Payroll Procedures

Payroll Procedures [1]

A payroll procedure is a written statement that itemizes the reason for an activity, notes who is responsible for it, and describes exactly how the activity is to be completed. It is highly applicable to the payroll function, which is full of activities that must be completed the same way, every time.

The first step in creating a set of payroll procedures is to construct a flowchart of the overall process, so that you can identify all activities, thereby ensuring that a procedure is written for each one. Also, each box in the flowchart contains an identifying index number for each procedure, which is later listed as the procedure number in the header for each procedure. Thus, you can first refer to a process flowchart for the specific procedure needed and then trace the index number to the detailed procedure. A sample payroll process flowchart is as shown in Exhibit 3.1.

Exhibit 3.1: Payroll Process Flowchart

The remainder of this section contains six payroll procedures that correspond to the activities noted on the payroll process flowchart. For consistency, they all have exactly the same format. The header contains a notation box on the right side that lists an index (or retrieval) number, the page number, the date on which the procedure was created, and the index number of any procedure that it has replaced. The main body of the procedure is in three sections: the "Purpose and Scope" section summarizes what the procedure is all about; the "Responsibilities" section item izes which job positions must follow the procedure; and the "Procedures" section lists the exact steps to follow.

The procedures used here are designed for specific software packages and company procedures, hence are not meant to be copied; rather, they should be reviewed to grasp the general layout and terminology used in each procedure, and then used to design a customized set of procedures for the specific circumstances. Specific payroll procedures, shown in the preceding flowchart, are described individually throughout the remainder of this section.

Policy/Procedure Statement

Retrieval No.: PAY-01
Page: 1 of 1
Issue Date: 10/28/03
Supersedes: N/A

Subject: Collect and Reconcile Time Cards

PURPOSE AND SCOPE

This procedure is used by the payroll clerk to assemble time cards for all hourly employees, as well as to locate and resolve time-punching errors.

RESPONSIBILITIES

PR CLERK

Payroll Clerk

PROCEDURES

3.1 PR CLERK	Obtain Time Cards
	Obtain time cards from all company locations. Check off the receipts against the standard list of company locations and contact the factory manager of each location from which no cards have been received.
3.2 PR CLERK	Review Time Cards
	Add up the time on all time cards, circling those time punches that have no clock-ins or clock-outs. Note the total time on all error-free time cards and forward them to the payroll clerk for data entry into the payroll system.
	Any time card containing overtime hours must also be initialed by a manager; those cards missing this approval must be returned and signed.
3.3 PR CLERK	Resolve Time Card Discrepancies
	Review all time cards containing discrepancies with the responsible factory managers, who must initial all time cards for which there is an assumed clock-in or clock-out.
	List the total time worked at the top of these time cards.
	Forward the cards to the payroll clerk for data entry into the payroll system.

Policy/Procedure Statement

Retrieval No.: PAY-02
Page: 1 of 1
Issue Date: 10/28/03
Supersedes: N/A

Subject: Add or Delete Employees

PURPOSE AND SCOPE

This procedure is used by the payroll clerk to add or delete employees from the payroll system.

RESPONSIBILITIES

PR CLERK

Payroll Clerk

PROCEDURES

3.1 PR CLERK	Obtain Addition or Deletion Documentation
	Receive documentation from the human resources department regarding the addition to or deletion from the payroll database of employees. Review the documentation for correct start or stop dates, extra pay, and (especially) the correct authorization signatures.
	If any information is missing, return it to the sender for correction.
3.2 PR CLERK	Update Payroll Database
	Go into the payroll software and access the EMPLOYEE menu. Go to the ADD screen if adding an employee. Enter the employee name and Social Security number, pay rate, and start date. If deleting an employee, go into the DELETE screen from the same menu, enter a Y in the TERMINATE field, and enter the final pay date, as well as the amount of any bonus payments.
	Print the Updates Report from the option at the bottom of the screen to verify that the correct entries were made.
3.3 PR CLERK	File Documentation
	Consult the document destruction policy to determine the date at which the filed documents can be destroyed for any terminated employees. Mark this date on the employee's folder and forward it to the document archiving area.

Policy/Procedure Statement

Retrieval No.: PAY-03
Page: 1 of 1
Issue Date: 10/28/03
Supersedes: N/A

Subject: Alter Employee Deductions

PURPOSE AND SCOPE

This procedure is used by the payroll clerk to alter employee deductions in the payroll system.
RESPONSIBILITIES

PR CLERK

Payroll Clerk

PROCEDURES

3.1 PR CLERK	Obtain Deduction Information
	Obtain employee payroll deduction information from the human resources department.
	Verify that all information on the deduction forms is clear and that each form has been authorized by the employee.
3.2 PR CLERK	Update Payroll Database
	Go into the payroll software and access the EMPLOYEE menu. Go to the DEDUCT screen; enter the deduction code and the amount of the deduction for each documented deduction. Be sure to enter a deduction termination code for those who are of limited duration.
	Verify that deductions are correctly allocated to each payroll period, so that the total amount of each deduction is accurate on a monthly or annual basis.
	Print the Updates Report from the option at the bottom of the screen to verify that the correct entries were made.
3.3 PR CLERK	File Documentation
	Return all employee documentation to the human resources department, so that they can file it in employee folders.

Policy/Procedure Statement

Retrieval No.: PAY-04
Page: 1 of 1
Issue Date: 10/28/03
Supersedes: N/A

Subject: Process Payroll Transactions

PURPOSE AND SCOPE

This procedure is used to guide the human resources coordinator or accounting staff through the payroll process.
RESPONSIBILITIES

HR COORD

Human Resources Coordinator

PROCEDURES

3.1 HR COORD	Processing Steps
	Review all "Request for Time Off" forms that have been submitted during the most recent pay period.
	Compare time-off requests to the accrued amounts for each employee, as noted in the payroll detail report for the last pay period. Notify employees if they do not have enough accrued vacation time available to fulfill their requests. Then process the portion of time they do have available into the payroll.
	Collect all requests for employee transfers to different departments and enter this information into the payroll software.
	Enter all manual check payments for the current period into the payroll software.
	Collect all requests for pay changes. Verify that there are authorized signatures on the pay change forms, then enter the changes into the payroll software.
	Collect all information regarding terminated employees. Calculate final payments due (if they have not already been paid with manual checks) and enter these final amounts into the payroll software.
	Compare the garnishments file to the detailed payroll records from the last payroll period to see if any changes are needed to current employee deductions. If so, make those changes in payroll software.
	On the Friday before the next payroll, clear out all old records from the electronic time clocks that relate back to the previous pay period. Review all electronic time cards for the current period and notify employees if they have incomplete time cards (such as having clocked in but never clocked out).
	Manually transfer the totals from the electronic time clocks to the payroll processing software. To do this, enter the grand totals of regular and overtime hours into the HOURLY PAY BY EMPLOYEE screen.
	Verify all data entry by printing the "Payroll Audit Report" and comparing all entered data to the source documents. If there are problems, go back and make the changes and then print this report again to ensure that all payroll data is correct.
	Go to the PROCESS PAYROLL screen and process all employee pay. Be sure to match the check number on the check stock to the check number appearing in the computer.
	Use a signature stamp to sign the checks. Then stuff them into envelopes, along with any special employee notices, and sort them by department.
	Back up the payroll database twice. Leave one copy on-site and send the other copy to the off-site storage location.
	Reset the software to begin processing the payroll for the next pay period.
	For any off-site locations, send payroll checks by guaranteed overnight delivery.
	Retrieve the check register from the data center and review it for possible errors. Then file it in the payroll data storage area.
3.1 HR COORD	Process Deductions
	Move the cafeteria plan amount noted on the payroll summary from the corporate checking account to the cafeteria plan account.
	Move the 401k amount noted on the payroll summary to the 401k fund management firm from the corporate checking account.
	Update the corporate life insurance payment by adjusting it for the total number of employees now on the payroll, as noted in the payroll summary.
	Issue a check to the United Way based on the amount shown on the payroll summary as having been deducted from employee paychecks.
	Pay garnishments to the various court authorities. Verify that the amounts paid out match the deductions shown on the payroll summary.

Policy/Procedure Statement

Retrieval No.: PAY-05
Page: 1 of 1
Issue Date: 10/28/03
Supersedes: N/A

Subject: Issue Payments to Employees

PURPOSE AND SCOPE

This procedure is used by the payroll clerk to determine the locations of all employees in the company and to issue paychecks or deposit advices to them.

RESPONSIBILITIES

PR CLERK

Payroll Clerk

PROCEDURES

3.1 PR CLERK	Print Payroll Checks
	Go to the payroll software and access the PRINT option from the PAYMENTS menu.
	Print the payroll test register and review it to ensure that all paychecks have been correctly calculated.
	Insert check stock into the printer.
	Use the TEST option to print a sample check and verify that the line spacing is correct. Repeat as necessary.
	Print the entire batch of checks.
	Reset the printer and print all deposit advices for those employees using direct deposit.
	Print the check register.
	Review the file of direct deposits, and export it to tape.
3.2 PR CLERK	Issue Direct Deposit Data to Bank
	Include the direct deposits tape in a courier package to the bank.
	Verify that the bank has received the tape, and that there are no errors in it.
3.3 PR CLERK	Distribute Payment Notifications
	Have all checks signed by an authorized check signer.
	Stuff all paychecks and deposit advices in envelopes.
	Batch the envelopes by supervisor and deliver them to supervisors for delivery to employees.

Policy/Procedure Statement

Retrieval No.: PAY-06
Page: 1 of 1
Issue Date: 10/28/03
Supersedes: N/A

Subject: Archive Payroll Records

PURPOSE AND SCOPE

This procedure is used by the payroll clerk to properly label and archive all payroll records once they have been processed through the payroll system.
RESPONSIBILITIES

PR CLERK

Payroll Cleric

PROCEDURES

3.1 PR CLERK	Index Payroll Records
	Extract the personnel folders from the on-site files for all inactive employees.
	Batch all the time cards for prior work periods.
	Referring to the corporate document destruction policy, mark each item with the legally mandated earliest destruction date.
3.2 PR CLERK	Archive Payroll Records
	Box the records by destruction date; mark each box with an index number; and record the index number in the master index, along with the contents of each box.
	Send the boxes to the archiving center for storage.

^[1]The flowchart and procedures used in this section were adapted with permission from Chapter 5 of Steven Bragg and Harry L. Brown, Design and Maintenance of Accounting Manuals, 4th Ed. (New York: John Wiley & Sons, Inc., 2002).

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