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Human Resource and Payroll Cycle

Source: Romney & Steinbart (2008), Accounting Systems 11 ed.

Question
• What are some major activities in
human resource cycle?

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What is human resources cycle?

• Involves interactions with your employees.

Give Get
Cash Labor

Question to address
• How many employees does the organization needs?
• Which skills are in short or over supply?
• Which employees possess specific skills?
• How effective are the training programs?
• Is overall performance improving or declining?
• Are there problems with turnover, lateness, or absenteeism?

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Most important tasks performed

• Recruiting and hiring new employees
• Training (staff development)
• Job assignment
• Payroll (compensation)
• Performance evaluation
• Discharge of employees (voluntarily or involuntarily)

Payroll system: Input

• HRM department: data about hiring, terminations, and pay-rate changes.
• Employees: data changes (in relation to deductions)
• Various departments: the actual hours worked by employees.
• Government agencies: tax rates and regulatory instructions.
• Insurance companies and other organizations: calculating and remitting
various withholdings.

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Payroll system: Output

• Employees: pay slip (detailed take home pay).
• Bank: payroll checks to transfer fund.
• Government agencies, insurance companies and other
organizations : checks to pay employee taxes and insurance policy.
• Various departments: managerial reports.

Payroll system: Basic activities

• Update payroll master file
• Update tax rates and deductions
• Validate time and attendance data
• Prepare payroll
• Disburse payroll
• Calculate employer-paid benefits and taxes
• Disburse payroll taxes and miscellaneous deductions.
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Activity 1:
Update payroll master file
• HRM department provides information on new hires, terminations,
changes in pay rates, and changes in data of the existing employees.
• Changes must be entered in a timely manner and reflected in the
next pay period.

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Activity 2:
Update tax rates and deductions
• Payroll department receives notification of changes in tax rates and
other payroll deductions from government agencies, insurers,
unions, etc.
• These changes occur periodically.

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Activity 3:
Validate time and attendance data
• Various departments provides information on time and attendance in
different forms depending on the employee’s pay scheme.
• Collecting time and attendance data electronically.
• Employees are paid based on hourly basis (in manufacturing):
 Job time tickets: to record time present and time dedicated to each job.
• Employees are paid based on fixed salary:
 Time cards: for staffs to record the arrival and departure time (staffs).
 Time sheets: for managers and professionals to records the activities done.

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Activity 3:
Validate time and attendance data
• Sales staff are often paid on a straight commission or base salary plus
commission.
• Some may also receive bonuses for surpassing sales targets - requires
careful recording of their sales.
• Some management and employees may receive stock to motivate them
improve service.
• The payroll system needs to link to the revenue cycle and other cycles to
calculate these payments.

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Activity 4:
Prepare payroll
• Payroll transaction file is sorted by employee number.
• For each transaction, the gross pay is calculated. Pay rate information is
obtained from the payroll master file.
• Payroll deductions are summed and subtracted from gross pay to obtain
net pay.
• Year-to-date totals for gross pay, deductions, and net pay are calculated,
and the master file is updated. Cumulative records is important for tax
reporting.

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Activity 4:
Prepare payroll
• Documents printed:
 Pay slip for employees – list pay details
 Payroll register for payment - each employee’s gross pay,
deductions, and net pay in a multi-column format.
 is used to authorize the transfer of funds to the
company’s payroll bank account.

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Activity 5:
Disburse payroll
• Most employees are paid either by:
 Direct deposit, check, or cash payments.
• Payroll register is sent to Accounts Payable department for review
and approval.
• Payment (or disbursement) voucher is prepared to authorize the
transfer of funds or payment, and then approved by head
department.

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Activity 5:
Disburse payroll
• Approved payment (or disbursement) voucher and payroll register are sent
to the cashier.
• The cashier will:
 reviews the documents.
 signs payroll check to transfer fund.
 distribute employees pay slips.
 returns the payroll register to payroll department, where it is filed with
time cards and job time tickets.
 sends the payment voucher to accounting clerk to update general ledger.
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Activity 6: Calculate employer-

paid benefits and taxes
• The employer pays some payroll taxes and other employee benefits:
 Tunjangan PPh Pasal 21
 BPJS Kesehatan & Ketenagakerjaan (JKK, JKM, JHT)
 Pension funds.

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Activity 7: Disburse payroll taxes

and miscellaneous deductions
• The company must periodically prepare checks or EFT to pay tax and
other liabilities.

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