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Chapter 14

The Human Resources (HR) Management and Payroll Processes
Accounting Information Systems 7e
Ulric J. Gelinas and Richard Dull

Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.

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Learning Objectives
‡ Define and understand the basic functions of the HR management and payroll processes. ‡ Describe the relationship between the HR management and payroll processes and their environment. ‡ Comprehend the relationship between the HR management and payroll processes and management decision making. ‡ Depict the logical and physical elements of the HR management and payroll processes. ‡ Describe some of the technology used to implement the HR management and payroll processes. ‡ Prepare a control matrix for a typical payroll process, including explanation of how business process control plans can accomplish payroll operations and information control goals.
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Process Definition and Functions
‡ ‡ ‡ Personnel management started by handling payroll and personnel administration, but evolved by adding functions to handle recruiting, employee relations, and so on. HRM still viewed personnel as something that could be controlled HCM philosophy is based on three major principles:
1. An individual¶s value to an organization is derived from his/her jobrelated knowledge, skills, attitude, and motivations 2. Human assets include full-time permanent employees, plus part-time employees, temporary employees, and independent contractors. ‡ With supply chain management, an organization¶s human assets could include employees of suppliers, sales channel partners, and customers 3. A person¶s relationship with an organization, from hiring through termination, must be nurtured and managed to obtain maximum lifetime value

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Duties of HR Managers 4 .

Duties of HR Managers 5 .

recording. and storing data concerning HR activities ± Generating a variety of HR forms and documents ± Preparing management reports ± Preparing governmental reports 6 . Decision needs of those who manage the HR department ‡ The HRM process supports the work routines of the HR department and provides information for management decisions by: ± Capturing. Repetitive work routines of the HR department 2.Definition of HR Management Process ‡ Primary function of the HRM process is to create information flows that support the following: 1.

fringe benefits. time worked and employee paychecks ‡ The payroll process is generally automated because computers are much faster at handling the repetitive computations necessary (payroll is also the most frequently outsourced application in accounting) ‡ Current HR software reaches far beyond simply doing payroll and includes: ± Benefits admin.The Payroll Process ‡ Many companies often merge payroll and HR ‡ The payroll process maintains records of payroll taxes. applicant tracking/processing. skills inventories and compliance reporting ‡ Much of HRM is NOT captured by GAAP ± But accountants must recognize the immense value of human capital and its affect on the long-term financial health of the organization 7 . attendance/absence.

Organization Chart of the HR Function 8 .

Technology Trends and Developments ‡ HR self service systems ± ± ± ± HR Manuals Retirement programs Personal profile Expense reports ‡ Outsourcing ± Web-based collaboration ± Payroll ‡ Enterprise systems may integrate HRM with ± ± ± ± Financial Accounting Logistics Sales and Distribution The Workflow Module 9 .

‡Locate and manage human capital skills ‡Performance evaluation data 10 .Master Data related to HR and PR Function Payroll function ‡ Establishes authorization for payroll event ‡ Provides inputs ± Pay rates ± Exemptions ± Deductions HR function ‡Determine: ‡Employee's assigned department ‡Telephone number ‡Supervisor ‡ Historical payroll data periodic reporting ± Taxes ± Insurance ± Retirement programs.

Payroll Process Context Diagram 11 .

Payroll Process: Level 0 DFD 12 .

Payroll Process ± Diagram 4 13 .

ESTABLISH VARIOUS PAYROLL LIABILITIES Payroll clearing FIT withholdings payable SIT withholdings payable FICA tax withholdings payable Accrued payroll B.Accounting Entries ± Payroll Process ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ PAY EMPLOYEES A. RECORD THE DISBURSEMENT OF CASH Accrued payroll Cash XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX DISTRIBUTE PAYROLL TO VARIOUS ACCOUNTS Work in process (direct labor) Manufacturing overhead (indirect labor) General and administrative expense Selling expense Payroll clearing XXXXX XXXXX XXXXX XXXXX XXXXX 14 .

Accounting Entries Cont. ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ACCRUE EMPLOYER PAYROLL TAXES Manufacturing overhead (tax on factory workers) General and administrative expense Selling expense FICA taxes payable SUT taxes payable FUTA taxes payable RECORD TAX DEPOSITS FIT withholdings payable SIT withholdings payable FICA tax withholdings payable FICA taxes payable SUT taxes payable FUTA taxes payable Cash XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX 15 XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX .

Payroll Process Flowchart 16 .

Payroll Has High Fraud Potential ‡ Types of payroll frauds: ± Ghost employees (employees who don¶t exist but are issued paychecks) ± Falsified hours (employees who overstate hours worked) ± Commission schemes (collecting commissions on false sales or using false commission rate) ± Worker¶s comp schemes (faking injury to receive compensation) 17 .

payroll (prepares payroll) and AP/cashier (disburses cash) ‡ Direct deposit (eliminates opportunity for check fraud) ‡ Review of employee master data for duplicate names and/or social security numbers ‡ Comparison of actual payroll to budget 18 .Payroll System Controls ‡ Segregation of duties between HR (employee record creation).

Reimbursement Fraud ‡ Reimbursement for employee business expenses often clear the payroll system ± Claiming personal expenses as business related ± Altering receipts to increase expenses ± Submitting false receipts ± Submitting same expense multiple times 19 .

ensure: For empl/PR master data. ensure: Recommended control plans A B C IV IC IA UC UA Present Controls P-1: Enter time data close to the data¶s originating source P-2: Computer agreement of batch totals P-3: P-4: P-5: P-6: P-7: Approve attendance time data and job time data Reconcile attendance time data and job time data Distribute labor costs Independent paycheck distribution Approve payroll transfer check P-6 P-7 P-8 P-8 P-8 P-8 P-8 P-4 P-4 P-3 P-4 P-5 P-6 P-4 P-5 P-3 P-4 P-5 P-1 P-1 P-1 P-1 P-2 P-2 P-8: Accumulate payroll data for reconciliation of the payroll clearing account P-9: P-10: Use a payroll clearing account Prepare miscellaneous reports P-10 P-10 P-9 P-9 P-9 P-9 P-9 20 .Payroll Process Control Matrix Control Goals of the Payroll Business Process Control goals of the operations process Ensure effectiveness of operations Ensure efficient employment of resources Ensure security of resources Control goals of the information process For time data inputs.

Payroll Process Control Matrix Control Goals of the Payroll Business Process Control goals of the operations process Control goals of the information process Ensure effectiveness of operations Ensure efficient employme nt of resources Ensure security of resources For time data inputs. ensure: Recommended control plans A B C IV IC IA UC UA Missing Controls M-1 Independent reconciliation of payroll bank account M-1 M-2 Use an imprest payroll bank account M-2 M-2 M-2 M-2 M-2 Computer agreement of batch totals (agree run-to-run totals) M-3 M-3 M-3 M-3 M-3 M-3 Effectiveness goals include: A ² Provide employees with timely paychecks B ² Provide timely filing of tax returns and other reports to government agencies C ² Comply with requirements of payroll and tax laws and regulations 21 . ensure: For empl/PR master data.

Payroll Part of HR Module ‡ It is common for payroll to be part of the HR module in software (SAP example) 22 .

among others ‡ The advantages gained by allowing the two processes to share common data include: ± Creating a single source for obtaining HR information ± Providing for faster data access ± Minimizing data redundancy ± Ensuring data integrity and consistency ± Facilitating data maintenance ± Improving data accuracy 23 .1 ‡ The HR module includes options for both HR and payroll.Figure 14.

and ‡ (3) terminating employees 24 .Implementing the HRM Process ‡ Process Inputs: In general. the HR forms in the figure capture information about three HR-related events: ‡ (1) selecting employees ‡ (2) evaluating employees.

Selection process may be started by the system automatically 25 .Implementing the HRM Process ‡ Selecting employees may be initiated in one of two ways: 1. Departmental managers (outside the HR department) may initiate the process to satisfy their immediate hiring needs 2.

Implementing the HRM Process ‡ Evaluating employees comprises a multitude of activities ± Departmental managers and supervisors (again. outside the HR function) usually initiate evaluations or other changes affecting employees ± The manager of personnel appraisal and development (in HR) typically approves the review and implements such changes 26 .

Implementing the HRM Process ‡ Terminating employees closes the employment process loop ± Periodically. departmental managers and supervisors (in concert with HR managers) must make difficult decisions about the retention of employees ± If a termination is necessary. the employee change screen is used to initiate the process of changing an employee¶s status from current employee to terminated employee 27 .

28 . skills inventory data. and labor-force planning data within the enterprise database are updated and various reports are made available Several outputs are produced ± New hire: ‡ An employment letter is sent to the employee ‡ Selection notice is sent to the department manager ± Feedback on job performance: ‡ Employee review form ± Termination: ‡ Employees are notified of a dismissal through a dismissal letter ‡ Termination notice sent to the operating department manager. HR requests initiated outside of the HR department are approved within that department and then routed to HR for approval Some data may be entered within HR The employee/payroll master data.Implementing the HRM Process ‡ ‡ ‡ ‡ ‡ Processing Logic and Process Outputs.

Implementing the HRM Process ‡ ‡ HRM process prepares reports for government and nongovernment entities ± ± ± ± ± Payroll reports: employee federal. 29 . ‡ Many companies have found that such materials can be disseminated effectively and efficiently through an HR portal. state. and local taxes ‡ Unions ‡ Equal Employment Opportunity (EEO) ‡ Occupational Safety and Health Administration (OSHA) ‡ Department of Labor HR reports might include those provided to the following: ‡ There are also numerous communications to employees of HR-related information ± ± ± ± ± Job opening announcements Training information Phone books Benefits literature Policy and procedure manuals. which serves as a central data source for such information. and the like.

HR Management Flowchart 30 .

multiple database tables are contained: ± Employee/payroll master data ± Labor-force planning data ‡ Staffing requirements ‡ Skills required ‡ Turnover data ± Skills inventory data 31 .Key Data Tables in the HR Process ‡ Though the flowchart shows only one data store.

The Payroll Process ‡ Payroll generally falls under the controller¶s office with the treasurer participating in distributing paychecks 32 .

Payroll Data and Flows ‡ Tax rates data ± Contains current tax rates (federal. county and city) for employee withholding and employer accruals ‡ Attendance time record ± Lists hours employee are at the job site available for work. state. usually kept on time card ‡ Job time records ± Start and stop times for particular jobs for direct labor distribution 33 .

Federal Payroll Tax Reports ‡ ‡ ‡ ‡ 941 (report of FICA taxable wages) W-2 (employee wage and tax statement) 1099 (reports non-salary income) Employee Retirement Income Security Act (ERISA) reports (reports on private pension fund assets management) 34 .