Summative Assessment 2: Establishing and Maintaining a Payroll System

Summative Assessment 2: Establishing and Maintaining a Payroll System

Procedure for Entering Employee Pay Records

The procedure for entering employee pay records entails the following steps.

Requesting a Tax File Number (TFN) declaration form from the employee. When a new employee is hired, they are expected to file a tax file number declaration form provided by the Australian Tax Office (ATO).

Checking the agreement or award used by the organization to employ the employee. By examining the award or agreement used to hire an employee enables the bookkeeper to determine employee entitlements and other exceptions or additions that affect the worker’s pay for the period. In this stage, the bookkeeper will also identify if the employee is salaried or is employed at an hourly rate. For regular interval employees, they will receive a base payment at the end of each period. Hourly rate employees will be paid based on a different payment structure. Employees who work a greater number of hours will be granted overtime payment as follows:

1. For the first three hours, overtime is computed at 150% of the normal pay rate.
2. After the first three hours, overtime pay is computed at 200% of the normal pay rate. 

Creation of the employee file in the system. After the employee has filed and signed the Tax File Number (TFN) declaration form, the basic payroll information, such as the employee’s name, address, file tax number, and date of birth, is entered into the system. All the payroll information provided in the second step above is included in the file.

Procedure for processing payroll

The payroll processing procedure may follow the following steps to ensure that the payroll data is correct regardless of the type of payroll system used by the organization. 

1. Collection of employee time sheets. The payroll preparation starts by putting together all the worksheets for inspection. Timesheets should provide information relating to the total hours worked during the period, including normal, one-and-a-half, and double time.
2. Checking employee time sheets- After the time sheets are collected, the bookkeeper must check to ensure that the hours and any claims entered are correct and legitimate. At this stage, the bookkeeper must also verify the authorization of the employee time sheets. The authorized manager or supervisor must approve the time cards before processing.
3. Determining the employee’s pay for the period. The processing starts by calculating the gross amount earned for the period. This is followed by working out allowances and deductions applicable to the employee as per the award and workplace agreement. These allowances and deductions impact the pay according to legislative and organizational requirements.
4. Determining tax withholding. The tax amount is calculated and deducted to arrive at the employee’s net pay for the period. In this step, the bookkeeper must check for any relevant changes to tax requirements from the supervisor or the system vendor and incorporate them into the process.
5. Payment authorization. Once the net pay is determined, the payment is authorized depending on the payment method used by the organization. This may entail the creation of bank files, cheques, or cash.

Procedure for Reconciling Payroll

The following steps should be taken by the bookkeeper when reconciling payroll.

1. Develop an organizational chart of accounts. A chart containing accounts relating to employment, such as withholding liability and wages, is created to enable the bookkeeper to monitor the wage costs and other liabilities closely.
2. Post the payroll data into the accounting system. After monitoring the data in the account chart, the information is entered into a payroll journal. This statement helps the bookkeeper to record and group all the payroll transactions. It also makes it easier to summarize payroll activities by keeping the transactions in one place. By posting the transactions in the payroll, the journal reduces regular postings in the general ledger.
3. Payment reconciliation. In this step, the total cash in the bank account and the amounts credited to the pay-as-you-go payable accounts are reconciled against the total wages. The payroll journal is then summarized, and the totals are posted to the general ledger.     

Update payroll records

This procedure outlines the records to be updated post-payroll processing.

During the payroll processing period, the payroll system and data are updated in accordance with changes in employment status and salary reviews. The procedure to follow and records to update are as follows.

Collect supporting documents. Before the actual update, the person in charge must collect documents supporting any changes in the employment status and pay rates. These documents may include salary review agreements, withholding declaration forms, and an award or workplace agreement.

Activate relevant documents relating to the payroll. After receiving supporting documents, relevant employee payroll records should be updated in the system. Some of these records include:

1. Employee pay record - if a worker goes through a wage review process, the new wage rates must be updated in the system immediately after the review agreement.
2. Employee entitlement records – If an employee is subjected to a workplace agreement of an award, any changes to the pay rate arising from the alteration of such agreements must be updated in the payroll system.
3. Employee tax and personal records – If an employee wants to change any information provided in the Tax File Number declaration form and he/she has completed a withholding declaration form, the information must be updated in the system.

Procedure for Payroll Inquiries

Steps to be taken by a person responsible for payroll facilities to handle payroll inquiries from an employee include.

Record the, as well as the date the inquiry is made. In an organization set up, an inquiry can be made by email, telephone, or face-to-face, and sometimes the required information may not be available instantly, or the party with authority to disclose the information requested may not be around; thus, the individual handling payroll facilities must note the inquiry and the date for reference.

Investigate any inconsistency relating to the inquiry. The individual handling the payroll should scrutinize the problem raised in the inquiry as soon as possible to avoid any unnecessary delays that may lead to further disputes.

Provide follow-up action as soon as possible according to the legislative and organizational requirements. Payment-related matters are significant to employees and should be responded to as quickly as possible. In case the authorized party is unavailable at the time of the inquiry, the person handling the payroll inquiry must establish proper communication with the enquirer so that they understand that the issue will be addressed swiftly.

Document the payroll changes made relating to the inquiry. Changes, as well as the details of the action undertaken, must be kept for any further future reference. After providing additional information, the inquirer should be informed about what has been done.  

End of quarter

The steps to take at the end of each quarter include:

• Checking the withholding status of the organization with the Australian Tax Office. Small withholding institutions are expected to make quarterly payments of pay-as-you-go withheld from the employees.
• Computation of PAYG tax withheld from the employee’s wage. This can be done using the template below.

• Computation of fringe benefits tax – the amounts of fringe benefits tax liability for the period must be determined and disclosed to ATO.
• Determine superannuation contributions – Superannuation contribution payments made for each employee must also be determined and disclosed.
• Summarize the amounts owed the tax office. After determining the total amount of PAYG withheld for the quarter, the amount is added to income tax installments and GST Installments and the total paid to the tax office.

End of the financial year

The payroll processing procedure at the end of a fiscal year may follow the following steps to ensure that the payroll data in the reports is correct regardless of the type of payroll system used by the organization.    

Total the employee’s pay for the financial year. The processing starts by calculating the total gross amount earned for the fiscal year. This is followed by working out total allowances and deductions applicable to the employee as per the award and workplace agreement. These allowances and deductions impact the pay according to legislative and organizational requirements. 

Determining tax withholding for the financial period. The tax amount is calculated and deducted to arrive at the employee’s total net pay for the year. At this stage, the bookkeeper must check for any relevant changes to tax requirements from the supervisor or the system vendor and incorporate them into the process.

Prepare annual reports. The total salaries and tax withheld for the financial year as well as other additional payments made during the period, are reflected in the annual reports.

Tax payment authorization. Once the net tax obligation due is determined, the payment is authorized depending on the payment method used by the organization.

Check, complete, and submit any relevant employee’s compensation reporting obligation for the period.

Backup Procedure

Depending on the organization's backup regime, the process can take the following procedure:

Decide on the backup type required or applicable to the organization. The data backup process can either be incremental, complete, differential, or daily, depending on the desired outcome.

Determine the backup frequency. Once a type of backup is chosen, the data schedule is carefully is considered to avoid delays that might result in payroll disputes. Data back-ups can be made annually, weekly, monthly or daily, depending on the type chosen. For example, complete data backup may take longer period compared to daily back up. However, to create the balance between restore and data backup speed combination of backup types is recommended.

Decide on what data to back up. When deciding on a backup schedule, also consider the data to be backed up and its location in the system.

Decide where the data is to be restored. The person doing the backup must also decide on where the information is to be restored. Depending on the system environment the data can be restored in individual computers or a server.

 Actual data backup. The payroll or accounting data can be backed up in any media device identified by the person doing the backup.

Protect the data. After backing up the payroll data, the bookkeeper must ensure that the information is secure by using passwords. 

Complete the payroll component of BAS.

Payroll information can be added to the Business Activity Statement following the steps outlined below:

Prepare payroll information. The person adding the information should first reconcile all the accounts to confirm that the data is up to date and correct. This involves scrutinizing payroll records and comparing the balances with the bank balance to ensure they balance.

Enter missing payroll transactions. Record any identified missing payroll transactions in the relevant records, including descriptions and dates.

Total the payroll recodes. Once the information is accurately posted, the bookkeeper can either run a business activity statement directly from the computer if the organization uses a computerized system. If a manual payroll system is used, the totals should be added to determine the amount of tax owed to the tax office. Again, check if the information is accurate. The PAYG amount is also calculated in this stage, including the gross wages paid to the employees.

Update the payroll record and lodge. After completing the business activity statement, update the records with the adjustments made and duplicate copies of all relevant documents. From here, the Business activity statement can be submitted to the tax office either through the portal or by physically handing in the hard copy. A tax agent can also be given the responsibility of lodge. The payments owed to the ATO must be paid on time.