Payroll Cycle

Characteristics

  • The payroll cycle consists of five functions which will be explored throughout this module

These functions are:

  • The Payroll Preparation Function
  • The Timekeeping Function
  • The Deductions: Payments and Recording Function.
  • The Human Resources Function
  • Accounts affected by this cycle:

1) Within the Statement of Comprehensive Income

2) Within the Statement of Financial Position

  • The Payment Preparation and Payout Function

Wages

Commissions

Gross salaries

Bonuses

Manufacturing Wages

Directors’ Emoluments

Employer contributions

Accounts payable (Payroll deductions, eg: Medical aid, SARS, Pension funds)

Accounts payable (Employer contributions)

Employees for Remuneration Accrued

Various bank accounts

  • Journal Entries

Tax (PAYE) and Other Contributions by the employer on behalf of the employee are also recorded at each month-end as deductions, creating a liability.

A typical journal for deductions will be DR. PAYE/medical aid/pension fund and CR. SARS/Discovery Health.

A typical journal entry to be processed every month at month-end includes DR. Salaries and wages and CR. Bank (Payables?).

When payment is made to the payable, the liability is then reversed as DR. SARS/Discovery Health and CR. Bank.

Main Function: 1.) Human Resources

  • Introduction

The objective of HR is to ensure that all matters relating to the personnel department are properly maintained.

Human resources (HR) is a department that deals with all aspects of the human capital of the company.

  • Function of HR

The department focuses on the hiring and dismissal of staff, and ensuring that pay rates and changes thereto are implemented promptly.

They are responsible for keeping all employee records, including the employee permanent file.

The HR department is responsible for recruiting, counseling, negotiating, and labor law.

Accurate and complete records for all valid employees should be maintained by the department.

  • Documentation Used

Payroll amendment forms are sequentially pre-numbered and support the documentation of changes.

An updated list of employee details is also maintained.

Employee's file contains personal details, letter of appointment, IRP5, authorization in respect of deductions, employment contracts, and payroll amendment forms.

  • Risks in HR

Dismissal of employees for which the correct procedures were not followed.

Retention of staff that are not necessarily needed due to inefficiencies in the HR department.

Unsatisfactory or unnecessary employees may be recruited or retained.

Employee details could be fraudulently amended to include fictitious employees or change the rates of pay applicable to an employee.

  • Controls in HR:

Changes to pay rates, promotions, and any other changes in service conditions should be decided upon by the HR 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 authorized and approved by a senior official on supporting documentation.

All amendments should be recorded on sequentially pre-numbered payroll amendment forms and supported by further documentation.

Conduct interviews with all applicants, and the head of the department in which the applicant is going to work should be present.

All documents should be maintained in each employee file.

Main Function: 1.) Timekeeping