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Essentials of Payroll



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Wage Payment Guidelines


imageWage Payment Guidelines A number of special activities fall within the standard workday for which an employee earning an hourly wage must be compensated. The most frequently encountered activities are as follows: Employer-mandated charitable work Employer-mandated meal times when employees are required to ... [full story]


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Wage Exemption Guidelines


imageWage Exemption Guidelines You should be aware of the general rules governing whether an employee is entitled to an hourly wage or a salary, since this can avoid complaints from employees who wish to switch their status from one to the ... [full story]


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Employee or Contractor Status


imageEmployee or Contractor Status A key compensation issue is whether someone is an employee or a contractor, since the reporting of income to the IRS varies considerably for each one, as do the tax withholding requirements of the employer. The defining ... [full story]


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Use a Forms/Rates Data Warehouse for Automated Tax Filings


imageUse a Forms/Rates Data Warehouse for Automated Tax Filings Any organization that operates in a number of states will have to file an inordinate number of sales and income tax returns, not to mention a plethora of lesser forms. The traditional ... [full story]


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Use Direct Deposit


imageUse Direct Deposit A major task for the payroll staff is to issue paychecks to employees. This task breaks down as follows: First, the checks must be printed (though this seems easy, it is all too common for the check run ... [full story]


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Deposit Payroll Into Credit Card Accounts


imageDeposit Payroll Into Credit Card Accounts Some companies employ people who, for whatever reason, either are unable to set up personal bank accounts or do not choose to. In these cases, they must take their paychecks to a check-cashing service, which ... [full story]


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Post Commission Payments on the Company Internet


imagePost Commission Payments on the Company Internet A sales staff whose pay structure is heavily skewed in favor of commission payments, rather than salaries, will probably hound the accounting staff at month-end to see what their commission payments will be. This ... [full story]


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Automate Vacation Accruals


imageAutomate Vacation Accruals The accounting topic that is of the most interest to the greatest number of employees is how much vacation time they have left. In most companies, this information is kept manually by the payroll staff, meaning that employees ... [full story]


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Avoid Job Costing through the Payroll System


imageAvoid Job Costing through the Payroll System Some controllers have elaborate cost accounting systems set up to accumulate a variety of costs from many sources, sometimes to be used for activity-based costing and, more frequently, for job costing. One of these ... [full story]


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Consolidate Payroll Systems


imageConsolidate Payroll Systems A company that grows by acquisition is likely to have a number of payroll systems—one for each company it has acquired. This situation may also arise for highly decentralized organizations that allow each location to set up its ... [full story]


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Link the Payroll and Human Resources Databases


imageLink the Payroll and Human Resources Databases The payroll database shares many data elements with the human resources database. Unfortunately, these two databases are usually maintained by different departments—accounting for the first and human resources for the second. Consequently, any employee ... [full story]


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Link the 401(k) Plan to the Payroll System


imageLink the 401(k) Plan to the Payroll System A common activity for the payroll staff is to take the 401 (k) deduction information from the payroll records as soon as each payroll cycle is completed, enter it into a separate database ... [full story]


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Link Payroll Changes to Employee Events


imageLink Payroll Changes to Employee Events There are many payroll changes that must be made to an employee's file when certain events occur. Many of these changes are never made, however, either because the payroll staff is so busy with the ... [full story]


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Minimize Payroll Cycles


imageMinimize Payroll Cycles Many payroll departments are fully occupied with processing some kind of payroll every week, and possibly even several times in one week. The latter situation occurs when different groups of employees are paid for different time periods. For ... [full story]


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Switch to Salaried Positions


imageSwitch to Salaried Positions When processing payroll, it is evident that the labor required for a salaried person is significantly lower than for an hourly employee; there is no change in the payroll data from period to period for a salaried ... [full story]


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Use Honor System to Track Vacation and Sick Time


imageUse Honor System to Track Vacation and Sick Time It is common for the payroll staff to be in charge of tracking the vacation and sick time used by employees. This involves sending out forms for employees to fill out whenever ... [full story]


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Eliminate Personal Leave Days


imageEliminate Personal Leave Days A common task for the payroll staff is to either manually or automatically track the vacation time employees earn and use. Depending on the level of automation, this task can require some portion of staff time every ... [full story]


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Disallow Prepayments


imageDisallow Prepayments Many employees do not have the monetary resources to see them through until the next payday. Their solution is to request a pay advance, which is deducted from their next paycheck. It is a humane gesture on the part ... [full story]


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Prohibit Deductions for Employee Purchases


imageProhibit Deductions for Employee Purchases Many companies allow their employees to use corporate discounts to buy products through them. For example, a company may have obtained a large discount on furniture from a supplier, then allows its employees to buy at ... [full story]


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Use Biometric Time Clocks


imageUse Biometric Time Clocks The bar-coded time clocks described in the preceding best practice represent an excellent improvement in the speed and accuracy with which employee time data can be collected. However, it suffers from an integrity flaw: Employees can use ... [full story]


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Use Bar-Coded Time Clocks


imageUse Bar-Coded Time Clocks The most labor-intensive task in the payroll area is calculating hours worked for hourly employees. To do so, a payroll clerk must collect all of the employee time cards for the most recently completed payroll period, manually ... [full story]


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Give Employees Direct Access to Deduction Data


imageGive Employees Direct Access to Deduction Data A major task for the payroll staff is to meet with employees to go over the effect of any deduction changes they wish to make, calculate the changes, and enter them into the payroll ... [full story]


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Automate Fax-Back of Payroll Forms


imageAutomate Fax-Back of Payroll Forms A payroll clerk is the unofficial keeper of the payroll and human resources forms. Employees come to this person to collect these sheets, which can vary from a request to change a payroll deduction to a ... [full story]


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When to Eliminate Controls


imageWhen to Eliminate Controls Notwithstanding the lengthy list of controls described in the last section, it is also possible—even advisable—to remove controls. By doing so, frequently you can eliminate extra clerical costs, or at least streamline the various accounting processes. To ... [full story]


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Payroll Expenses


imagePayroll Expenses The controls used for payroll cover two areas: the avoidance of excessive amounts of pay to employees, and the avoidance of fraud related to the creation of paychecks for nonexistent employees. Both types of controls are addressed here. Verify hours ... [full story]


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Payroll Checks


imagePayroll Checks The storage, printing, and distribution problems associated with checks of all types certainly apply to payroll checks. The following controls are particularly applicable to those companies that process their payrolls in-house, since they handle check stock. However, even companies ... [full story]


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Key Payroll Controls


imageKey Payroll Controls The types of payroll controls that you should consider implementing will vary by the type and size of the business, as well as whether the payroll is processed internally or by a supplier. Because the control risk will ... [full story]


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The Need for Control Systems


imageThe Need for Control Systems [2] The Need for Control Systems The most common situation in which a control point is needed is when an innocent error is made in the processing of a transaction. For example, a payroll clerk incorrectly calculates ... [full story]


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Payroll Procedures


imagePayroll Procedures [1] Payroll Procedures 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 ... [full story]


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Reducing the Cost of Timekeeping


imageIn the Real World: Reducing the Cost of Timekeeping A routine analysis of the system costs at a large manufacturing facility discovered that the cost of administering the company's direct labor timekeeping system appeared to be inordinately high. Approximately 50 ... [full story]


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Problems with Timekeeping and Payroll


imageProblems with Timekeeping and Payroll Despite your best efforts to create an accurate timekeeping system, there are several types of errors that will arise from time to time and that require special controls to avoid. One is the charging of time ... [full story]


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Timekeeping Reports


imageTimekeeping Reports Timekeeping Reports The reports issued from a timekeeping system should be directed toward the correction of data that has just been collected, comparisons to budgeted hours, and trends in hours. The reports should not include pay rates or the total ... [full story]



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