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ENVERGA UNIVERSITY
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

Presented to the Faculty of


the College of Business and Accountancy
A Thesis
Manuel S. Enverga University Foundation, Lucena City

In Partial Fulfillment of the Requirements


for the Degree of Bachelor of Science in Business Administration
Major in Management Accounting

by

Mariella Mae Ante


Paula Bianca C. Daquigan
Diana Rose F. Doctolero
Corina R. Eusebio
Mariell C. Intoy
Vic Angelo D. Macalalad

December 2016
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 2
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
Chapter 1

THE PROBLEM AND ITS SETTING

Background of the Study

The Philippines Business Process Outsourcing (BPO) industry has edged out India

as the call center leader of the world. BPO is now the biggest contributor to the

Philippines gross domestic product. Also called the IT-BPM (Information Technology and

Business Process Management) sector composed of customer relationship, support and

KPO (knowledge process outsourcing including digital agencies, software development

and financial backroom services); it is the countrys fastest growing industry. More and

more investments are made and sealed every year.

Based on the recent update of Bangko Sentral ng Pilipinas (BSP) dated June 26,

2015, the result of their conducted survey regarding Information Technology-Business

Process Outsourcing (IT-BPO) Services showed that the total revenues of the industry

expanded at a robust rate of 13.8 percent in 2013 to reach US$15.3 billion, from the

previous years level of US$13.5 billion. All the industrys sub-sectors (namely, contact

centers, transcription, animation, software development, and other BPOs) posted positive

growth rates in revenues in 2013. The countrys Contact Centers, which remained the

global leader in voice-driven IT-BPM services, was the top revenue earner (at US$8.4

billion), accounting for more than half of the industrys total receipts. The sub-sector was

also the main driver of growth, contributing 6 percentage points to the total 13.8 percent

expansion in industry revenues during the year. The local IT-BPO industrys total

employment reached 851,782 in 2013, maintaining a double-digit growth rate of 10.6


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OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
percent and a total of US$7.9 billion compensation was paid, 16.2 percent higher than the

US$6.8 billion registered during the previous year. A total of 1,098 IT-BPO companies

were covered in the 2013 survey, an increase of 14.6 percent from 958 companies in 2012.

Source companies included those engaged in the operations of call centers, medical and

legal transcription, animation, software development and other BPOs. These companies are

members of the various IT-BPO associations and companies registered with attached

agencies of the Department of Trade and Industry, namely, the Philippine Economic Zone

and Authority and the Board of Investments.

The large pool of university-educated workers as well as the strong English

communication skills of the workforce in the country continues to boost the IT-BPO sector.

The rapid growth of this industry is also driving economic development in a number of

cities across the Philippines, with Manila and Cebu now ranked among the worlds leading

IT-BPO hubs. The rapid growth of the IT-BPO industry is also creating positive

transmission effects for the rest of the economy, including for the commercial property

sector, with rapid growth in demand for commercial floor space, underpinning the

development of existing and new office parks in urban centers; this is based on the update

of Rajiv Biswas, an Indian Asia-Pacific Chief Economist within the Information Handling

Services (IHS) Economics & Country Risk Group in a Philippine Daily Inquirer article.

Also, the employment growth of BPO industry in the Philippines is projected to have 1.3

million employees in 2016 and is forecasted to increase continuously for the next

succeeding years.
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 4
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
Coefficients Co. Ltd. is one of the three BPO companies in Lucena City. It was

founded and started its operations in Lucena City in September 2011 with only two

employees handling marketing campaigns for Singapore clients. It is one of the Quezon

Provinces leading Business Process Outsourcing of customer interaction and back-office

services. In 2012, they acquired two big client companies in the US who are both in the e-

commerce vertical. Coefficients became a partner company of a start-up outsourcing

company in Canada. They also gained a total of 15 logos in a span of one year. The

Coefficients Team attended a two-week product training for a tent manufacturing in Ohio,

USA. It started acquiring clients from the SEO and web development industries.

Coefficients Team personally met some of the companys clients in the US which helped to

strengthen business ties and to formalize business expansion plans. SEO clients companies

expanded their services with the help of Coefficients. They went beyond SEO and real

development. Context creation and context marketing are now their number one services.

They have started 24/7 operations as well. Coefficients found a new niche; they started

working for several writers, books authors and motivational speakers. They also provide

graphic designs, video editing, content writing and project management services to them.

Payroll is an integral part of all organizations, thus, payroll system plays a vital

role. It often involves several moving parts in a company. The management must follow

federal, state and local laws when hiring employees, offering compensation and

withholding payroll taxes, deductions or garnishments. Professional accounting software

can be used to help them maintain payroll information. Most accounting software packages

offer customizable payroll modules that help business owners keep accurate records of
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 5
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
employees. The accurate payroll system organizes all the tasks of employee payment and

the filing of employee taxes. These tasks can include keeping tracking of hours, calculating

wages, withholding taxes and deductions, printing and delivering checks and paying

employment taxes to the government. Business owners use payroll system to save time and

create structure in business operations. It saves time because they can repeat payroll tasks

in a timely manner as needed. Structure is also important due to the legal liabilities

involved with employee payroll. Furthermore, companies can face payroll audits from

government agencies. Each organization must present employee information and payroll

documents to verify if it follows government requirements when paying employees.

Several organizations view the payroll as merely a processing function. They fail to

recognize the importance of payroll and the mammoth effect it has on businesses. Hence,

having a good payroll system is important to the organization itself, and in terms of morale

of employees, compensation package and companys reputation.

The impact on the morale of employees is a critical aspect of payroll. Employees

need to feel assured that they can be paid on a consistent and timely basis. A late and

inaccurate payroll might cause employees to question financial stability of the

organization. It might compromise on the work climate resulting in underperformance and

ignorant behavior towards the workplace. Given that employees form the base in all

organizations, the importance of a reliable and accurate payroll cannot be overstated. In

terms of compensation package, it allows an employee to feel his net worth within the

company. Payroll is not limited to simply the peso and cents of an employees salary. The

total compensation such as salary, bonuses and benefits are incorporated into payroll.
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 6
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
Based on annual performance evaluations, employees are typically rewarded with a salary

increase or a fat bonus, or ideally, both. Employees who receive health insurance, life

insurance and pension benefits feel that they have a higher worth. In return, it might boost

an employees performance and which translates to a positive effect on the organization. In

upholding companys reputation, it ensures that its payroll activities adhere to the countrys

tax obligations and comply with employment legislations. The efficiency of meeting tax

obligations on time and upholding of legislative laws can further establish the company's

reputation as a stable employer. Moreover, the payroll department is not only responsible

for employees salary compensation, but it also plays an essential function in protecting the

companys reputation by ensuring compliance with various legislations.

Therefore, an efficient and effective payroll system is significant to ensure the

accuracy and timeliness of payroll given to the employees. It also reflects on the

organizations commitment to its employees.

The human resource department feeds the compensation and employee information

while accounting department has the major role in processing payroll. The accounting

clerk computes the basic pay, overtime pay, employee benefits, applicable deductions and

net pay, which are reflected on the payroll register. The accounting function is also

responsible in reconciling the payroll fund and processing accounting entries, processing

cash received for benefit premiums and accounts receivable invoices on salary

overpayments for inactive employees, and maintaining earnings records for compensation

provided outside the main payroll system.


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OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
Most developed BPO companies use computerized payroll system while

Coefficients Co. Ltd is executing a manual payroll system which is inappropriate for a

BPO company to have an obsolete payroll system. There are times that the management

encounters disputes because they have a different way of processing their payroll. The

payroll system they have is inconsistent which resulted to various discrepancies regarding

their employees just remuneration. Thus, the payroll process needs improvements to

prevent such issues.

The researchers aim to study the payroll process of Coefficients Co. Ltd. and come

up with an alternative payroll system that will help to provide accurate information.

Statement of the Problem

This study aims to assess the existing payroll system of Coefficients Co. Ltd., a

Business Process Outsourcing (BPO) company in Lucena City, so that the necessary

improvements and recommendations can be prepared to prevent disputes. Specifically, the

study sought to answer the following:

1. To determine the business profile in terms of:


1.1 Nature of business
1.2 Years of operation
1.3 Number of employees
2. To analyze the current payroll system being used by the Coefficients Co. Ltd. in

terms of:
a) Data input
b) Data processing
c) Data output
3. To propose an alternative payroll system.

Conceptual Framework
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 8
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
Over a million employees are already employed in the Business Process

Outsourcing (BPO) Company. Thus, it is now one of the biggest industries in the

Philippines. With this kind of industry, effective and efficient payroll system should be

exercised by the companies to develop a fair relationship with their employees.

In the case of Coefficients Co. Ltd., it is important to determine the components of

payroll system, the aspects affecting the payroll, the problems that arise by using the

existing payroll system. After analyzing this system, improvements could be made.

The conceptual paradigm of the study is thus stated below:

INPUT PROCESS OUTPUT


Determine the
business profile
Existing payroll Interview with Alternative
system of the the top level payroll system
Figurecompany
1. The conceptual framework of the study. o Process
management
Assessment of flowchart
o Payroll forms
Significance of the Study the weaknesses
arising from the and records
existing payroll
This study will provide the Coefficients Co. Ltd an effective and efficient payroll
system
system that will be beneficial to the following:
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 9
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
To the Company itself,

The key benefit of payroll system is having the highest level of reliability on the

data. There are employees who do not care about attendance because their bosses are not

strict, or they rely on someone else to buddy punch for them, when left unchecked,

employees will continue to such action at the expense of the company. Hence, this study

will help to facilitate a better payroll management that will avoid disputes on the

compensation of employees.

To the Human Resource Manager,

HR department can determine the right way if an employee is trying to outsmart the

system by reporting false overtime hours. It will save a lot of time for HR clerk so he can

also tend to other important task. Therefore, this study will help the HR clerk to minimize

and even eliminate the complaints he receives about the salary inconsistence because it can

be easily reported and addressed before the pay period is done.

To the Employees,

This study is conducted to have a better service for the employees and less errors or

disputes on their payroll. It would bring the employees satisfaction for test quality and

efficient service. They will receive the just remuneration they ought to have.

To the Researchers,

The researchers will be able to acquire knowledge on the current payroll system of

Coefficients Co. Ltd. and the supposedly improved payroll system. This research is
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 10
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
noteworthy to the proponent as he could share his ideas and technical know-how to readers

in the preparation for the degree. Having the degree, the researchers could deal with

contemporary challenges to solve that would give more extensive knowledge.

To the Future Researchers,

This study could assist other researchers as a reference for interrelated research. It

will help the future researchers to gain more information as they can improve their ability

to design and expand such data regarding payroll system.

Scope and Limitation of the Study

This study will focus on the assessment of the payroll system of Coefficients Co.

Ltd. The study will use descriptive interview as research design. An interview guide will

be used to facilitate the study; focused on the information gathering from the interview to

the top level management. The study limits the review of related studies considering that

this is the first research regarding payroll system of a Business Process Outsourcing (BPO)

company. The study will be conducted in school year 2016-2017.

The area of research, Coefficients Co. Ltd., will serve as a big help to fulfill the

requirements of this study.

Definition of Terms
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OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

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Business Process Outsourcing (BPO) is a subset of outsourcing that involves the

contracting of the operations and responsibilities of specific business process to a third

party serve provider.

Dispute is a disagreement, argument or debate.

Human Resource is the people who make up the work force of an organization, business

sector, or economy. It is a function in organizations designed to maximize employee

performance in serve of an employer is strategic objective.

Just Remuneration justifiable amount of money paid to an employee for work or service

rendered.

Manual Payroll System Manual payroll means that you, or another employee within

your company, calculate the payroll each pay period entirely on paper.

Payroll is a companys list of its employees but the term is commonly used to refer to

the total amount of money records of its employees salaries and wages, bonuses and

withheld taxes the companys department that calculates and pays there.

Peg is a small piece of metal or other material that is used to hold or fasten things or to

hang things on.

Chapter 2
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OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
REVIEW OF RELATED LITERATURES AND STUDIES

The success of every business entity depends on the effective management system

including the payroll system. The business needs an efficient payroll process that will

produce accurate and reliable information to the management.

Payroll encompasses every employee of a company who receives a regular wage or

other compensation. Some employees may be paid a steady salary while others are paid for

hours worked or the number of times produced. The concept of compensation goes beyond

payment for work done. It includes benefits that the worker receives for being with the

organization, for being employed over a period of time and for the rank or position held.

Employees in terms of basic pay and benefits and the importance of employees return with

their quality of work makes the compensation management a vital aspect in human

resource management. Thus, compensation and benefits package must be clearly

communicated to the employees.

According to Michael Kavanagh & Mohan Thite, payroll is the transactional

process through which compensation is transferred to employees and federal, state, and

local income and payroll taxes are withheld from employees checks. It is also through

payroll that any benefits costs borne by employees are withheld. While some employees

receive checks for net pay, it is more common, especially among large organizations, for

direct deposit to be made to employees bank accounts. In the majority of organizations,

payroll is a function administered by finance or accounting rather than an HR department

function. HR department feeds compensation data and benefits coverage (and employees

coverage choices) to payroll, which makes sure that all appropriate federal, state, local
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ENVERGA UNIVERSITY
income and payroll taxes are withheld at the correct rate and that any deductions for

benefits are also withheld at the correct rate. Payroll usually has the responsibility for

keeping track of income and payroll tax rates and applicable salary levels. Payroll results

are fed back into general accounting system by payroll. Because the labor costs are the

largest variable costs for most organizations, it is critical for the for the organizations

financial well-being that payroll records are accurate and timely. Because the paycheck is a

signal of the employment relationship and many employees rely on their paychecks to

meet bills that are due, it is critical that the payroll system delivers accurate and timely

paychecks or bank transfers. Little will anger or demoralize an employee more than a

missing or inaccurate paycheck or transfer. In short, payroll is a transactional task that must

be flawless.

Payroll processing is a special case of purchase system by which the business

purchases labor or services rather than goods for sale. It is where the services rendered by

employees are processed in what we call the salary of employees during a given period of

time. Payroll system varies from one business to another as in the case of manufacturing,

service or trading firms. Different documents and departments are involved in this process.

It can be done through a series of departments that will perform their assigned task. The

following represents the payroll processing of some businesses: (1) Personnel department

prepares and submits personnel action forms; (2) Production department prepares two

types of time records such as job tickets and timecards; (3) Payroll department receives

personnel action forms and time cards as basis for the preparation of payroll register, the

paychecks are also prepared; (4) Accounts Payable department reviews the payroll register
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and prepares copies of a cash disbursement voucher which will be recorded in the voucher

register; and (5) Cash Disbursement department prepares a single check for the entire

amount of payroll to be deposited in the payroll imprest account.

Payroll process, at its most basic, is the process by which an employer pays an

employee for work performed.

According to Ferrer et al., the main purpose of a formal wage salary management

plan is to have a systematic method of payment to ensure that employees receive a fair

wage and salary for the work they perform. Salaries may be the same but one company

may pay on hourly basis plus piecework while the other may not. There are two methods

of paying salaries: (1) By the Time Worked; (2) By the Amount of Work Produced.

By the time worked, earnings do not fluctuate with the amount of work performed

or with the quality of output. Herewith, wages are computed in terms of unit of time. It is

common to pay workers by the day and the term day-work was adopted. In terms of by the

amount of work produced, earnings depend on how much work the employee completes or

on a related factor, such as the quality of work. Piecework salaries are determined by the

number of pieces produced or completed and each piece has assigned piece value.

The company must have a clear-cut wage and salary policy that will help the

organization have better relationships with employees and develop a more comprehensive

employee financial planning program.


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OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

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Gross earnings are what employees receive as take-home, or net, pay. Deductions

are the reason for the difference. Some are required and some are voluntary. Required

deductions are for various taxes, such as federal, state or local taxes, Social Security and

Medicare. Tax tables are used to determine exact amounts to be withheld depending on the

type of tax and the individuals marital status, pay period, and withholding allowances

claimed. Voluntary deductions are usually specified by the individual employee. Savings

plans, union dues, medical insurance, life insurance, and charitable contributions are some

examples of voluntary contributions.

Many federal and state laws affect payroll work. It is essential that the payroll

workers understand the impact what these laws carry. They spell out the requirements for

withholding, reporting, and submitting money for taxes, both for employer and employee.

In addition, laws regarding minimum wages, unemployment compensation, overtime pay,

and disability benefits must be considered. Several of the laws have common goal: to

protect the rights of the workers.

According to Olivar (2010), payroll system is the heart of Human Resource System

of an organization. The solution has to take care of calculation of the salary as per rules of

the company, income tax calculations, and various deductions to be done from the salary

based on the daily time record using the Biometric Attendance Record System, including

statutory deductions like Income Tax and Provident Fund deductions. The main focus of

the system should handle employees records such as employee list, attendance, bonus and

pay slip for the administrator.


ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 16
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Based on the Payroll Records & Procedures by Merle Wood, payroll systems can

range from handwritten documents to use of mainframe computers. While manual systems

may be adequate for small businesses, they are completely inappropriate for large ones.

For businesses that do not wish to perform their own payroll function, service bureaus are

available to handle the entire process for a fee.

Thus, payroll system involves everything that has to do with the payment of

employees right and just remunerations for their works performed. This includes keeping

track of hours, calculating wages, withholding taxes and other deductions, printing and

delivering checks, and paying employment taxes to the government. There are two basic

types of payroll system such as manual payroll and computerized payroll system.

According to Merle Wood, in the book Payroll Records & Procedures, the word

manual means by hand. Thus, in a manual system, payroll work is done by hand, but with

the assistance of a few office machines such as adding machines, typewriters, and

calculators. Manual payroll systems are used in more businesses than all other systems

combined. It is estimated that over 90 percent of American businesses have 50 or fewer

employees. Thus, it is natural that the majority of such businesses would use a manual

payroll system.

Wood also stated that, a manual payroll system that greatly increases efficiency in

recording payroll data is the pegboard, or one-write, system. This system makes it possible

to enter employee payroll data in the payroll register, the earnings record, and on the

voucher portion of the payroll check all at one time. Pegboard payroll system is a kind of
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payroll process under manual payroll system for efficient and effective recording of payroll

with the use of pegs.

The pegboard has a row of pegs or some other alignment device along one side.

The payroll forms used with the board are punched so that they fit over the pegs or

alignment device. The procedure for preparing a payroll is as follows: (1) The payroll

register for the period is placed on the board first and the date of the payroll is entered; (2)

The employee earnings record for the first employee is placed over the payroll register so

that the first blank line of the earnings record is over the first blank line of the register; and

(3) The voucher check is placed on top of the other forms so that the information line on

the voucher stub is aligned with the blank lines on the earnings record and the payroll

register. The payroll clerk then enters the appropriate data on the voucher stub of the check

using a ballpoint pen. The data is automatically reproduced on the earnings record and the

payroll register because the voucher stub has a carbon strip behind it and the earnings

record has a carbon-paper backing. (With some systems, both forms may be made of NCR

paper. NCRno carbon requiredpaper transfers an impression through chemical action

when writing pressure is applied.)

Moreover, there are payroll forms specified, the Standard Payroll Forms and

Custom-Made Payroll Forms. Under the standard payroll forms, it cited: Certain

information must be recorded in any payroll system, including each employees name,

marital status, number of withholding allowances, regular rate of pay, overtime rate, and

voluntary deductions. In addition, for each payroll period, a business must have detailed

information about the hours worked, earnings, deductions, and net pay for each employee.
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A business may design and print its own payroll forms for recording this information.

However, standard forms and record books that meet the needs of many firms are available

from stationery stores. One advantage of using such standard forms is that they provide for

a way to manually record payroll information efficiently, reducing the possibility of errors

or omissions.

In terms of Custom-Made Payroll Forms, Some payroll laws and regulations differ

from one geographic area to another. For example, a few states still do not have a state

income tax withholding law. Most cities do not have special taxes that must be withheld,

though some do. Also, company policies that affect payroll differ from business to

business. A similar situation could exist in an audio repair shop where employees are not

charged for service or minor repairs. The value of any service that the employee receives is

taxable income. It is a form of pay. By including such amounts in a column in the payroll

register, this record is established and is available for company management information as

well as for tax purposes. Besides making it possible to record unique needs, custom-made

payroll forms are attractive and functional. The custom-made payroll forms were

developed to serve the specific needs of a particular company.

Electronic aids are used in the manual payroll system to compute the amount of

remuneration an employee should receive. An electronic calculator is commonly used as an

aid when a payroll is prepared manually because it can quickly and accurately add,

subtract, multiply, and divide amounts. In payroll work, an electronic calculator that prints

a paper tape is usually preferred to one that only shows the results of computations in its

display area. The tape provides a convenient way to verify amounts. Most firms use a
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rather simple desk calculator to perform payroll computations. However, more

sophisticated programmable calculators are also available.

In manual payroll system, the payroll clerk calculates the payroll each pay period

entirely on paper. Taxes, insurance and any other applicable deductions and additions to

each employees actual earnings are calculated. The advantage of using a manual system is

that it is very inexpensive, with virtually no start-up costs. However, the disadvantage is

whatever you save from the start-up costs will probably be eaten up by the amount of time

it takes to process payroll. In addition, it is very easy to commit mistakes when processing

payroll manually, and the penalty for the mistakes committed in the computation of taxes

can be costly. Therefore, a manual payroll system should be efficient to prevent errors in

the computations of employees remuneration.

An organized and systematic process of manual payroll system is composed of

three procedures and reports or outputs made by authorized personnel. First, the Human

Resource clerk will prepare a report on employees summary of work hours based on the

audited and approved time cards. Second, the organizations Accounting clerk will check

the work of HR clerk as basis for the preparation of payroll register. The payroll register

will contain the computation of basic pay, overtime premium, bonuses, taxes, benefits and

other deductions applicable to each employee. Third, the Treasury clerk will design the

companys pay slip based on the information reflected on the payroll register. He will be

the one to prepare and issue each employees pay slip.


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Every business, large or small, must keep detailed payroll records. Since employee

wages are a major expense for most businesses, management must watch payroll expenses

closely. Also, government agencies and auditors often need to refer to payroll records. And,

most important to the employees, paychecks are written based on information taken from

the payroll records.

Keeping time and work records is a necessary activity for businesses. They can be

kept on a weekly, biweekly, semimonthly, or monthly basis. These records are designed to

gather information needed to determine amounts to pay for each payroll period. Time cards

are used with a time clock by workers to record when they arrive and when they leave the

workplace. Most often, time cards are used in businesses that employ a large number of

workers. Smaller businesses with fewer workers often use time sheets to record hours

worked. Time worked may be computed to the exact minute or to the closest quarter-hour.

Sometimes it is necessary to keep track of labor costs for specific jobs or projects. In other

situations, workers are paid according to their production or sales. Clearly, work records

must be designed to satisfy individual business needs.

Generally, day-to-day activities are recorded in the payroll register and the

employee earnings record. These are subsidiary records to a firms accounting system. At

the end of the payroll period, these activities must be brought into the overall accounting

system through a process of journalizing and positing. Keeping track of the money

involved in payroll work would be impossible without detailed records. Although the

primary accounting system for a business does not need every payroll detail, it does need

summarized payroll data in order to determine the current financial status of the business.
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All deduction information is a part of every employees earnings record. Any changes

should be made in writing by the employee. The person in charge of preparing payroll

checks must carefully review all individual deductions to make sure the proper amount of

money is withheld each period.

The payroll register is one form of payroll record that is widely used. It can be

customized to fill the particular needs of a specific business. It must be absolutely accurate,

and entries must be readable. The use of an electronic printing calculator provides the

means to double-check entries made. To verify the accuracy, a procedure called cross-

footing is used. If certain combinations of column totals do not equal, cross-footing will

help to locate where an error exists.

Another important part of the payroll record-keeping process is the employee

earnings record. A separate record is kept for each employee on an annual basis. This

record contains personal information such as name, address, marital status, social security

number, and date of hire. It also provides a complete record earnings and deductions

throughout the year, quarterly totals and a year-to-date total for gross earnings. This is

especially useful to determine when an employees earnings have reached the maximum

taxable amount for federal, state, or local taxes that may have earnings limit. Information

for entries is taken from the payroll register. This process is called posting, which must be

done without error. Any mistakes will be carried forward into many reports that are

generated from these records, making that information wrong. Any changes in the

employees personal information should not be done without a written authorization.


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On the other hand, computerized payroll system basically performs the same

function as those performed manually by the payroll clerk. The important differences

between the two types of payroll system are the computers speed, accuracy of data, and

reliability to generate various special reports.

Computerized payroll system calculates and prints paychecks accurately. To be able

to do that, the computer requires the same information necessary in manual system. There

is a need to input information for each employee, it includes employee name, social

security number, address, marital status, number of exemptions, gross pay and withholding

for payroll taxes and other deductions. The employee master files are the basis for the

computerized payroll system which contains all data related to the payroll. The whole

payroll information is stored on a secure server, and the data is routinely backed up. The

data is readily available and retrievable whenever required.

According to Dale H. Klooster and Warren W. Allen, in the Integrated Accounting

on Microcomputers, payroll is one of the oldest and most common data processing

applications. It is an application that lends itself to the computer because of its repetitive

procedures and calculations.

Hence, various companies use computerized payroll system to save time and to

avoid potential mistakes that can occur in repetitive payroll procedures.

Payroll is one of the major expenses of the company as it directly affects its

operations and various financial data summaries. A budget is a financial data synopsis that

prepares to monitor expenses, revenue and cash flows. The document generally comes out
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 23
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ENVERGA UNIVERSITY
at the beginning of a period such as a month, quarter or fiscal year and enables

department heads to specify elements such as how much to spend, how to report negative

variances and how to rein in waste. Consequently, a budget involves the amount of money

to be spent by the company for their operations as well as the remuneration of their

employees.

Payroll accounts include salaries and wage expenses, payroll tax expenses and

expenses incurred by the employer for employee benefits. Assets decrease when a

company pays liabilities associated with payroll. It also decreases a companys planned

and actual expenses; as a result, it has a decremental effect on budgetary data. Payroll that

exceeds sales or earnings will cause a business to fail. When a business owner decides to

compensate the employees, he must review the budget and try to estimate the business'

income in order to determine what it can afford for compensation. The amount the business

can afford as budget for payroll will affect how many employees the business can hire, and

the skill level of the employees.

As part of a companys operating expenses, payroll is essential to an income

statement also referred to as a statement of profit and loss, report on income or profit or

loss. The cash flows pertaining to the compensation paid by the management to the

employees reflect to a balance sheet, the report often called as statement of financial

position. Financial managers and department heads help senior executives in pondering

payroll-related issues.
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OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
Due to Business Process Outsourcing (BPO) industrys fast-paced nature with its

ongoing demand for manpower, numerous employees are employed in thousands of BPO

companies in the country. Each organization manages the entire operation of the company

including its payroll processing. Having a large number of employees, BPO companies

should have an efficient and accurate payroll which can be attained using a computerized

or automated payroll system. It is the appropriate payroll process for a BPO company to

eliminate possible errors and transparency across the organization; it creates effectiveness

as all records can be stored, organized and maintained electronically.


ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 25
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

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Chapter 3

RESEARCH METHODOLOGY

This chapter will present the methods and techniques to be used by the

researchers to gather data that will answer the current study. This will include the research

design, subject respondents, research instrument and the data gathering procedure.

Research Design

The researchers will use the qualitative method of descriptive research to obtain

information concerning the current status of the phenomena and to improve the present

practice. Descriptive research involves an element of interpretation of the meaning of

significance of what is described.

The qualitative method of research will be utilized from the interview to the top

management of Coefficients Co. Ltd.

Respondents

The respondents of the study will be the top level management of Coefficient Co.

Ltd.

Research Instrument

The researchers will prepare a questionnaire for the interview with the top level

management or the owners of the company to obtain the necessary data needed in the
ASSESSMENT OF THE PAYROLL SYSTEM OF A SELECTED BUSINESS PROCESS 26
OUTSOURCING COMPANY: BASIS FOR SYSTEM IMPROVEMENT

ENVERGA UNIVERSITY
study. The prepared interview guide will gather information that will supplement the

objectives of the study.

Data Gathering Procedure

The researchers will assess the existing payroll system of Coefficients Co. Ltd

using a process flowchart. The prepared interview guide will be used to conduct an

interview with the top level management that will serve as a validation of the assessed

payroll system. After the assessment of the current payroll system, the researchers will

draw recommendations from the result of the study.