TERM PAPER

OF
CSE-301:DATA BASE MANAGEMENT SYSTEM
Topic: PAYROLL PROCESS

Submitted by:

AVINASH MANHAS Submitted to:

Roll.no- RE2801B46 Mr. Gaurav Pushkarana

Regd.no- 10809450

Course- B Tech-M.Tech( IT)

INTRODUCTION
Calculation of gross salaries and deductible amounts is a tedious task which involves risk. Some
of the organizations use the traditional manual method of payroll processing and some go for the
advanced payroll processing software. An organization opts for any of the following payroll
processing methods available::

Manual System
Manual payroll system is the traditional payroll system which involves pen and ink, adding
machine, spreadsheet, etc instead of computers, software and other computerized aids. The
process was very popular when there were no computerized means for payroll processing.

Now-a-days it is only few small scale organizations in the remote areas that use the manual
payroll. Sometimes the construction industry and manufacturing industry also use the manual
payroll systems for the contractual labour, as theses contracts are on daily/weekly basis.
There is full control in the hands of owner. But the process is tedious, time consuming and risky
as it is more prone to errors.

CONTENTS:
• What is Payroll?

• Pay Check

• Payroll taxes

• Payroll Outsourcing

• Purpose

• Process Flow

• Various Payroll Processes

• Payroll Control Record

• Simulating Payroll

• DATA FLOW DIAGRAM OF PAYROLL PROCESS

• PAY ROLL PROCESS FLOW CHART

• CREATING A PAYROLL PROCESS

• Benefits of Payroll
 • References

What is Payroll?
In a company, payroll is the sum of all financial records of salaries for an employee, wages,
bonuses and deductions. In accounting, payroll refers to the amount paid to employees for
services they provided during a certain period of time. Payroll plays a major role in a company
for several reasons. From an accounting point of view, payroll is crucial because payroll and
payroll taxes considerably affect the net income of most companies and they are subject to laws
and regulations (e.g. in the U.S. payroll is subject to federal and state regulations). From ethics in
business viewpoint payroll is a critical department as employees are responsive to payroll errors
and irregularities: good employee morale requires payroll to be paid timely and accurately. The
primary mission of the payroll department is to ensure that all employees are paid accurately and
timely with the correct withholdings and deductions, and to ensure the withholdings and
deductions are remitted in a timely manner. This includes salary payments, tax withholdings, and
deductions from a paycheck.

Pay Check
A Pay Check is traditionally a paper document issued by an employer to pay an employee for
services rendered. In recent times, the physical paycheck has been increasingly replaced by
electronic direct deposit to bank accounts. Such employees may still receive a complete pay slip
package, but the attached check is noted as non-negotiable.

In most countries with a developed wire transfer system, using a physical check for paying
wages and salaries has been uncommon for the past several decades. However, vocabulary
referring to the figurative "pay cheque" does exist in some languages, like German
(Gehaltsscheck), partially due to the influence of popular media, but this commonly refers to a
payslip or stub rather than an actual cheque. Some company payrolls have eliminated both the
paper cheque and stub, in which case an electronic image of the stub is available on an Internet
website.

Payroll taxes
Government agencies at various levels require employers to withhold income taxes from
employees' wages.
In the United States, "payroll taxes" are separate from income taxes, although they are levied on
employers in proportion to salary; the programs they fund include Social Security, and Medicare.
U.S. income and payroll taxes collected through deductions are considered to be trust fund taxes,
because the employer holds the deducted money in trust for later remittance.

Payroll card
For employees that, for one reason or another, do not have access to a bank account (bad check
history, not in close proximity to bank, etc.), there is a solution, offered by most major Payroll
Service Providers. Instead of an employee receiving a check, and paying up to 5-10% to cash the
check, the employee can have the direct deposit loaded onto a debit card. In this, a company can
save money on printing checks, not buy the expensive check stock, and not having to worry
about check fraud, due to a check being lost or stolen. A payroll card is a plastic card allowing an
employee to access their pay by using a debit card. A payroll card can be more convenient than
using a check cashier, because it can be used at participating automatic teller machines to
withdraw cash, or in retail environments to make purchases. Some payroll cards are cheaper than
payday loans available from retail check cashing stores, but others are not. Most payroll cards
will charge a fee if used at an ATM more than once per pay period.

The payroll card account may be held as a single account in the employer's name. In that case,
the account holds the payroll funds for all employees using the payroll card system. Some
payroll card programs establish a separate account for each employee, but others do not.

Many payroll cards are individually owned dda (demand deposit accounts) that are owned by the
employee. These cards are more flexible, allowing the employee to use the card for paying bills,
and the accounts are portable. Most payroll card accounts are FDIC-insured, but some are not.

Payroll Outsourcing
Businesses may decide to outsource their payroll functions to an outsourcing service like a
Payroll service bureau or a fully managed payroll service. These can normally reduce the costs
involved in having payroll trained employees in-house as well as the costs of systems and
software needed to process a payroll. In many countries, business payrolls are complicated in
that taxes must be filed consistently and accurately to applicable regulatory agencies. Restaurant
payrolls which typically include tip calculations, deductions, garnishments and other variables,
can be difficult to manage especially for new or small business owners.

In the UK, payroll bureaus will deal with all HM Revenue & Customs inquiries and deal with
employee's queries. Payroll bureaus also produce reports for the businesses' account department
and payslips for the employees and can also make the payments to the employees if required.

Another reason many businesses outsource is because of the ever increasing complexity of
payroll legislation. Annual changes in tax codes, Pay as you earn (PAYE) and National
Insurance bands as well as statutory payments and deductions having to go through the payroll
often mean there is a lot to keep abreast of in order to maintain compliance with the current
legislation.
Purpose
The payroll program is run at a specific point in time, not only to calculate an employee’s basic
remuneration but also any special payments, overtime payments or bonuses that must be
effected for the period in question

Process Flow
The status of the Payroll Control Record is automatically updated with every step that is
carried out during payroll.

1.Release one or several Payroll Areas for payroll.

The system increases the period number in the payroll control record of the respective
payroll area by 1. You cannot change the master and time data for the personnel
numbers belonging to this payroll area if it affects the payroll past or present. Changes
affecting the future are still possible.

2. Run payroll.
The system calls up a country-specific payroll program. It determines the current payroll
period from the payroll control record and performs payroll using the values you entered
in the payroll program.
In general, we do not carry out these steps on-line but rather as a background job.

3. Check whether payroll has run correctly, or determine where errors have occurred.
If the payroll has not run without errors, the system display error messges indicating
where the errors have occured. If desired, you can obtain a detailed payroll log.
However, we recommend that you only create a payroll log if you simulate the payroll
run. If necessary, you can set the status of the payroll to Check Payroll Results during this
phase. This way you make sure that no changes are made to payroll-relevant data which
could affect the payroll past or present. In addition, the payroll area in question is lockedfor
payroll. However, during this phase you can simulate the payroll for individual employees to
understand exactly how the errors originated, by means of the payroll log. If you want to carry
out a spot check on the payroll results after a successful payroll run, there is a report available
which reads the stored payroll results. The report allows each employee to see the contents of all
internal tables containing payroll results. This allows you to check all partial results for a payroll
run. In this way you can determine whether the system ran the payroll in accordance with your
expectations, for example, for an employee for whom you made complex changes to the master
data.

4.Correct master or time data for personnel numbers which contain errors, and which the
payroll program could not process.
During the payroll run, the System flags the Payroll Correction field in the Payroll Status
infotype (0003) for all rejected personnel numbers. When you correct master or time data
for a personnel number, this field is also flagged. These personnel numbers are grouped
together in a list under W (Payroll Correction Run). In a payroll
correction run, that is a payroll run with matchcode W, payroll only takes place for the
corrected personnel numbers.

5. Release payroll again.

The payroll period does not change.

6. Perform a payroll correction run.

If there are a lot of employees stored in Matchcode W (Payroll Correction Run), you carry
out this step as a background job in the same way that you carried out the Start Payroll
step. If you only have to run payroll again for a few employees, you can carry out this
step on-line.

7. Simulate the posting to Accounting.

Under certain circumstances errors can occur, which mean you must change the payrollrelevant
master and time data again. If, for example, a cost center was entered for some
employees and it has been deleted in the interim, the system will note this as an error
during the posting simulation. Then set the payroll status to Release for Correction once
again, and correct the master data for the employees in question. This will cause these
personnel numbers to be automatically stored in Matchcode W (Payroll Correction Run).
Next, carry out another payroll correction run and simulate the posting to Accounting
again.

8. Exit payroll. The personnel numbers for the payroll area can be processed again.
You can only exit payroll when the payroll has run successfully for all personnel
numbers in the selected payroll area. This means that payroll is finished for all of the
personnel numbers in the payroll area, including the rejected personnel numbers,
and the payroll period is complete.

Various Payroll Processes

Figure: Various Payroll Processes

Accountant
Accountant is a professional having a degree/diploma course in finance/accountancy. He/she is
responsible for all the activities related to payroll accounting. He/she has the sound knowledge of
accounting principles and globally accepted standards.
The process adds costs to the organization. It involves paying someone who is responsible for
calculating the salaries of others. The financial control regarding salary goes in the hand of
accountant.

Payroll Software
In today’s computerized environment, payroll system has also developed itself into automated
software that performs every action needed by the payroll process. It helps in calculating the
payable amounts and deductions very easily. It also helps in generating the pay slips in lesser
time. Automated calculations result in no errors. Data is validated automatically by the software.
It needs professionals to make use of the software for its efficient working.

Payroll Outsourcing
Payroll outsourcing involves a third party (an outsourcing company) in the calculations of
salaries and deductions. The outsourcing organization is responsible for all the activities of the
payroll accounting. It saves time and cost for the organization. If there is more number of
employees (say more than 900-1000) in the organization, payroll outsourcing would be very
much beneficial.

The data is provided to the consultants/outsourcing firms. The various payroll functions
undertaken by the outsourcing organizations are as follows:

• Analysis of Payroll records, payroll taxes

• Medical claim processing
• Employee Insurance & Provident fund processing
• Quality Audit procedures & planning

Payroll Control Record

Payroll object that is important for the payroll run, and which contains all the information on a
payroll area .
The payroll control record has the following functions:
• It locks the personnel numbers, for which payroll should be run, against master data
changes
that affect the payroll past or present.
• It locks the payroll for the period during which payroll-relevant changes are made to the
master data for the personnel numbers being processed.
• It makes the following information available for the system:
 What is the next payroll period for which regular payroll should be run?
 Up to what date is retroactive accounting carried out?
 What status does the payroll currently have? (for example, Released for Payroll
or Check Payroll Results)?
When you carry out a payroll run, the system automatically changes the payroll status in the
payroll control record. You can also change the status manually under Payroll _ Tools _ Control
Record.

Structure

The control record contains the following information:

 Payroll area
 Payroll status
 Payroll period
 Earliest possible retroactive accounting period
 Last change made to the control record

Simulating Payroll
You can simulate payroll for individual employees before performing the regular payroll run for
all the employees in your enterprise. This is, for example, a good idea, if you have made
complex changes to an employee’s master data, which may lead to far-reaching changes in his or
her payroll results. In this way, you recognize sources of errors in time to make corrections
before the regular payroll run. You can even simulate payroll for individual employees at any
time during the regular payroll process, in order to trace the cause of any errors.

Scope of Function

A simulation run corresponds to a regular payroll run with the following restrictions:
The results of a simulated payroll run are not saved on the data base. You can view and print
the results in the payroll log. The system does not lock any master data.
The current payroll period in the payroll control record is not changed.
The steps Release payroll and Exit payroll do not apply.

Locked Personnel Numbers

In the Payroll Status infotype (0003) you can exclude an employee from the payroll run by
flagging the Pers.no. locked field.
You can not set these lock indicators for the current period in the following situations:
 if payroll has already been completed for the current payroll period.
 if the employee has already been paid in the current payroll period.

DATA FLOW DIAGRAM OF PAYROLL PROCESS

PAY ROLL PROCESS FLOW CHART
CREATING A PAYROLL PROCESS
1. Set up new employees. New employees must fill out payroll-specific information as part of the
hiring process, such as the W-4 form and medical insurance forms that may require payroll
deductions. Copies of this information should be set aside in the payroll department in
anticipation of its inclusion in the next payroll.

2. Collect timecard information. Salaried employees require no change in wages paid for each
payroll, but an employer must collect and interpret information about hours worked for
nonexempt employees. This may involve having employees scan a badge through a
computerized time clock, punch a card in a stamp clock, or manually fill out a time sheet.

3. Verify timecard information. Whatever the type of data collection system used in the last step,
the payroll staff must summarize this information and verify that employees have recorded the
correct amount of time. This typically involves having supervisors review the information after it
has been summarized, though more advanced computerized timekeeping systems can
perform most of these tasks automatically.

4. Summarize wages due. This should be a straightforward process of multiplying the number of
hours worked by an employee’s standard wage rate. However, it can be complicated by overtime
wages, shift differentials, bonuses, or the presence of a wage change partway through the
reporting period

5. Enter employee changes. Employees may ask to have changes made to their paychecks,
typically in the form of alterations to the number of tax exemptions allowed, pension deductions,
or medical deductions. Much of this information must be recorded for payroll processing
purposes, since it may alter the amount of taxes or other types of deductions.

6. Calculate applicable taxes. The payroll staff must either use IRS-supplied tax tables to
manually calculate tax withholdings or have a computerized system or a supplier determine this
information. Taxes will vary not only by wage levels and tax allowances taken but also by the
amount of wages that have already been earned for the year-to-date.

7. Calculate applicable wage deductions. There are both voluntary and involuntary deductions.
Voluntary deductions include payments into pension and medical plans, while involuntary ones
include garnishments and union dues. These can be made in regular amounts for each paycheck,
once a month, in arrears, or prospectively. The payroll staff must also track goal amounts for
some deductions, such as loans or garnishments, in order to know when to stop making
deductions when required totals have been reached .

8. Account for separate manual payments. There will inevitably be cases where the payroll staff
has issued manual paychecks to employees between payrolls.This may be caused by an incorrect
prior paycheck, an advance, or perhaps a termination. Whatever the case, the amount of each
manual check should be included in the regular payroll, at least so that it can be included in the
formal payroll register for reporting purposes, and sometimes to ensure that the proper amount of
employer-specific taxes are also withheld to accompany the amounts deducted for the employee.
9. Create a payroll register. Summarize the wage and deduction information for each employee
on a payroll register, which can then be used to compile a journal entry for inclusion in the
general ledger, prepare tax reports, and for general research purposes. This document is always
prepared automatically by payroll suppliers or by in-house computerized systems.

10. Verify wage and tax amounts. Conduct a final cross-check of all wage calculations and
deductions. This can involve a comparison to the same amounts for prior periods, or a general
check for both missing information and numbers that are clearly out of line with expectations.
11. Print paychecks. Print paychecks, either manually on individual checks or, much more
commonly, through a computer printer, with the printouts using a standard format that itemizes
all wage calculations and deductions on the remittance advice. If direct deposits are made, a
remittance advice should still be printed and issued.

12. Enter payroll information in general ledger. Use the information in the payroll register to
compile a journal entry that transfers the payroll expense, all deductions, and the reduction in
cash to the general ledger .

13. Send out direct deposit notifications. If a company arranges with a local bank to issue
payments directly to employee accounts, then a notification of the accounts to which payments
are to be sent and the amounts to be paid must be assembled, stored on tape or other media, and
sent to the bank.

14. Deposit withheld taxes. The employer must deposit all related payroll tax deductions and
employer-matched taxes at a local bank that is authorized to handle these transactions. The IRS
imposes a rigid deposit schedule and format for making deposits that must be followed in order
to avoid penalties.

15. Issue paychecks. Paychecks should, at least occasionally, be handed out directly to
employees, with proof of identification required; this is a useful control point in larger
companies where the payroll staff may not know each employee by name, and where there is,
therefore, some risk of paychecks being created for people who no longer work for the company

16. Issue government payroll reports. The government requires several payrollrelated reports at
regular intervals, which require information on the payroll register to complete.

Why outsource your payroll?

There was a time that a business payroll was handing out cash at the end of the day. That time is
long gone. Payroll, payroll record keeping, payroll tax reporting has become both complex and
full of traps for the unwary or uneducated. The process can be very time consuming and
expensive. By outsourcing your payroll processing you are avoiding risks and taking advantage
of all the advances in technology to save time and money.
Save Time

Using a payroll outsourcing provider will save you time. Particularly an internet payroll service
providing a paperless payroll solution. How will they do that? You will be able to input time
anywhere and anytime from any Internet connected computer.

Your payroll outsourcing provider will process the entire payroll and if you use a paperless
payroll solution all net pays will be distributed electronically. No longer will you have to waste
time and money distributing checks and payroll payment vouchers Your unbanked employees
will no longer have to pay exorbitant fees just to cash their paycheck. No longer will employees
have to run to the bank to deposit or cash their paycheck and get stuck in long lines. No longer
will you feel obligated to cash checks for your employees. No longer will you have to reissue
checks that are lost or run through the washing machine.

Your payroll outsourcing provider will make all your payroll tax deposits for you. Your payroll
outsourcing provider will complete and file all payroll tax forms with all government entities you
have to report to. Not only will your payroll outsourcing provider do all this they will guarantee
that it is done correctly.

Your payroll outsourcing provider utilizing a paperless payroll will be able to provide you with
all your reports via email or the internet. They are encrypted and secure from prying eyes. No
longer will you have stacks of old reports to lockup and ultimately pay to be destroyed.

Save Money

Some business owners don't realize the true cost of doing payroll in house. They don't add up all
the hours that are spent on various aspects of payroll and related activities that a payroll
outsourcing provider would take care of. Some of the saving in money takes place because of the
following:

Your payroll outsourcing provider guarantees accuracy on calculating and filing your payroll tax
reports and payroll tax deposits and will pay any penalties or interest charged to you through his
error.

You will never have to pay for a software upgrade or for new tax tables your payroll outsourcing
provider should provides all of that as part of his payroll services

Your payroll outsourcing provider will draft your company bank account for a single draft item
eliminating the cost of payroll checks and the cost of reconciling of payroll checks. In addition
this eliminates your payroll checks being used for fraud by check scam criminals.

Your payroll outsourcing provider utilizing a paperless payroll solution will distribute all net
pays to every employee electronically. No lost checks to replace. No cost of delivery of checks
or payroll payment vouchers. No shipping checks to employees in other locales.
Your payroll outsourcing provider utilizing a paperless payroll solution will send you all reports
electronically, no delivery fees. No storage costs for old reports or costs to finally destroy them.

Benefits of Payroll
1. Avoid IRS Penalties
According to the IRS, 40% of small businesses pay an average penalty of $845 per
year for late or incorrect filings. Most national payroll services provide a tax guarantee,
ensuring that customers will incur no penalties because the provider takes responsibility
for penalties when they do occur. In many instances, this cost-saving immediately
justifies payroll.

2. Reduce Costs
The direct costs of processing payroll can be greatly reduced by working with a payroll
provider. Our research indicates that a small business of 10 employees will typically
spend $2,600 per year in direct labor costs associated with payroll.

3. Offer Direct Deposit

Providing direct deposit is difficult if a company doesn't use an outside payroll service.
Increasingly, small businesses recognize that employees want direct deposit. Not having
to make a trip to the bank is an important convenience for them. More importantly for
business owners, direct deposit eliminates time-consuming and error-prone paper
handling and the need to reconcile individual payroll checks every month.

4. Free Up Free Time

Payroll processing is a time-consuming process. Outsourcing payroll can free up staff
time to pursue more important value-added and revenue-generating activities. Inc.
magazine recently identified payroll as the #1 task for small business to outsource, along
with most accounting tasks

5. Avoid Payroll Knowledge Walking Out the Door

If your bookkeeper or controller gets a new job, they will walk out the door with their
knowledge of the payroll process and how you do it. Using an outside service eliminates
that business risk.

REFERENCES:
 http://ezinearticles.com/?Payroll-Processing-Outsourcing&id=161550
 www.work.com/finding-a-payroll-processing-service-311/
 help.sap.com/printdocu/core/print46c/en/.../pyint_dialog.pdf
 www.suite101.com/content/how-to-process-payroll-a145896
 en.wikipedia.org/wiki/Payroll