payroll best practices 10.9.13 -final.ppt - gfp.wipfli.com · 10/13/2010 · payroll best...
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Payroll Best Practices1
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Payroll Best Practices
Trainer: Janet S. Johnson, CPA, CMA, Senior Manager
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Webinar Agenda
• Goals for the session• Roles and responsibilities
– Human resources and payroll– Department managers
• Best practices • Internal controls• Personnel activity reports• Flowchart of a payroll process
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Goals
• Present “best practices” in payroll policies and procedures
• Provide tips for streamlining your processes
• Give you ideas and examples you can use
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Importance of the Payroll Process
• Payroll represents your greatest resource and your greatest expense
• Leverage your investment by managing the payroll process
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Payroll Best Practices3
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Payroll in the Cost Principles
• Reference:– 2 CFR Part 230 (A-122), Cost Principles for
Nonprofit Organizations, Attachment B. 8, Compensation for Personal Services
– 2 CFR Part 225 (A-87), Cost Principles for Units of Government, Attachment B. 8, Compensation for Personal Services
(included with your material)
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Payroll in the Cost Principles
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Payroll Best Practices4
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It All Starts with Human Resources
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• Get comprehensive background checks on all final candidates – Some programs require this
• Know the rules. Are you subject to:– Wage comparability study requirements?
– Salary caps under federal or state grants?• Executive Level II cap is $179,700 (no change since
2010)
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Communication is Key
• Use standard forms and a consistent process for transmitting information from HR to PR for:– Setting up new employees
– Making changes to current employees’ files
• Even better – have an integrated HR/payroll system– Eliminates double entry
– Automates data collection
– Creates a central database for all HR/PR information
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Who Administers Payroll –Human Resources or Accounting?
• Why the HR department?
• It interacts with all staff on other issues
• It usually issues and collects all employee-related forms
• It keeps other employee records
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Who Administers Payroll –Human Resources or Accounting?
• Why Accounting?
• They are responsible for accurate and timely financial information
• Payroll is processed on accounting software, or if out-sourced, it must be integrated with accounting records
• Effective internal controls are essential for the payroll process
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Who Administers Payroll –Human Resources or Accounting?
Our opinion:• Payroll belongs in Accounting
– They are responsible for all fiscal transactions, and payroll is one of the most important
– Accounting and HR must work closely together to carry out their different roles
• If HR staff does payroll, the Finance Director is still responsible for ensuring there are appropriate internal controls in the process in order to produce accurate and timely information
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Human Resources and Payroll
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Managers’ Payroll Responsibilities
• Program managers’ responsibilities: – Control of overtime
– Approval of correct hours
– Approval of correct coding
– Approval of correct employee
The payroll staff can’t do this!
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Best Practices
• Run payroll semi-monthly – eliminates two payrolls per year and simplifies month-end accruals– But it complicates overtime tracking
• Use direct deposit – it will provide good internal control and streamline your process– Some states allow organizations to require direct
deposit, others don’t
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Internal Controls
• Examples of controls:– Changes to timesheets only by (or initialed by) the
employee
– Security of payroll data (access to the database)
– Board review and approval of senior management compensation (Form 990 question)
– Timely review of budget-to-actual payroll amounts
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Internal Controls
• Segregation of duties:– Hire and orient new employees
– New hire set up and deletion of terminated employees
– Authorization of pay rates and adjustments
– Timesheet approvals
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Internal Controls
• Segregation of duties:– Entry vs. review of payroll data
– Review of changes to master payroll file
– Review and sign-off of payroll ledger
– Signing paychecks
– Distribution of paychecks/direct deposit advices
– Security of payroll data
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Segregation of Duties Grid
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Duty A B C D E
Authorize new hires
Authorize salary adjustments
Authorize terminations
Sets up new employee in P/R system
Enters salary adjustments to P/R system
Enters direct deposit info. in P/R system
Deletes terminated employees from P/R
Review changes to payroll master file
Approves timesheets
Enters timesheets
Reviews input of timesheet data
Reviews distribution of time
Reviews payroll register
Prints checks (or paystubs)
Signs payroll checks
Distributes checks (paystubs)
Has access to unused payroll checks
Prints annual W-2 forms
Reviews annual W-2 forms
Distributes annual W-2 forms
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Personnel Activity Reports
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Red Flags – Are you in compliance?
Do any of these sound familiar?1. Everyone in a department works for just 1 grant
– so they don’t maintain PARs.
2. Exempt employees don’t keep timesheets – so they don’t have PARs.
3. Supervisors fill in PARs for their employees according to grant budgets.
4. You have a cost allocation plan and believe that meets PAR’s requirements.
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Personnel Activity Reports
Purpose:
• To support the distribution of salaries and wages to federal awards
• Required for exempt and non-exempt employees
• Required when charged wholly or in part to federal awards
• Not required for staff charged 100% to the indirect cost pool – Which means you must have an approved indirect cost rate!
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PARs – Federal Regulations
2 CFR Part 230 (A-122) Attachment B 8.m
1) The distribution of salaries and wages to awards must be supported by personnel activity reports
2) Reports reflecting the distribution of activity of each employee must be maintained for all staff members (professionals and nonprofessionals) whose compensation is charged, in whole or in part, directly to awards.
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PARs – Federal Regulations
Reports must meet the following standards:(a) The reports must reflect an after-the-fact determination of the
actual activity of each employee. Budget estimates (i.e., estimates determined before the services are performed) do not qualify as support for charges to awards.
(b) Each report must account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization.
(c) The reports must be signed by the individual employee, or by a responsible supervisory official having first hand knowledge of the activities performed by the employee, that the distribution of activity represents a reasonable estimate of the actual work performed by the employee during the periods covered by the reports.
(d) The reports must be prepared at least monthly and must coincide with one or more pay periods.
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PARs – A-87, Units of Government
Same as A-122 except:• Where employees are expected to work solely on a
single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for the period covered by the certification.
• These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official having first hand knowledge of the work performed by the employee.
– 2 CFR Part 225 (A-87), Attachment B.8.h (3)
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PARs Regulations Summary
• After-the-fact determination of actual activity– Budget estimates do not qualify
• Account for the total activity, not just award-funded
• Be signed by the employee or a supervisor with firsthand knowledge of the activities performed
• Prepared at least monthly and coincide with a pay period
• Units of government only: work for a single grant – semi-annual certification
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PARs Overall Guidelines
1. Use the systems and processes you already have in place
a. If at all possible, avoid creating additional procedures
2. Keep the reports simple and transparent
a. Make sure the reports meet the requirements and easily communicate how the activities benefit the grant
3. Hold staff accountable for accurately maintaining their reports
a. Make this part of employees’ job requirements
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1. Approved Indirect Cost Rate
1. Employees who are charged 100% to the indirect cost pool are not required to maintain personnel activity reports
2. Employees who charge part of their time to an indirect cost pool and part of their time to directly to grants must maintain personnel activity reports
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2. Time Directly Charged to Grants
The requirements for PARs can be met on timesheets of staff who directly charge time to grants.Example: Head Start teacher charges 100% of her time to the Head Start grant
• PAR requirements are met with a short statement on the timesheet:– Taught HS children at 123 Elm St. Center
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2. Time Directly Charged to Grants
Example: Bus driver who drives for Head Start in the morning and a senior program in the afternoon. The driver will charge actual time worked to each program on her timesheet.
• PAR requirements are met with a short statement on the timesheet– Drove 15-passenger bus
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3. Time Not Directly Charged to Grants
• If you use measures of activity to allocate costs, the purpose of the PAR is to support that the activities performed are allowable, reasonable and allocable.
• Time is charged to a departmental salary code (e.g. Fiscal Salaries) and a short statement on the timesheet meets PAR requirements.
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3. Time Not Directly Charged to Grants
Example: Human Resources clerk maintains personnel files for all employees. He charges time on his timesheet to a HR Salaries and Wages code.
• PAR requirements are met with a statement on his timesheet
• HR Clerk – maintained all personnel records
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Exempt Employees
Activities of exempt employees often can’t be described in a single phrase
• You must be more specific than, “Managed the Weatherization program”
• This doesn’t say what activities were performed.
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Exempt Employees
Examples of options for exempt employees:1. Activities recorded on timesheets in hours
worked
2. Activities tracked on a spreadsheet by percentages
3. Activities tracked in an Outlook calendar
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Exempt Employees
• Create a list of the major activities performed or grants to be charged;
• Note hours or percentage of time spent in each category or grant, and
• Attach to the timesheet or with payroll records.
• Make it easy:– Use tools and processes already in place
Remember: whatever you do must meet all
requirements!34
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PAR Regulations Summary (Again)
• After-the-fact determination of actual activity– Budget estimates do not qualify
• Account for the total activity, not just award-funded
• Be signed by the employee or a supervisor with firsthand knowledge of the activities performed
• Prepared at least monthly and coincide with a pay period
• Units of government only: work for a single grant – semi-annual certification
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Payroll Flowchart
• Flowcharts provide easy-to-use process documentation
• Show staff how their jobs fit into the bigger picture
• Provides opportunities to streamline– Eliminate duplicate steps
– Simplify the process
• Shows internal control steps
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Payroll Process
Employee Supervisor Human Resources Manager Payroll Accountant Executive Director
Fills out new employee paperwork
Identifies need for employee & fills
out Personnel Hire form
New employee hired & given
paperwork to fill out
Forms sent to Acctg for set up in
MIP
Reviews forms for completeness
HR sets up new hire in Excel
database
HIRING
PAYROLL
Fills out timesheet
Excel doc on intranet created by HRCould be done online in an new system
Prints out and signs Reviews & signs
Delivered to HR by Fri. 9 AM week
before payroll paid
Verifies total hours on timesheets
Go to pg. 2
Page 1
Sorts timesheets alphabetically
Print list of names & standard hrs
from Excel database
Duplicate databases. MIP & Excel, create chance for error and extra work. Consider implementing an HR/PR system
J Johnson, WipfliDec. 2004
Key:
Recommendation
Process step
Decision pt.
Adding machine
go to next page
More information
Paper doc
Computer process
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Payroll Process
Employee Supervisor Human Resources Manager Payroll AccountantExecutive Director
PAYROLL
Page 3
From pg. 2
Print check register
Check personal
leave hours
Personal leave not always calculated correctly by system
Okay?Correct &
reprint check register
No
Manually calculate
garnishment deductions
Yes
Garnishments are a % of pay
Enter garnishment deductions &
calculate
Check totals
Okay?Correct &
reprint check register
No
Print checks & direct deposit
stubs
Yes
Go to pg. 4
J Johnson, Wipfli YoungDec. 2004
Key:
Recommendation
Process step
Decision pt.
Adding machine
go to next page
More information
Paper doc
Computer process
© Wipfli LLP
Payroll Process
Employee Supervisor Human Resources Manager Payroll AccountantExecutive Director
PAYROLL
Page 4
From pg. 3
Enter check & DD numbers used into log
Print payroll tax reports
Prepare AP voucher to pay
PR taxes
Phone in tax payments
Enter ACH for DD
Transfer funds to PR account
Transfer payroll to GL
Give checks & DD stubs to ED to review & sign
Attach check stubs to
timesheets
Go to pg. 5
Should be done by someone who doesn’t do payroll or bank recs.
J Johnson, Wipfli YoungDec. 2004
Key:
Recommendation
Process step
Decision pt.
Adding machine
go to next page
More information
Paper doc
Computer process
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Payroll Process
Employee Supervisor Human Resources Manager Payroll AccountantExecutive Director
PAYROLL
Page 5
From pg. 4
Stuff checks/DD advices in
envelopes
Include expense reimbursement check if available
Sort by supervisor
Supervisors pick up and distribute
End
Timesheets filed by
employee
To improve internal controls, consider mailing checks
J Johnson, Wipfli YoungDec. 2004
Key:
Recommendation
Process step
Decision pt.
Adding machine
go to next page
More information
Paper doc
Computer process
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Summary
• Know the rules and follow them efficiently
• Standardize forms and hand-offs between human resources and payroll
• Practice continuous improvement
• Consider using flowcharts to document the payroll process
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Materials/Disclaimer
• Payroll Best Practices Presentation*• Additional References
– A-87 Attachment B– A-122 Attachment B– Flowchart– Internal Control Grid
• Technical Information
* Please note that these materials are incomplete without the accompanying oral comments by Janet S. Johnson of Wipfli LLP. These materials are informational and educational in nature and represent the
speaker’s own views.
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Thank You!
Thank you for your participation. We hope today’s webinar met your expectations.
If you would like to receive CPE credit, you must complete the CPE Request Form.
Following the webinar, you will receive a survey via e-mail.
We appreciate your time completing and returning the survey.
For further assistance, please contact us at 888.876.4992 or e-mail us at gfpinfo@wipfli.com.
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