TERM PAPER

OF

CSE-301:DATA BASE MANAGEMENT SYSTEM

Topic: PAYROLL PROCESS

Submitted by:

AVINASH MANHAS Submitted to:

Roll.no- RE2801B46 Mr. Gaurav Pushkarana

Regd.no- 10809450

Course- B Tech-M.Tech( IT)

INTRODUCTION

Calculation of gross salaries and deductible amounts is a tedious task which involves risk. Some of the organizations use the traditional manual method of payroll processing and some go for the advanced payroll processing software. An organization opts for any of the following payroll processing methods available::

Manual SystemManual payroll system is the traditional payroll system which involves pen and ink, adding machine, spreadsheet, etc instead of computers, software and other computerized aids. The process was very popular when there were no computerized means for payroll processing.

Now-a-days it is only few small scale organizations in the remote areas that use the manual payroll. Sometimes the construction industry and manufacturing industry also use the manual payroll systems for the contractual labour, as theses contracts are on daily/weekly basis.There is full control in the hands of owner. But the process is tedious, time consuming and risky as it is more prone to errors.

CONTENTS:

What is Payroll? Pay Check Payroll taxes Payroll Outsourcing Purpose Process Flow Various Payroll Processes Payroll Control Record Simulating Payroll DATA FLOW DIAGRAM OF PAYROLL PROCESS PAY ROLL PROCESS FLOW CHART CREATING A PAYROLL PROCESS Benefits of Payroll References

What is Payroll?

In a company, payroll is the sum of all financial records of salaries for an employee, wages, bonuses and deductions. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period of time. Payroll plays a major role in a company for several reasons. From an accounting point of view, payroll is crucial because payroll and payroll taxes considerably affect the net income of most companies and they are subject to laws and regulations (e.g. in the U.S. payroll is subject to federal and state regulations). From ethics in business viewpoint payroll is a critical department as employees are responsive to payroll errors and irregularities: good employee morale requires payroll to be paid timely and accurately. The primary mission of the payroll department is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions, and to ensure the withholdings and deductions are remitted in a timely manner. This includes salary payments, tax withholdings, and deductions from a paycheck.

Pay Check

A Pay Check is traditionally a paper document issued by an employer to pay an employee for services rendered. In recent times, the physical paycheck has been increasingly replaced by electronic direct deposit to bank accounts. Such employees may still receive a complete pay slip package, but the attached check is noted as non-negotiable.

In most countries with a developed wire transfer system, using a physical check for paying wages and salaries has been uncommon for the past several decades. However, vocabulary referring to the figurative "pay cheque" does exist in some languages, like German (Gehaltsscheck), partially due to the influence of popular media, but this commonly refers to a payslip or stub rather than an actual cheque. Some company payrolls have eliminated both the paper cheque and stub, in which case an electronic image of the stub is available on an Internet website.

Payroll taxes

Government agencies at various levels require employers to withhold income taxes from employees' wages.

In the United States, "payroll taxes" are separate from income taxes, although they are levied on employers in proportion to salary; the programs they fund include Social Security, and Medicare. U.S. income and payroll taxes collected through deductions are considered to be trust fund taxes, because the employer holds the deducted money in trust for later remittance.

Payroll card

For employees that, for one reason or another, do not have access to a bank account (bad check history, not in close proximity to bank, etc.), there is a solution, offered by most major Payroll Service Providers. Instead of an employee receiving a check, and paying up to 5-10% to cash the check, the employee can have the direct deposit loaded onto a debit card. In this, a company can save money on printing checks, not buy the expensive check stock, and not having to worry

about check fraud, due to a check being lost or stolen. A payroll card is a plastic card allowing an employee to access their pay by using a debit card. A payroll card can be more convenient than using a check cashier, because it can be used at participating automatic teller machines to withdraw cash, or in retail environments to make purchases. Some payroll cards are cheaper than payday loans available from retail check cashing stores, but others are not. Most payroll cards will charge a fee if used at an ATM more than once per pay period.

The payroll card account may be held as a single account in the employer's name. In that case, the account holds the payroll funds for all employees using the payroll card system. Some payroll card programs establish a separate account for each employee, but others do not.

Many payroll cards are individually owned dda (demand deposit accounts) that are owned by the employee. These cards are more flexible, allowing the employee to use the card for paying bills, and the accounts are portable. Most payroll card accounts are FDIC-insured, but some are not.

Payroll Outsourcing

Businesses may decide to outsource their payroll functions to an outsourcing service like a Payroll service bureau or a fully managed payroll service. These can normally reduce the costs involved in having payroll trained employees in-house as well as the costs of systems and software needed to process a payroll. In many countries, business payrolls are complicated in that taxes must be filed consistently and accurately to applicable regulatory agencies. Restaurant payrolls which typically include tip calculations, deductions, garnishments and other variables, can be difficult to manage especially for new or small business owners.

In the UK, payroll bureaus will deal with all HM Revenue & Customs inquiries and deal with employee's queries. Payroll bureaus also produce reports for the businesses' account department and payslips for the employees and can also make the payments to the employees if required.

Another reason many businesses outsource is because of the ever increasing complexity of payroll legislation. Annual changes in tax codes, Pay as you earn (PAYE) and National Insurance bands as well as statutory payments and deductions having to go through the payroll often mean there is a lot to keep abreast of in order to maintain compliance with the current legislation.

PurposeThe payroll program is run at a specific point in time, not only to calculate an employee’s basicremuneration but also any special payments, overtime payments or bonuses that must beeffected for the period in question

.

Process FlowThe status of the Payroll Control Record is automatically updated with every step that iscarried out during payroll.

1.Release one or several Payroll Areas for payroll.The system increases the period number in the payroll control record of the respectivepayroll area by 1. You cannot change the master and time data for the personnelnumbers belonging to this payroll area if it affects the payroll past or present. Changesaffecting the future are still possible.

2. Run payroll.The system calls up a country-specific payroll program. It determines the current payrollperiod from the payroll control record and performs payroll using the values you enteredin the payroll program.In general, we do not carry out these steps on-line but rather as a background job.

3. Check whether payroll has run correctly, or determine where errors have occurred.If the payroll has not run without errors, the system display error messges indicatingwhere the errors have occured. If desired, you can obtain a detailed payroll log.However, we recommend that you only create a payroll log if you simulate the payrollrun. If necessary, you can set the status of the payroll to Check Payroll Results during thisphase. This way you make sure that no changes are made to payroll-relevant data which

could affect the payroll past or present. In addition, the payroll area in question is lockedfor payroll. However, during this phase you can simulate the payroll for individual employees to understand exactly how the errors originated, by means of the payroll log. If you want to carry out a spot check on the payroll results after a successful payroll run, there is a report available which reads the stored payroll results. The report allows each employee to see the contents of all internal tables containing payroll results. This allows you to check all partial results for a payroll run. In this way you can determine whether the system ran the payroll in accordance with your expectations, for example, for an employee for whom you made complex changes to the master data.

4.Correct master or time data for personnel numbers which contain errors, and which thepayroll program could not process.During the payroll run, the System flags the Payroll Correction field in the Payroll Statusinfotype (0003) for all rejected personnel numbers. When you correct master or time datafor a personnel number, this field is also flagged. These personnel numbers are groupedtogether in a list under W (Payroll Correction Run). In a payrollcorrection run, that is a payroll run with matchcode W, payroll only takes place for thecorrected personnel numbers.

5. Release payroll again.The payroll period does not change.

6. Perform a payroll correction run.If there are a lot of employees stored in Matchcode W (Payroll Correction Run), you carryout this step as a background job in the same way that you carried out the Start Payrollstep. If you only have to run payroll again for a few employees, you can carry out thisstep on-line.

7. Simulate the posting to Accounting.Under certain circumstances errors can occur, which mean you must change the payrollrelevantmaster and time data again. If, for example, a cost center was entered for someemployees and it has been deleted in the interim, the system will note this as an errorduring the posting simulation. Then set the payroll status to Release for Correction onceagain, and correct the master data for the employees in question. This will cause thesepersonnel numbers to be automatically stored in Matchcode W (Payroll Correction Run).Next, carry out another payroll correction run and simulate the posting to Accountingagain.

8. Exit payroll. The personnel numbers for the payroll area can be processed again.You can only exit payroll when the payroll has run successfully for all personnelnumbers in the selected payroll area. This means that payroll is finished for all of thepersonnel numbers in the payroll area, including the rejected personnel numbers,and the payroll period is complete.

Various Payroll Processes

Figure: Various Payroll Processes

AccountantAccountant is a professional having a degree/diploma course in finance/accountancy. He/she is responsible for all the activities related to payroll accounting. He/she has the sound knowledge of accounting principles and globally accepted standards. The process adds costs to the organization. It involves paying someone who is responsible for calculating the salaries of others. The financial control regarding salary goes in the hand of accountant.

Payroll SoftwareIn today’s computerized environment, payroll system has also developed itself into automated software that performs every action needed by the payroll process. It helps in calculating the payable amounts and deductions very easily. It also helps in generating the pay slips in lesser time. Automated calculations result in no errors. Data is validated automatically by the software.It needs professionals to make use of the software for its efficient working.

Payroll OutsourcingPayroll outsourcing involves a third party (an outsourcing company) in the calculations of salaries and deductions. The outsourcing organization is responsible for all the activities of the payroll accounting. It saves time and cost for the organization. If there is more number of employees (say more than 900-1000) in the organization, payroll outsourcing would be very much beneficial.

The data is provided to the consultants/outsourcing firms. The various payroll functions undertaken by the outsourcing organizations are as follows:

Analysis of Payroll records, payroll taxes Medical claim processing

Employee Insurance & Provident fund processing

Quality Audit procedures & planning

Payroll Control Record

Payroll object that is important for the payroll run, and which contains all the information on apayroll area .The payroll control record has the following functions:

It locks the personnel numbers, for which payroll should be run, against master data changesthat affect the payroll past or present.

It locks the payroll for the period during which payroll-relevant changes are made to themaster data for the personnel numbers being processed.

It makes the following information available for the system: What is the next payroll period for which regular payroll should be run? Up to what date is retroactive accounting carried out? What status does the payroll currently have? (for example, Released for Payroll

or Check Payroll Results)?When you carry out a payroll run, the system automatically changes the payroll status in thepayroll control record. You can also change the status manually under Payroll _ Tools _ ControlRecord.

Structure

The control record contains the following information: Payroll area Payroll status Payroll period Earliest possible retroactive accounting period Last change made to the control record

Simulating Payroll

You can simulate payroll for individual employees before performing the regular payroll run for all the employees in your enterprise. This is, for example, a good idea, if you have made complex changes to an employee’s master data, which may lead to far-reaching changes in his or her payroll results. In this way, you recognize sources of errors in time to make corrections before the regular payroll run. You can even simulate payroll for individual employees at any time during the regular payroll process, in order to trace the cause of any errors.

Scope of Function

A simulation run corresponds to a regular payroll run with the following restrictions:The results of a simulated payroll run are not saved on the data base. You can view and printthe results in the payroll log. The system does not lock any master data.The current payroll period in the payroll control record is not changed.The steps Release payroll and Exit payroll do not apply.

Locked Personnel Numbers

In the Payroll Status infotype (0003) you can exclude an employee from the payroll run byflagging the Pers.no. locked field.You can not set these lock indicators for the current period in the following situations:

if payroll has already been completed for the current payroll period. if the employee has already been paid in the current payroll period.

DATA FLOW DIAGRAM OF PAYROLL PROCESS

PAY ROLL PROCESS FLOW CHART

CREATING A PAYROLL PROCESS

1. Set up new employees. New employees must fill out payroll-specific information as part of the hiring process, such as the W-4 form and medical insurance forms that may require payroll deductions. Copies of this information should be set aside in the payroll department in anticipation of its inclusion in the next payroll.

2. Collect timecard information. Salaried employees require no change in wages paid for each payroll, but an employer must collect and interpret information about hours worked for nonexempt employees. This may involve having employees scan a badge through a computerized time clock, punch a card in a stamp clock, or manually fill out a time sheet.

3. Verify timecard information. Whatever the type of data collection system used in the last step, the payroll staff must summarize this information and verify that employees have recorded the correct amount of time. This typically involves having supervisors review the information after it has been summarized, though more advanced computerized timekeeping systems canperform most of these tasks automatically.

4. Summarize wages due. This should be a straightforward process of multiplying the number of hours worked by an employee’s standard wage rate. However, it can be complicated by overtime wages, shift differentials, bonuses, or the presence of a wage change partway through the reporting period

5. Enter employee changes. Employees may ask to have changes made to their paychecks, typically in the form of alterations to the number of tax exemptions allowed, pension deductions, or medical deductions. Much of this information must be recorded for payroll processing purposes, since it may alter the amount of taxes or other types of deductions.

6. Calculate applicable taxes. The payroll staff must either use IRS-supplied tax tables to manually calculate tax withholdings or have a computerized system or a supplier determine this information. Taxes will vary not only by wage levels and tax allowances taken but also by the amount of wages that have already been earned for the year-to-date.

7. Calculate applicable wage deductions. There are both voluntary and involuntary deductions. Voluntary deductions include payments into pension and medical plans, while involuntary ones include garnishments and union dues. These can be made in regular amounts for each paycheck, once a month, in arrears, or prospectively. The payroll staff must also track goal amounts forsome deductions, such as loans or garnishments, in order to know when to stop making deductions when required totals have been reached .

8. Account for separate manual payments. There will inevitably be cases where the payroll staff has issued manual paychecks to employees between payrolls.This may be caused by an incorrect prior paycheck, an advance, or perhaps a termination. Whatever the case, the amount of each manual check should be included in the regular payroll, at least so that it can be included in the formal payroll register for reporting purposes, and sometimes to ensure that the proper amount of employer-specific taxes are also withheld to accompany the amounts deducted for the employee.

9. Create a payroll register. Summarize the wage and deduction information for each employee on a payroll register, which can then be used to compile a journal entry for inclusion in the general ledger, prepare tax reports, and for general research purposes. This document is always prepared automatically by payroll suppliers or by in-house computerized systems.

10. Verify wage and tax amounts. Conduct a final cross-check of all wage calculations and deductions. This can involve a comparison to the same amounts for prior periods, or a general check for both missing information and numbers that are clearly out of line with expectations.11. Print paychecks. Print paychecks, either manually on individual checks or, much more commonly, through a computer printer, with the printouts using a standard format that itemizes all wage calculations and deductions on the remittance advice. If direct deposits are made, a remittance advice should still be printed and issued.

12. Enter payroll information in general ledger. Use the information in the payroll register to compile a journal entry that transfers the payroll expense, all deductions, and the reduction in cash to the general ledger .

13. Send out direct deposit notifications. If a company arranges with a local bank to issue payments directly to employee accounts, then a notification of the accounts to which payments are to be sent and the amounts to be paid must be assembled, stored on tape or other media, and sent to the bank.

14. Deposit withheld taxes. The employer must deposit all related payroll tax deductions and employer-matched taxes at a local bank that is authorized to handle these transactions. The IRS imposes a rigid deposit schedule and format for making deposits that must be followed in order to avoid penalties.

15. Issue paychecks. Paychecks should, at least occasionally, be handed out directly to employees, with proof of identification required; this is a useful control point in larger companies where the payroll staff may not know each employee by name, and where there is, therefore, some risk of paychecks being created for people who no longer work for the company

16. Issue government payroll reports. The government requires several payrollrelated reports at regular intervals, which require information on the payroll register to complete.

Why outsource your payroll?

There was a time that a business payroll was handing out cash at the end of the day. That time is long gone. Payroll, payroll record keeping, payroll tax reporting has become both complex and full of traps for the unwary or uneducated. The process can be very time consuming and expensive. By outsourcing your payroll processing you are avoiding risks and taking advantage of all the advances in technology to save time and money.

Save Time

Using a payroll outsourcing provider will save you time. Particularly an internet payroll service providing a paperless payroll solution. How will they do that? You will be able to input time anywhere and anytime from any Internet connected computer.

Your payroll outsourcing provider will process the entire payroll and if you use a paperless payroll solution all net pays will be distributed electronically. No longer will you have to waste time and money distributing checks and payroll payment vouchers Your unbanked employees will no longer have to pay exorbitant fees just to cash their paycheck. No longer will employees have to run to the bank to deposit or cash their paycheck and get stuck in long lines. No longer will you feel obligated to cash checks for your employees. No longer will you have to reissue checks that are lost or run through the washing machine.

Your payroll outsourcing provider will make all your payroll tax deposits for you. Your payroll outsourcing provider will complete and file all payroll tax forms with all government entities you have to report to. Not only will your payroll outsourcing provider do all this they will guarantee that it is done correctly.

Your payroll outsourcing provider utilizing a paperless payroll will be able to provide you with all your reports via email or the internet. They are encrypted and secure from prying eyes. No longer will you have stacks of old reports to lockup and ultimately pay to be destroyed.

Save Money

Some business owners don't realize the true cost of doing payroll in house. They don't add up all the hours that are spent on various aspects of payroll and related activities that a payroll outsourcing provider would take care of. Some of the saving in money takes place because of the following:

Your payroll outsourcing provider guarantees accuracy on calculating and filing your payroll tax reports and payroll tax deposits and will pay any penalties or interest charged to you through his error.

You will never have to pay for a software upgrade or for new tax tables your payroll outsourcing provider should provides all of that as part of his payroll services

Your payroll outsourcing provider will draft your company bank account for a single draft item eliminating the cost of payroll checks and the cost of reconciling of payroll checks. In addition this eliminates your payroll checks being used for fraud by check scam criminals.

Your payroll outsourcing provider utilizing a paperless payroll solution will distribute all net pays to every employee electronically. No lost checks to replace. No cost of delivery of checks or payroll payment vouchers. No shipping checks to employees in other locales.

Your payroll outsourcing provider utilizing a paperless payroll solution will send you all reports electronically, no delivery fees. No storage costs for old reports or costs to finally destroy them.

Benefits of Payroll

1. Avoid IRS PenaltiesAccording to the IRS, 40% of small businesses pay an average penalty of $845 per year for late or incorrect filings. Most national payroll services provide a tax guarantee, ensuring that customers will incur no penalties because the provider takes responsibility for penalties when they do occur. In many instances, this cost-saving immediately justifies payroll.

2. Reduce CostsThe direct costs of processing payroll can be greatly reduced by working with a payroll provider. Our research indicates that a small business of 10 employees will typically spend $2,600 per year in direct labor costs associated with payroll.

3. Offer Direct DepositProviding direct deposit is difficult if a company doesn't use an outside payroll service. Increasingly, small businesses recognize that employees want direct deposit. Not having to make a trip to the bank is an important convenience for them. More importantly for business owners, direct deposit eliminates time-consuming and error-prone paper handling and the need to reconcile individual payroll checks every month.

4. Free Up Free TimePayroll processing is a time-consuming process. Outsourcing payroll can free up staff time to pursue more important value-added and revenue-generating activities. Inc. magazine recently identified payroll as the #1 task for small business to outsource, along with most accounting tasks

5. Avoid Payroll Knowledge Walking Out the DoorIf your bookkeeper or controller gets a new job, they will walk out the door with their knowledge of the payroll process and how you do it. Using an outside service eliminates that business risk.

REFERENCES:

http://ezinearticles.com/?Payroll-Processing-Outsourcing&id=161550 www.work.com/finding-a-payroll-processing-service-311/ help.sap.com/printdocu/core/print46c/en/.../pyint_dialog.pdf www.suite101.com/content/how-to-process-payroll-a145896 en.wikipedia.org/wiki/Payroll