2. APA – Fundamentals of Payroll Chapter 2 – Payroll Systems March 10, 2012

3. Index 2.1 – The Payroll System 2.2 – Processing Methods 2.3 – Interfaces 2.4 – Controls 2.5 – External Audits 2.6 – Paying Employees

4. 2.1 – The Payroll System Components: Components: Hardware Hardware Software Software Network (provides communication) Network (provides communication) Operators Operators Computerized Payroll System: Improves efficiency of payroll department and assists with: 1. Compliance, Timely and Accurate Pay, Reporting, Record Retention, Security and Control Computerized Payroll System: Improves efficiency of payroll department and assists with: 1. Compliance, Timely and Accurate Pay, Reporting, Record Retention, Security and Control

5. 2.2 – Processing Methods Processing Methods Processing Methods Batch – System codes and combines items into groups of similar data. Typically do not have access to data as the batch is being run. Batch – System codes and combines items into groups of similar data. Typically do not have access to data as the batch is being run. Real-time – System runs calculations and updates records as the information is being entered. Results are available immediately. Real-time – System runs calculations and updates records as the information is being entered. Results are available immediately. Additional Methods: Additional Methods: ESS – Employee Self Service ESS – Employee Self Service MSS – Manager Self Service MSS – Manager Self Service

6. 2.3 – Interfaces The term Interface refers to the capability of two data processing elements to communicate. HR/Payroll HR/Payroll Benefits Benefits Data Collection (job costing, labor, equipment) Data Collection (job costing, labor, equipment) Bank (Check Reconciliation/ACH) Bank (Check Reconciliation/ACH) Time and Attendance Time and Attendance General Ledger General Ledger Integration Integration Reconciliation Reconciliation

7. 2.4 – Controls Edits Edits Balancing and Reconciliation Balancing and Reconciliation Documentation Documentation Data Auditing and Validating Data Auditing and Validating Batch Controls Batch Controls Correction Procedures Correction Procedures Accumulator Totals Accumulator Totals System Updates/Upgrades System Updates/Upgrades Security Security

8. 2.5 – External Audits Primary focus of External Audits is to determine the following: Whether the financial statements are appropriate Whether the financial statements are appropriate Whether the financial assets are being properly safeguarded Whether the financial assets are being properly safeguarded Whether there are risks to the financial well-being that will affect the future balance sheets or income statements Whether there are risks to the financial well-being that will affect the future balance sheets or income statements Internal Benefits of an Audit Don’t be afraid of an audit. Use the process as a time to review your controls and procedures. Don’t be afraid of an audit. Use the process as a time to review your controls and procedures. Discuss opportunities for improvement to controls and procedures with the auditor. Their agreement may assist you with your management. Discuss opportunities for improvement to controls and procedures with the auditor. Their agreement may assist you with your management.

9. 2.5 – External Audits – cont. Frequently Asked Auditor Questions 1. Where are the blank checks stored? 2. Who signs checks? 3. Who approves payroll? 4. Where are files retained? 5. How is the accuracy of payroll verified? 6. Who reconciles the payroll checking account? 7. How do you ensure that taxes are withheld accurately? 8. Are timely deposits made? 9. Are managers complying with new tax rules? 10. Are all payroll transactions properly recorded in the general ledgers? 11. Are accrual accounts handled properly?

10. 2.6 Paying by Check Separate payroll checking account Separate payroll checking account Care of voided checks and manual checks Care of voided checks and manual checks Storage and access to blank checks Storage and access to blank checks Safeguarding against “Phantom Employees” Safeguarding against “Phantom Employees”

11. 2.6 Paying by Direct Deposit No check signing equipment to guard No check signing equipment to guard No checks to get lost No checks to get lost More advantageous for employees More advantageous for employees Loss of “float time” for employers Loss of “float time” for employers Not practical for company with high turnover Not practical for company with high turnover

12. 2.6 The Direct Deposit Process Setting up new enrollees Setting up new enrollees Educating employees Educating employees Promote direct deposit Promote direct deposit Need three pieces of information Need three pieces of information The employee bank routing number The employee bank routing number The type of account the payroll will be deposited into The type of account the payroll will be deposited into The account number The account number Checking the routing number Checking the routing number Determining transmission methods Determining transmission methods Sending a prenotification Sending a prenotification Correcting mistakes Correcting mistakes

13. 2.6 Automatic Clearing House Flow Employee Employee Authorization Authorization Company Company ACH File ACH File Originating Financial Institution Originating Financial Institution ACH File ACH File ACH Files ACH Files Receiving Financial Institutions Receiving Financial Institutions Periodic Statement Periodic Statement

14. 2.6 Direct Deposit Issues Resolving late deposit issues Resolving late deposit issues Direct deposits should be available on the day settled Direct deposits should be available on the day settled Stopping direct deposit Stopping direct deposit Reversing direct deposit Reversing direct deposit Federal bank holidays Federal bank holidays

15. 2.6 Paying by Payroll Card All the benefits of direct deposit without the bank account All the benefits of direct deposit without the bank account Gives the employee independence, prestige, safety, freedom, convenience and time Gives the employee independence, prestige, safety, freedom, convenience and time Reduced costs for employers Reduced costs for employers Employers need to work with bank to establish individual accounts for each enrolled employee Employers need to work with bank to establish individual accounts for each enrolled employee

16. 2.6 Payment Timing and Unclaimed Wages Each State requires employers to pay employees within a certain time frame Each State requires employers to pay employees within a certain time frame Most states also limit the time between the end of a pay period and payday Most states also limit the time between the end of a pay period and payday Most states do not allow more than 10 days between the end of a pay period and payday Most states do not allow more than 10 days between the end of a pay period and payday Escheat laws deal with unclaimed wages Escheat laws deal with unclaimed wages Most states dictate how long the employer must hold unclaimed wages Most states dictate how long the employer must hold unclaimed wages Both state laws and company procedures dictate how and when unclaimed wages are recorded Both state laws and company procedures dictate how and when unclaimed wages are recorded

17. 2.6 – Paying Employees Paying by Check Paying by Check Paying by Direct Deposit Paying by Direct Deposit Direct Deposit Process Direct Deposit Process Late Direct Deposit issues Late Direct Deposit issues Stopping Direct Deposit Stopping Direct Deposit Reversing Direct Deposit Reversing Direct Deposit Federal Bank Holidays Federal Bank Holidays Paying by Payroll Card Paying by Payroll Card Regulation of Payment Timing Regulation of Payment Timing Unclaimed Wages Unclaimed Wages