Activity 1: Update payroll master file - provides information on new hires, terminations, changes in pay rates, and changes in

discretionary withholdings. Appropriate edit checks, such as validity checks on employee number and reasonableness tests are
applied to all change transactions. Changes must be entered in a timely manner and reflected in the next pay period. Records of
terminated employees should not be deleted immediately as some year-end reports require data on compensation for all employees
during the year.
Activity 2: Update tax rates and deductions—The payroll department receives notification of changes in tax rates and other payroll
deductions from government agencies, insurers, unions, etc. These changes occur periodically.

Activity 3: Validate time and attendance data--Information on time and attendance comes in various forms depending on the
employee’s pay scheme. Some employees are paid on an hourly basis. Many companies use a time card to record their arrival and
departure time. Some use electronic time clocks, where employees swipe their badge through a reader when they come and go.
Manufacturing companies may use job time tickets to record not only time present but also time dedicated to each job.
Activity 4: Prepare payroll--The employee’s department provides data about hours worked. A supervisor confirms the data. Pay rate
information is obtained from the payroll master file. The payroll transaction file is sorted by employee number (same sequence as
master file). For each transaction, the payroll master file is read for pay rates, etc., and gross pay is calculated. Payroll deductions are
summed and subtracted from gross pay to obtain net pay. Year-to-date totals for gross pay, deductions, and net pay are calculated, and
the master file is updated.

Activity 5: Disburse payroll-- Most employees are paid either by check or direct deposit. Cash payments may still be made, but this
approach does not provide good documentation. When paychecks have been prepared, the payroll register is sent to accounts payable
for review and approval. A disbursement voucher is prepared to authorize transfer of funds from checking to the payroll bank
account. For control purposes, checks should not be drawn on the company’s regular bank account.

Activity 6: Calculate employer-paid benefits and taxes--The employer pays some payroll taxes and employee benefits directly. The
employer withholds federal and state taxes from employee paycheck, along with Medicare tax, and the employee’s share of Social
Security

Activity 7: Disburse payroll taxes and miscellaneous deductions-- The company must periodically prepare checks or EFT to pay tax
and other liabilities.
PAYROLL PROCESS:

Personnel dept. uses personnel action forms to: activate new employees, change the pay rate of employees, change marital
status and/or number of dependents, terminate employees. Production department fill out these two forms: job tickets and time
cards which must be signed by a supervisor. Cost accounting department uses job tickets to allocate labor costs to WIP accounts,
and summarizes changes in labor distribution summary .Payroll department receives personnel action forms and time cards.
Accounts payable department prepares cash disbursements voucher for the total amount of the payroll.

The payroll clerk will probably receive notification of a number of changes to employee information that impact the
processing of payroll, such as withholding exemptions and pay rate changes. If so, update the employee master file in the
payroll software with these changes. Verify that the payroll module is set for the correct pay period Enter the amount of regular
and overtime hours worked by each employee in the payroll system. If the company manually calculates payroll, then this step
and the next step are not needed. If the company uses computerized time clocks to a ssemble its timekeeping information, then
the information may be ported directly into the payroll software. Enter the amounts of any manual paychecks that have not yet
been recorded in the payroll system. These may be pay adjustments from previous periods, or payments related to the initial
hiring or the termination of employees. Manually calculate the amount payable to any employee who has left the company,
including their unused vacation time and severance pay. This usually only involves those employees who have left the company
voluntarily, since forcible terminations require near-immediate payments that usually fall outside of the normal payroll
processing period Enter any changes to the standard deductions from employee pay, such as for medical
insurance, garnishments, and charitable contributions. Have the software process all pay calculations for the period. If the
company manually calculates pay, then use the tax tables provided by the federal and state governments to determine the prope r
amount of tax withholdings. If payroll calculations are either outsourced or use payroll software, print the following reports and
review the underlying transactions for errors. Process payroll again until these issues have been corrected.
 Update payroll
master file

Update tax
Pay Salaries rates and
deductions

Disburse
Validate time
payroll taxes
and Payroll Cycle and
attendance
miscellaneous
data
deductions

Calculate
employer-paid Prepare
benefits and payroll
taxes

Disburse
payroll

Payroll cycle is a recurring set of business activities and related data processing
operations associated with effectively managing the employee workforce. The most
important tasks performed in the HRM/payroll cycle are recruiting and hiring new
employees; training; job assignment; compensation (payroll); performance evaluation;
and discharge of employees (voluntarily or involuntarily). Additionally, payroll costs are
allocated to products and departments for use in product pricing and mix decisions. The
payroll system handles compensation, while the other duties are the purview of HR
management.
 PAYROLL CONTROLS:

Transaction authorization - the personnel action form helps prevent:

 terminated employees from receiving checks
 wage rates from being improperly changed for current employees

Segregation of Duties - timekeeping and personnel functions should be separated

Supervision - need to monitor employees to ensure they are not “clocking in” for one another
Accounting Records - audit trail includes:
o time cards
o job tickets
o disbursement vouchers
o labor distribution summary
o payroll register
o subsidiary ledger accounts
o general ledger accounts
Access Controls - need to prevent employees from having improper access to:
o accounting records, such as time cards which can be altered
o unsigned checks
Independent Verification:
o verification of time cards
o distribution of paychecks to authorized employees
o verification of accuracy of payroll register by A/P dept.
o G/L dept. reconciles the labor distribution summary and the payroll disbursement voucher.
 The payroll procedures stated in the next page will be done by the payroll clerk.

The payroll clerk position is accountable for collecting timekeeping information, incorporating a vari ety of deductions into a
periodic payroll, and issuing pay and pay-related information to employees. It is the payroll clerk’s job to collect time sheets,
review timekeeping logs for accuracy, and issue paychecks and other disbursements to employees within an organization. In addition
to basic job functions, clerks are accountable for processing various requests and processing various types of verifications. If you are
looking for an entry-level role in accounting and this title interests you, read this job profile.

Principal Responsibilities

1. Collect and summarize timekeeping information

2. Obtain supervisory approval of time card discrepancies
3. Obtain overtime approvals
4. Calculate commissions
5. Process garnishment requests
6. Process employee advances and paybacks
7. Process and close periodic payrolls
8. Print and issue paychecks
9. Process direct deposit payments
10. Process paycard payments
11. Calculate and deposit payroll taxes
12. Process employment verifications
13. Process and issue annual W-2 forms to employees
14. Process and distribute reports for compensation, taxes paid, garnishments, and deductions
15. Answer questions from employees related to payroll topics