IT SYSTEMS OF PAYROLL PROCESSES (STUDY OBJECTIVE 4)

The preceding presentation demonstrates the importance of information technology in the payroll processes. Without computerized records, the human resources and payroll departments would be forced to search all personnel files in order to obtain the data used to generate a payroll register. Numerous mathematical computations would also need to be performed in order to figure the amount of net pay for each employee. This manual process would be nearly impossible for medium- and large-size companies that disburse hundreds, or thousands of employee paychecks each period. It is clear that computer technology can be a necessary ally of the payroll process. Because of the modern pressures to cut costs and competitive nature of the business world, many companies require their human resources and payroll departments to process massive amounts of employee data in extremely short periods. Therefore, even the smallest companies may find it worthwhile to enhance their payroll processing with computerized systems.

Routine payroll processing occurs at specified time intervals—namely, the weekly, biweekly, or monthly pay dates. Because of this infrequency and the sequential nature of the payroll process, many companies find that batch processing is well-suited for payroll activities. With batch processing, the human resources department is responsible for keying employee information into a personnel master file, and the timekeeper can accumulate all time sheets and enter them in the computer system in batches. The timekeeper should prepare control totals and hash totals in order to check the system before paychecks are generated. An alternative to manual batch accumulations is the use of electronic timekeeping devices, such as time clocks or badge readers. Electronic time clocks collect time and attendance data when employees insert their time sheets into the clock. The time clocks read bar codes on the employees' time sheets. Similarly, badge readers collect data when employee identification badges are swiped through an electronic reader. These systems accumulate data throughout the period and automatically calculate batch totals. The data batches are then used to prepare paychecks and the payroll register.

THE REAL WORLD

In order to smooth out the process and avoid the heavy workload that falls at the end of the payroll period, many companies use online software systems that integrate their human resources and payroll functions. With integrated systems, real-time personnel data are available, and the general ledger and production system can be automatically updated at the end of the payroll period. As with any online system, though, care must be exercised in restricting access to the payroll programs. Passwords and access logs should be used, and reviewed for the possibility of unauthorized access.

The Internet and company intranets are also increasingly important tools for circulating payroll information. As more employees have offsite work arrangements, the Internet allows them to submit relevant information for timely updating of time and attendance records. In some cases, employees may even make changes to their payroll deductions via the Internet or intranets, and their pay stubs can be sent to them via e-mail. This makes it possible for payroll operations to remain centralized. The Web also provides many resources for employees in the human resources and payroll departments, such as access to current legislative changes that may affect payroll deductions.

Another popular use of the Internet involves the outsourcing of payroll services. Many companies use independent, Internet-based service providers to handle their payroll processing. These payroll providers specialize in offering solutions and constant access to payroll information. With outsourced payroll processing, enrolled companies are given secure access information so that a designated individual can log on and transfer payroll information via the Internet. This information can be viewed, edited, and approved before processing occurs. The company's payroll administrator will receive an e-mail message as notification that the paychecks and payroll reports have been prepared. Payroll outsourcing has become prevalent because it offers increased convenience, confidentiality, and protection from the risk of liability for failure to submit tax withholdings and the related reports.

Automation is also commonly used to enhance controls via the electronic transfer of payroll funds. Many employees elect to have their paychecks directly deposited into their personal bank accounts. This ensures the timely deposit of the funds and eliminates the need for an independent paymaster. It also simplifies the process of reconciling the bank statement, as there are fewer outstanding checks. Employees who take advantage of direct deposit realize savings of time and check-cashing fees, as well as increased confidentiality. When the automatic deposit feature is used, the company should have procedures in place to be sure that multiple paychecks are not being deposited in a single bank account. Since each employee should receive only one paycheck at a time, the transfer of multiple paychecks into a single account could mean that a paycheck was created for a fictitious employee.

In addition to the electronic transfer of paychecks, companies can use electronic transfers to make payments of tax deposits and other payroll withholdings. Many companies have become part of governmental electronic funds transfer programs, wherein the federal and state income taxes withheld from employee paychecks are transferred online to the appropriate taxing authorities. Another efficient use of electronic transfers is for the disbursement of wage attachments. Although it may be time consuming to implement these programs due to the many different rules which apply to the various jurisdictions and agencies that receive payroll withholdings, the up-front investment tends to pay off in the long run. These programs promote savings in terms of time, expense, and increased accuracy.