Chapter 14

The Human Resources (HR)

Management and Payroll
Processes

Accounting Information Systems 7e

Ulric J. Gelinas and Richard Dull

Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and
South-Western are trademarks used herein under license.
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 Learning Objectives
• Define and understand the basic functions of the HR
management and payroll processes.
• Describe the relationship between the HR management and
payroll processes and their environment.
• Comprehend the relationship between the HR management
and payroll processes and management decision making.
• Depict the logical and physical elements of the HR
management and payroll processes.
• Describe some of the technology used to implement the HR
management and payroll processes.
• Prepare a control matrix for a typical payroll process,
including explanation of how business process control plans
can accomplish payroll operations and information control
goals.

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 Process Definition and
Functions
• Personnel management started by handling payroll and personnel
administration, but evolved by adding functions to handle
recruiting, employee relations, and so on.
• HRM still viewed personnel as something that could be controlled
• HCM philosophy is based on three major principles:
1. An individual’s value to an organization is derived from his/her job-
related knowledge, skills, attitude, and motivations
2. Human assets include full-time permanent employees, plus part-time
employees, temporary employees, and independent contractors.
• With supply chain management, an organization’s human assets
could include employees of suppliers, sales channel partners, and
customers
3. A person’s relationship with an organization, from hiring through
termination, must be nurtured and managed to obtain maximum
lifetime value

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Duties of HR Managers

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Duties of HR Managers

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 Definition of HR Management
Process
• Primary function of the HRM process is to create
information flows that support the following:
1. Repetitive work routines of the HR department
2. Decision needs of those who manage the HR department
• The HRM process supports the work routines of the
HR department and provides information for
management decisions by:
– Capturing, recording, and storing data concerning HR
activities
– Generating a variety of HR forms and documents
– Preparing management reports
– Preparing governmental reports

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 The Payroll Process
• Many companies often merge payroll and HR
• The payroll process maintains records of payroll taxes,
fringe benefits, attendance/absence, time worked and
employee paychecks
• The payroll process is generally automated because
computers are much faster at handling the repetitive
computations necessary (payroll is also the most
frequently outsourced application in accounting)
• Current HR software reaches far beyond simply doing
payroll and includes:
– Benefits admin, applicant tracking/processing, skills inventories
and compliance reporting
• Much of HRM is NOT captured by GAAP
– But accountants must recognize the immense value of human
capital and its affect on the long-term financial health of the
organization

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Organization Chart of the HR
Function

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 Technology Trends and
Developments
• HR self service systems
– HR Manuals
– Retirement programs
– Personal profile
– Expense reports
• Outsourcing
– Web-based collaboration
– Payroll
• Enterprise systems may integrate HRM with
– Financial Accounting
– Logistics
– Sales and Distribution
– The Workflow Module 9
 Master Data related to
HR and PR Function
Payroll function HR function
• Establishes • Determine:
authorization for • Employee's assigned
payroll event department
• Provides inputs • Telephone number
– Pay rates • Supervisor
– Exemptions • Locate and manage
– Deductions human capital skills
• Historical payroll data - • Performance evaluation
periodic reporting data
– Taxes
– Insurance
– Retirement programs.

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Payroll Process Context Diagram

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Payroll Process: Level 0 DFD

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Payroll Process – Diagram 4

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 Accounting Entries – Payroll
Process
• PAY EMPLOYEES
• A. ESTABLISH VARIOUS PAYROLL LIABILITIES

• Payroll clearing XXXXX

• FIT withholdings payable XXXXX
• SIT withholdings payable XXXXX
• FICA tax withholdings payable XXXXX
• Accrued payroll XXXXX
•
• B. RECORD THE DISBURSEMENT OF CASH
•
• Accrued payroll XXXXX
• Cash XXXXX

• DISTRIBUTE PAYROLL TO VARIOUS ACCOUNTS

•
• Work in process (direct labor) XXXXX
• Manufacturing overhead (indirect labor) XXXXX
• General and administrative expense XXXXX
• Selling expense XXXXX
• Payroll clearing XXXXX

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 Accounting Entries Cont.
• ACCRUE EMPLOYER PAYROLL TAXES
•
• Manufacturing overhead (tax on factory workers) XXXXX
• General and administrative expense XXXXX
• Selling expense XXXXX
• FICA taxes payable XXXXX
• SUT taxes payable XXXXX
• FUTA taxes payable XXXXX

• RECORD TAX DEPOSITS

•
• FIT withholdings payable XXXXX
• SIT withholdings payable XXXXX
• FICA tax withholdings payable XXXXX
• FICA taxes payable XXXXX
• SUT taxes payable XXXXX
• FUTA taxes payable XXXXX
• Cash XXXXX

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Payroll Process Flowchart

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Payroll Has High Fraud Potential
• Types of payroll frauds:
– Ghost employees (employees who don’t
exist but are issued paychecks)
– Falsified hours (employees who overstate
hours worked)
– Commission schemes (collecting
commissions on false sales or using false
commission rate)
– Worker’s comp schemes (faking injury to
receive compensation)
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 Payroll System Controls
• Segregation of duties between HR (employee
record creation), payroll (prepares payroll)
and AP/cashier (disburses cash)
• Direct deposit (eliminates opportunity for
check fraud)
• Review of employee master data for
duplicate names and/or social security
numbers
• Comparison of actual payroll to budget

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 Reimbursement Fraud
• Reimbursement for employee business
expenses often clear the payroll
system
– Claiming personal expenses as business
related
– Altering receipts to increase expenses
– Submitting false receipts
– Submitting same expense multiple times

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 Payroll Process Control Matrix
  Control Goals of the Payroll Business Process
  Control goals of the operations process  Control goals of the information process
Ensure effectiveness of operations Ensure efficient  Ensure security  For time data inputs, ensure: For empl/PR 
employment of  of resources  master data, 
resources ensure:

Recommended control plans 

  A B C     IV IC IA UC UA

Present Controls                    
P-1: Enter time data close to the data’s originating source P-1     P-1     P-1 P-1    

P-2: Computer agreement of batch totals                 P-2 P-2

P-3:     Approve attendance time data and job time data           P-3   P-3    

P-4:     Reconcile attendance time data and job time data P-4     P-4   P-4 P-4 P-4    

P-5:     Distribute labor costs           P-5 P-5 P-5    

P-6:     Independent paycheck distribution         P-6 P-6        

P-7:     Approve payroll transfer check         P-7          

P-8:     Accumulate payroll data for reconciliation of the            P-8 P-8 P-8 P-8 P-8

payroll clearing account

P-9:     Use a payroll clearing account           P-9 P-9 P-9 P-9 P-9

P-10:    Prepare miscellaneous reports   P-10 P-10              

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 Payroll Process Control
Matrix
  Control Goals of the Payroll Business Process

  Control goals of the operations process  Control goals of the information process

Ensure effectiveness of operations Ensure  Ensure  For time data inputs, ensure: For empl/PR 

efficient  security  master data, 
employmen of  ensure:
t of  resources 
resources

Recommended control plans

  A B C     IV IC IA UC UA

Missing Controls                    

M-1 Independent reconciliation of payroll bank account         M-1          

M-2 Use an imprest payroll bank account       M-2 M-2     M-2   M-2

M-3 Computer agreement of batch totals (agree run-to-run totals)         M-3 M-3 M-3 M-3 M-3 M-3

Effectiveness goals include:

A — Provide employees with timely paychecks
B — Provide timely filing of tax returns and other reports to government agencies
C — Comply with requirements of payroll and tax laws and regulations
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Payroll Part of HR Module
• It is common for
payroll to be part of
the HR module in
software (SAP
example)

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 Figure 14.1
• The HR module includes options for both HR
and payroll, among others
• The advantages gained by allowing the two
processes to share common data include:
– Creating a single source for obtaining HR
information
– Providing for faster data access
– Minimizing data redundancy
– Ensuring data integrity and consistency
– Facilitating data maintenance
– Improving data accuracy
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 Implementing the HRM
Process
• Process Inputs: In general, the HR
forms in the figure capture information
about three HR-related events:
• (1) selecting employees
• (2) evaluating employees, and
• (3) terminating employees

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 Implementing the HRM
Process
• Selecting employees may be initiated
in one of two ways:
1. Departmental managers (outside the HR
department) may initiate the process to
satisfy their immediate hiring needs
2. Selection process may be started by the
system automatically

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 Implementing the HRM
Process
• Evaluating employees comprises a
multitude of activities
– Departmental managers and supervisors
(again, outside the HR function) usually
initiate evaluations or other changes
affecting employees
– The manager of personnel appraisal and
development (in HR) typically approves
the review and implements such changes

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 Implementing the HRM
Process
• Terminating employees closes the
employment process loop
– Periodically, departmental managers and
supervisors (in concert with HR managers) must
make difficult decisions about the retention of
employees
– If a termination is necessary, the employee
change screen is used to initiate the process of
changing an employee’s status from current
employee to terminated employee

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 Implementing the HRM Process
• Processing Logic and Process Outputs.
• HR requests initiated outside of the HR department are approved within
that department and then routed to HR for approval
• Some data may be entered within HR
• The employee/payroll master data, skills inventory data, and labor-force
planning data within the enterprise database are updated and various
reports are made available
• Several outputs are produced
– New hire:
• An employment letter is sent to the employee
• Selection notice is sent to the department manager
– Feedback on job performance:
• Employee review form
– Termination:
• Employees are notified of a dismissal through a dismissal letter
• Termination notice sent to the operating department manager.

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 Implementing the HRM Process
• HRM process prepares reports for government and non-
government entities
– Payroll reports: employee federal, state, and local taxes
• HR reports might include those provided to the following:
– • Unions
– • Equal Employment Opportunity (EEO)
– • Occupational Safety and Health Administration (OSHA)
– • Department of Labor
• There are also numerous communications to employees of
HR-related information
– Job opening announcements
– Training information
– Phone books
– Benefits literature
– Policy and procedure manuals, and the like.
• Many companies have found that such materials can be
disseminated effectively and efficiently through an HR portal,
which serves as a central data source for such information.

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HR Management Flowchart

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 Key Data Tables in the HR Process

• Though the flowchart shows only one

data store, multiple database tables are
contained:
– Employee/payroll master data
– Labor-force planning data
• Staffing requirements
• Skills required
• Turnover data
– Skills inventory data
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 The Payroll Process
• Payroll
generally
falls under
the
controller’s
office with
the treasurer
participating
in
distributing
paychecks
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 Payroll Data and Flows
• Tax rates data
– Contains current tax rates (federal, state, county
and city) for employee withholding and employer
accruals
• Attendance time record
– Lists hours employee are at the job site available
for work; usually kept on time card
• Job time records
– Start and stop times for particular jobs for direct
labor distribution

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 Federal Payroll Tax Reports
• 941 (report of FICA taxable wages)
• W-2 (employee wage and tax
statement)
• 1099 (reports non-salary income)
• Employee Retirement Income Security
Act (ERISA) reports (reports on private
pension fund assets management)

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