees
Clock procedures:
- The clocking machine should be situated at the entrance/exit to ensure that
personnel may not leave premises without clocking in/out;
- Supervision over the clocking of employees (prevent employees from clocking
in for absentees).
Overtime should:
- Be authorized according to the company policy by the factory manager or foreman;
- The foreman’s overtime is authorized by the factory manager.
The foreman should:
- Keep a record of personnel present and time worked;
- Sign clock cards as evidence of approval of hours worked by the employee;
- The foreman’s clock card should be approved by a senior official (eg. factory
manager).
Entry and exit points to the work area should:
- Be limited to one access point;
- Protected by a “turn style” type mechanism;
- Be supervised during clocking periods.
Weakness & Risk:
Segregation of duties is important throughout the control function within an organisation but in particular within the payroll function. Without splitting the payment preparation and payout responsibilities between the correct departments and senior management it will be easy to manipulate the payroll function. This weakness creates the risk of fictitious employees being created and fraudulent payouts to take place and therefore not protecting the company's assets.
General Controls:
- Supervision and review by management;
- Segregation of duties;
- Rotation of duties;
- Personnel take leave regularly;
- Internal audit function;
- Sufficient stationery control;
- Scrutinize all records and documents for extraordinary/unusual items;
- Test castings and calculations on all selected items, documents and ledger
accounts
Control Objectives:
- Validity & Authorization;
- Completeness;
- Accuracy;
- Recording;
- Cut off
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