Human Resources HR Management and Payroll Process

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Human Resources (HR) Management and Payroll
Process
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Learning Objectives

• Know the definition and basic functions of the HR
  management and payroll processes
• Recognize 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
• Understand the logical and physical
  characteristics of the HR management and payroll
  processes
• Become familiar with some of the technology used
  to implement the HR management and payroll
  processes
• Know some of the plans commonly used to control
  the payroll process

HR Management and Payroll Processes
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HR/P Spoke in the AIS Wheel

• In this chapter, we spotlight the human resources
  (HR) management and payroll processes.
• It will become clear later why we depict these
  processes with one spoke in the AIS wheel
• We will describe the various users of the HR
  management and payroll processes, each having
  their own view of the enterprise system and
  enterprise database
• In addition, we will analyze the process controls
  related to the payroll process

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Synopsis

• Human capital management (HCM), the process of
  managing how people are hired, developed,
  assigned, motivated and retained, presumes that
  employees reflect a strategic investment, rather
  than an administrative cost
• Some estimates place the value of human capital
  between 500,000 and 5 million per person
• Costs of such human capital, including
  compensation, benefits, and HR, represent 43
  percent of the average corporations total
  operating expense

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Synopsis

• The automation of HR (dubbed e-HR) may
  transform HR from a cost center to a highly
  valued, strategic, mission-critical part of the
  business
• HR automation will affect evaluation and
  compensation programs to reflect the changing
  work patterns, including
• graying workforce
• virtual teams
• telecommuters
• consultants
• contractors
• part-time and temporary employees

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Synopsis

• In this chapter we explore three themes
• First, we briefly examine the importance of
  people to the success of any organization
• Next, we describe how the HR management and
  payroll processes assist management in leveraging
  its human capital
• Finally, we introduce some of the technology used
  to implement modern HR management and payroll
  processes

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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
• An individuals value to an organization is
  derived from his/her job-related knowledge,
  skills, attitude, and motivations
• Human assets include full-time permanent
  employees, plus part-time employees, temporary
  employees, and independent contractors.
• With supply chain management, an organizations
  human assets could include employees of
  suppliers, sales channel partners, and customers
• A persons relationship with an organization,
  from hiring through termination, must be nurtured
  and managed to obtain maximum lifetime value

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Definition of HR Management Process

• Primary function of the HRM process is to create
  information flows that support the following
• Repetitive work routines of the HR department
• 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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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 on page 512

• 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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Organization Chart of the HR Function
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Duties of HR Managers
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Duties of HR Managers
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Technology Trends and Developments

• HR self service systems
• Organizations might outsource other functions to
  support HR management processes.
• Web-based collaboration
• Payroll
• Enterprise systems play a major role in
  implementing required HR and payroll
  functionality.
• Implementing the HRM process with an enterprise
  system can help recognize the benefits of
  integration of the HR management process with
  other enterprise systems modules such as
• Financial Accounting
• Logistics
• Sales and Distribution
• The Workflow Module

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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
• Departmental managers (outside the HR department)
  may initiate the process to satisfy their
  immediate hiring needs
• 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 employees 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 controllers
  office with the treasurer participating in
  distributing paychecks

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Payroll Process Context Diagram
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Payroll Process Level 0 DFD
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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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Accounting Entries in Payroll Process
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Payroll Process Flowchart
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Payroll Has High Fraud Potential

• Types of payroll frauds
• Ghost employees (employees who dont exist but
  are issued paychecks)
• Falsified hours (employees who overstate hours
  worked)
• Commission schemes (collecting commissions on
  false sales or using false commission rate)
• Workers 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
Legend 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 Process Control Matrix