17- payroll

Question 1

Payroll

Answer 1

A list of employees and what they are being paid

Question 2

payroll function in an org

Answer 2

The employer’s obligations to pay wages are carried out.
The employer’s obligations as a tax collector are undertaken efficiently

-analysing and controlling costs, and assessing the organisation’s economic efficiency

Question 3

Income tax

Answer 3

Employer collects tax on behalf of government as the employee is paid

Question 4

Employer’s legal responsibilities to collect income tax
Employer’s duties

Answer 4

Operates income tax
Maintain necessary record
Pay income tax & benefit contribution to tax authorities every month
Let tax officer inspect record
Submit end of year return
Give details payslip to employees (tax,benefit contribution)
Give annual statement showing deductions to employees
Maintain minimum 3 years of tax records

Question 5

is it the employee’s duty to ensure correct deductions made from their income+correct records are kept

Answer 5

NO
Although the employee owes the tax, it is the employer’s legal duty to ensure the correct working of the tax deduction system. Any underpaid tax under a payroll scheme is collected from the employer, who may then try to recover it from the employee.

Question 6

Main requirements of payroll processing+accounting system

Answer 6

Accuracy
Timeliness
Security

Question 7

accuracy

Answer 7

• ppl get paid what they’re owed
• gov receives what it’s legally entitled to
• employer’s cost info is appropriate

Question 8

timeliness

Answer 8

• employees don’t suffer stress caused by being short of cash
• employee morale does not suffer because of the fear that the employer has not got the money to pay their wages.
• government’s requirements for prompt payment are satisfied

Management information may not be required quite so quickly, but there will be internal management information requirements which have to be satisfied within certain deadlines

Question 9

security

Answer 9

(a) Payroll data relating to employees is kept confidential and is only disclosed to those authorised by the employee, or to those who have a legal right to see it.
(b) Cash and cheques are not stolen, and the payroll system is safe from fraud.

Payroll is an important function.
(a) Employees depend on the timeliness and accuracy of the processing.
(b) The government has a direct interest in the collection of taxes and benefit contributions through the payroll system.
(c) The wages and salaries bill is a large component of an entity’s total costs.
The system should be capable of providing information promptly and accurately in the event of a query from an employee or from external agencies where appropriate.

Question 10

gross pay

Answer 10

Pay for employee’s work done in a period

Basic pay
Overtime
Commission/bonuses/profit
Backpay (payment for past work done)

Question 11

gross pay definition

Answer 11

what an employee EARNS
not what they receive in cash/bank

Question 12

several ways to calc employee earnings

Answer 12

• same amount monthly
• hourly rate
• performance basis(per unit of output)

Question 13

basic pay

(fixed rate per period, basic salary, hourly rate) piecework

Answer 13

rate for the job, and is what you expect to receive for a normal period’s work, irrespective of overtime and so forth

Question 14

High day rate scheme

Answer 14

To stimulate greater productivity
Paid a higher hourly rate

Question 15

overtime

Answer 15

hours worked over standard working week
payment for work done in excess of an employee’s hours at basic rate pay

Question 16

bonus

Answer 16

Extra payment as a reward for results achieved/for any reason determined by management
can take many forms

motivate employee to work harder
reach/exceed some target

Question 17

commission

Answer 17

Payment (percentage) made to employee based on value of something (sales) the employee has generated

often paid to employees who have succeeded in making a sale. It is normally a percentage of the value of the sale.

Question 18

straight percentage commission

Answer 18

(eg 10% so that if you make $1,000 of sales you get $100, for $100,000 you get $10,000 etc)

Question 19

sliding scale

Answer 19

more valuable contracts earn the salesperson greater commission (eg on contracts up to $5,000 a 5% commission is given, on contracts over $5,000 a 7.5% commission is given and so on)

Question 20

increase with the total volume of sales commission

Answer 20

. For example, on total sales up to $100,000 a 5% commission is earned: if the target is exceeded, then a 7.5% commission is paid on the excess (ie all sales over $100,000)

Question 21

docs associated with payroll function

Answer 21

• timesheets record hrs spent by employee on each job/doing work of each client
• attendance records used by personnel dept to determine reasons for absence from work+to administer annual leave granting
• other personnel record info includes cards to record person’s career progress

Question 22

personnel dept

Answer 22

responsible for recruiting and engaging employees. The personnel department holds certain basic data relating to the employees.

(a) A personnel record card might be completed for each employee. This will typically show various personal details and a summary employment history with the organisation.
(b) A record of attendance card might also be kept by the personnel department to review the number of days off work taken because of sickness, or the amount of leave taken, as holiday or for special reasons (eg bereavement)

Question 23

personnel dept involved in _____
not involved in ____

Answer 23

setting wage+salary levels
day to day payroll process

Question 24

Payroll function

Answer 24

Calculate gross pay
Calculate tax, national insurance & other deductions
Prepare payslips
Making appropriate return to external agencies
Making up wages
Distribute payslips
Prepare payroll statistics

Question 25

documentation- hourly paid employees

Answer 25

attendance cards daily time sheets weekly time sheets job cards

Question 26

Timesheet

Answer 26

Record hours spent by each employee on each job

Question 27

Daily time sheet

Answer 27

Indicate time spent on each job total time should correspond with time on attendance record

Question 28

Weekly time sheet

Answer 28

Passed to the cost office at the end of the week entries made daily to avoid error

Question 29

Job cards

Answer 29

Time spend on the job by each employee (cards prepared for each job)

Question 30

Route cards

Answer 30

Similar to job cards but they follow the product through the works and carry details of operation

Question 31

reasons for filling in timesheets

Answer 31

(a) Payroll data is used to create management information about product costs, and hence profitability. (b) The timesheet information may have a direct impact on the revenue the organisation receives (see below). (c) Timesheets are used to record hours spent, and so support claims for overtime when this is paid to salaried staff.

Question 32

Details required BY LAW on payslip

Answer 32

▪ Gross pay ▪ Deductions + detail ▪ Net pay

Question 33

payroll deductions

Answer 33

gross pay - income tax - benefit contributions = net pay

Question 34

employee+employer contributions

Answer 34

(a) Contributions payable by the employee which form part of the deductions from gross pay. (b) Contributions payable by the employer do not form part of the deductions from the employee's gross pay. Instead they constitute an additional cost to the employer. The total cost of wages and salaries in the statement of profit or loss is: Gross wages + employer's benefit contribution

Question 35

Contributions to company pension schemes can come from two sources.

Answer 35

- The employer only (a so-called non-contributory pension scheme) - The employer and the employee (called a contributory pension scheme) Employee contributions are a deduction from gross salary. Employer contributions are an additional expense in the accounts of the business. Another deduction you may come across on a payslip is for a season ticket or other loan, where the employee pays back a loan from the employer over a period of time directly from net pay

Question 36

payment methods + features

Answer 36

for employee, payslip is 2nd most important after actual money received payments usually made either by cheque/increasingly by credit transfer should be secure+authorised

Question 37

The specific controls required will depend on the payment method used but will normally include the following elements:

Answer 37

(a) A reconciliation of the payroll system to both the bank statement and the general ledger. (b) Different staff members responsible for preparing the payroll and actually authorising payment

Question 38

control procedures on processing payroll transactions should be substantiated, verified, authorised by appropriate person

Answer 38

- documentation - authorisation - authorised signatories- recorded, verifiable, up to date

Question 39

Failure to have adequate controls in place over payroll could result in: 

Answer 39

- Inaccurate payroll records and calculations - Payment for work not performed - Overpayment or underpayment - deductions+/ benefits incorrectly calculated - penalties imposed by tax/other statutory authorities - Demoralised workforce - Fraud For employees an important document and source of information is the payslip. All employees have a legal right to a payslip.

Question 40

compulsory disclosures of payslip (unless aggregated fixed deductions)

Answer 40

employer+employee name gross pay (showing how made up) additions+deductions from pay employee's pension contributions, if any sick pay, maternity pay, tax paid to date(i.e current tax year) tax in period social security for period date net pay method of payment for each segment of net pay, if paid in different ways

Question 41

non-compulsory disclosures of payslip but usually disclosed

Answer 41

employee's tax code benefit contributions to date(current tax period) employee's payroll number employee's NI method of payment

Question 41

cash payments have reduced due to:

Answer 41

-security problems - extra time+effort compared to other payment methods

Question 42

employers have abandoned cash payment for following reasons

Answer 42

(a) Counting notes and coins is a time consuming exercise, and requires more payroll staff than would otherwise be the case. (b) Employees have to count their pay when they receive it, and sign for the amount. This might involve a long queue on a Friday afternoon, or whenever, when most employees would rather be elsewhere (if not at work!). (c) The notes and coins required to make up an employee's pay have to be worked out in detail, before they are ordered from the bank. (d) The handling and transport of large amounts of cash pose security problems every payday

Question 43

other methods of paying employees

Answer 43

- giving a cheque which they present to bank themselves - using automated credit systems to transfer amount automatically between bank accounts

Question 44

what does payroll department do

Answer 44

- prepares payroll on magnetic disk/tape - sends it to automated service run by clearing banks - system automatically transfers funds from employer's bank accounts to employee's

Question 45

Once the employees have been paid, a record of each payment has to be maintained on a cumulative basis

Answer 45

- Records of gross pay and employer's contributions can explain how an organisation's total labour cost is made up. Keeping records for individual employees is necessary so that their costs can be correctly allocated to the right departments. - If your employer operates an occupational pension scheme then records of contributions have to be maintained, as the employee's benefits may depend on them. Bad record keeping now can adversely affect employees not just in the present but in future decades. - If an employee has borrowed money from a company, the repayments should be noted down so that it is clear when the loan has been repaid

Question 46

Entering payroll data into the correct ledger account

Answer 46

- Payroll is normally only done weekly or monthly. - Same types of entry take place every period. - The wages general ledger account helps to ensure that the entries are being made correctly.

Question 46

Entering payroll data into general ledger accounts

Answer 46

Dr Staff Cost Cr Payroll/Wages control Dr Payroll/Wages control Cr Income tax Cr Benefit Contribution Cr Pension Fund Cr Bank When payments made to all liabilities Dr Income Tax Dr Benefit Contribution Dr Pension Fund Cr Bank