Payroll Best Practices 10.9.13 -FINAL.ppt - gfp.wipfli.com · 10/13/2010 · Payroll Best...

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 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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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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• 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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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

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Payroll Process


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.


Key:

Recommendation

Process step

Decision pt.

Adding machine

go to next page

More information

Paper doc

Computer process

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Payroll Process


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


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 [email protected].

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Payroll Best Practices 10.9.13 -FINAL.ppt - gfp.wipfli.com · 10/13/2010 · Payroll Best...

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