HUMAN RESOURCES

CYCLE
 CONCEPTUAL PAYROLL SYSTEM
• Payroll processing is a special-case purchases system in which the
organization purchases labor rather than raw materials or goods for
resale.
• Purchasing and disbursement applies to all vendors and inventory
items. In Payroll, however, different procedures are done to pay
hourly workers, salaried workers, commissioned workers, etc. and
to have special accounting procedures for employee deductions,
withholding taxes and premium pays.
 PERSONNEL DEPARTMENT
• Prepares and submits personnel action forms to the
prepare payroll function. These documents identify
employees authorized to received a paycheck and are
used to reflect changes in hourly pay rates, payroll
deductions and job classification.
 PRODUCTION DEPARTMENT
• Two types of time records:
1.Job Tickets – capture the time an individual spend on each
production job. This is used by the Cost Accounting department to
allocate direct labor charges to work-in-process accounts.
2.Time Cards – capture the time the employee is at work. These are
sent to the prepare payroll function for calculating the amount of the
employee’s paycheck.
 UPDATE THE WORK-IN-
PROCESS ACCOUNTS
•After the cost accounting allocates labor costs to the
WIP accounts, the charges are summarized in a
labor distribution summary and forwarded to the
general ledger function.
 PREPARE PAYROLL
1. Prepare the payroll register showing gross pay, deductions, premium
pays and net pay.
2. Enters this information into the employee payroll records.
3. Prepares employee paychecks.
4. Sends the paychecks to distribute paycheck function.
5. Files the time cards, personnel action form and copy of the payroll
register.
 DISTRIBUTE PAYCHECK/ BANK
CREDITS
• A form of payroll fraud involves submitting time cards for non-
existent employees. To prevent this, many companies takes
advantage of the banking system. Employees are required to
open an account in a certain bank and the companies will credit
the employee’s account depending on the records found in the
payroll register.
 PREPARE ACCOUNTS PAYABLE
• The accounts payable clerk reviews the payroll register for
correctness and prepares copies of a cash disbursement voucher
for the amount of the payroll. The clerk records the voucher
register and submits the voucher packet (voucher and payroll
register) to cash disbursements. A copy of the cash
disbursements is sent to the general ledger function.
 PREPARE CASH DISBURSEMENT
• Upon receipt of the voucher packet , the cash disbursement function prepares a
single check for the entire amount of the payroll and deposits it in the payroll
Imprest account. This account is used only for payroll. Funds must be
transferred from the general cash account to this imprest account before
paychecks can be cashed/ employee accounts be credited. The clerk sends a
copy of the check along with the disbursement voucher and payroll register to
the AP department, where they are filed. Finally, a journal voucher is prepared
and sent to the general ledger function.
 UPDATE GENERAL LEDGER
• The voucher packer received, the clerk now prepares the journal entries.
From:
Labor Distribution Summary Disbursement Voucher
Work-in-Process (Direct Labor) Wages Payable
Factory Overhead (Indirect Labor) Cash
Wages Payable Withholding Tax Payable
SSS, PHIC, HMDF Payable
 PAYROLL CONTROLS
1. Transaction Authorization
2. Segregation of Duties
3. Supervision
4. Accounting Records
5. Access Controls
6. Independent Verification
 TRANSACTION AUTHORIZATION

• Payroll keeps employee records current. This

document describes additions, deletions, and other
changes to the employee file and acts as an important
authorization control to ensure that only the time
cards of current and valid employees are processed.
 SEGREGATION OF DUTIES
• The time-keeping function and the personnel function should be separated. The
personnel provides payroll with the pay rate information for authorized employees
only.
• For purposes of operational efficiency, the payroll function performs several tasks.
Some of these are in contradiction with basic internal control objectives. Example,
the payroll function has both the asset custody (employee paychecks) and record-
keeping responsibility (employee payroll records). This opens the opportunity for
the person to create a false liability to himself, approve payment and write the
check.
 SUPERVISION
• Sometimes employees will clock in for another worker who
is late or absent. Supervisors should observe the time
keeping process and reconcile the time cards with actual
attendance.
• Some companies, use biometric devices to have security in
the time checking of employees.
 ACCOUNTING RECORDS
• The audit trail for payroll includes the following documents:
1. Time cards, job tickets and disbursement vouchers.
2. Journal information, from labor distribution summary and the payroll
register.
3. Subsidiary ledger accounts, which contains the employee records and
various expenses (salary deductions).
4. General ledger accounts: payroll control, cash, and payroll imprest
system.
 ACCESS CONTROLS
• The assets associated with the payroll system are labor and
cash. Both can be misappropriated through improper access to
accounting records. A dishonest individual can misrepresent the
number of hours worked on the time cards and thus embezzled
cash. Control over access to documents is important, as it is in
all expenditure cycle systems
 INDEPENDENT VERIFICATION
1. Verification of Time – before sending time cards to payroll, the supervisor must
verify their accuracy.
2. Paymaster – the use of an independent paymaster to distribute checks helps
verify the existence of employees.
3. Accounts Payable – the AP clerk verifies the accuracy of the payroll register
before creating a disbursement voucher that transfers funds to the imprest
account.
4. General Ledger – the GL department provides verification of the overall process
by reconciling the labor distribution summary and the payroll disbursement
voucher.
 PREMIUM PAY
• All employees required to work on holidays, such as special holidays and regular
holidays. It is subject to taxation.
• Regular Holiday Premium Pay (200% of normal rate per hour)
Employees who work during regular holidays (for work within 8 hours) are
entitled to an additional 100% or effectively 200% of the normal rate.
Example: An employee’s rate per hour is ₱57, the total pay is ₱114 per hour (₱57x200%).
*The employee may not come to their work when it is a regular holiday, but they will also
be paid the normal rate for one (1) day if the employee is present one ordinary day before
the regular holiday or on leave on that day.
• Special Holiday Premium Pay (130% of normal rate per hour)
Employees who work during special holidays (for work within 8
hours) are entitled to an additional 30% or effectively 130% of the
normal rate.
Example: An employee’s rate per hour is ₱57, the total pay is ₱74.10 per
hour (₱57x130%).
*The “No work, No pay” policy applies for special holidays for DAILY-
PAID employees only. Monthly-paid employees are entitle to 100% of
daily rate.
• Non-working day Premium Pay (130% of normal rate per hour)
All employees required to work during non-working days, such as rest day
and special non-working days.
Example: An employee’s rate per hour is ₱57, the total pay is ₱74.10 per hour
(₱57x130%).

• Rest day and at the same time a special holiday / non-working day (150% of
normal rate per hour)
Example: An employee’s rate per hour is ₱57, the total pay is ₱85.50 per hour
(₱57x150%).
 OVERTIME PAY
• All employees required to work beyond the normal 8 hours are entitled to overtime pay. Overtime pay rates depend
upon the days the work is performed, whether it is ordinary working day, rest day, special holiday or regular
holiday. It is subject to taxation.
• Ordinary Working Day Overtime (125% overtime pay)
On an ordinary day, the overtime rate per hour is 125% of the normal rate per hour.
Example: An employee’s rate per hour is ₱57, then the overtime rate per hour is ₱71.25 (₱57 x 125%)
• Rest day Overtime (169% of normal rate per hour = 130% Rest day x 130% Overtime)
On a rest day, the rate for the first 8 hours is 130% of the normal rate per hour. In excess of 8 hours, the
overtime rate per hour is 130% of the of the adjusted rate per hour (130% Rest Day)
Example: An employee’s rate per hour is ₱57, then the overtime rate per hour is ₱74.10 (₱57 x 169%).
• Special Holiday Overtime (169% of normal rate per hour = 130% Special Holiday x 130% Overtime)
Example: An employee’s rate per hour is ₱57, then the overtime rate per hour is ₱74.10 (₱57 x 169%).
• Rest day and at the same time Special Non-working day Overtime (195% of normal rate of return
= 150% Rest and Special non-working day x 130% Overtime pay)
Example: An employee’s rate per hour is ₱57, then the overtime rate per hour is ₱111.15 (₱57 x 195%).
• Regular Holiday Overtime (260% of normal rate per hour = 200% Regular holiday x 130%
Overtime pay)
Example: An employee’s rate per hour is ₱57, then the overtime rate per hour is ₱148.20 (₱57 x 260%).
• Regular Holiday and at the same time Rest Day Overtime (338% of normal rate per hour = 200%
Regular Holiday x 130% Rest Day x 130% Overtime Pay)
Example: An employee’s rate per hour is ₱57, then the overtime rate per hour is ₱192.66 (₱57 x 338%).
• Night Shift Differential or Graveyard Shift Pay (110% of normal rate per hour) – only for work
between 10 p.m. to 6 a.m. It is subject to Taxation.
Example: An employee’s rate per hour is ₱57, the total pay is ₱62.70 per hour (₱57x110%).
PAY SLIP – A DOCUMENT INCLUDED IN THE SALARY/WAGES PAID
THAT RECORDS HOW MUCH MONEY IS EARNED AND HOW MUCH IS
DEDUCTED FOR MANDATORY DEDUCTIONS (SUCH AS SSS, PHIC
HDMF, UNION DUES) AND WITHHOLDING TAXES.
Shoe El Doo Company
PAYSLIP
Employee Name: ______________________ Pay Period: ____________________
ID Number: __________________________ Pay Cycle: ____________________
Earnings Amount Deductions Amount

Basic Salary ₱ SSS Contribution ₱

Premium Pay PHIC Contribution

Overtime Pay HDMF (Pag-IBIG) Contribution

Withholding Taxes

Gross Earnings ₱ Total Deductions ₱

Net Earnings: ₱____________

SEATWORK # 2
• Work starts at 8:00 a.m. , early time in will be considered as 8:00 a.m. Work for each day is 8 hours, overtime is
computed in excess of 8 hours. Lunch break is 12:00 – 1:00 pm, which is NOT paid. The attendance of 3
employees are as follows:

• Ms. Apple Alfa is paid P 60 per hour, Mr. Boy Bravo is paid P 70 per hour, and Mr. Cat Charlie is paid P 80 per hour.
• Prepare a payroll computation, with premium and overtime pay features.