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Key Components to Setting Up Payroll: Part 3 – Process, Workflows and Approvals

5 mins read

This article is written to provide you with an understanding of why it is important to have payroll workflow and approvals in place to ensure it is processed accurately.

Generally, in medium to larger businesses, Human Resources (HR) is responsible for overseeing payroll as they are the professionals privy to the confidential employment information. However, for those businesses who do not have an HR department, generally Finance & Accounting will oversee the process to ensure all the controls are followed for Payroll.

To ensure payroll is processed correctly and that the payments are accurate, it is important to have the appropriate controls in place and that each stage of payroll processing is overseen by different people.

The 3 common stages for payroll processing are listed below.

  • Data Entry
  • Auditing
  • Approvals
Data Entry

In this stage, payroll will gather information and check to see if there were any changes made to an employee’s profile such as compensation, banking information, name, address, etc.

Pro Tip: it would be helpful to have an Employee Master report, which can be created in HR Software or an Excel Workbook. This document contains information helpful for the person running payroll and creates easy access to view all the employee’s information in one centralized location.

Once the employee information has been verified and updated (as required), it is time to check timesheets and ensure the employee has completed each pay week accurately and that it has been approved by the appropriate delegates of authority (i.e. management).

After the timesheets has been checked for accuracy, payroll will calculate the gross pay and deduct all statutory taxes and company programs in order to get the net pay to the employee. Before any processing is committed, it would be considered an extra benefit to have the payroll audited, just to make sure nothing was missed.

Auditing

During this stage, we recommend a different person audits the data from the previous stage. Now, just because someone is auditing your work, does not mean you made an error; it is just an extra precaution taken to ensure payroll is processed accurately.

It would be quite embarrassing if you processed payroll with someone’s severance before they knew they were going to be terminated at a later date.

When conducting an audit, it is important to have an audit checklist available, so the person auditing payroll is always going to be verifying the same data item each time such as timesheets, hours worked, overtime, approvals, employee change information documents, various company and government statutory deductions, etc. This list is determined based on your companies’ practices.

Once the audit is completed, it would be beneficial to overview any changes needed with the person who initially entered the data. This would be an asset, as the initial payroll person can be made aware of the line items they missed in the past when running future payrolls.

Approvals

The final stage is sending the finalized payroll to the delegate signing authority for approval. We also recommend sitting down with the delegate of authority in case they have any questions about the pay period before signing off.

Once the pay run has been approved, Finance will be the final receivers of the information for various reasons. For the purpose of this article, Finance requires the information, so they are aware of how much money is leaving the bank account (as they are responsible for notifying the banks to release the money and pay the employees accordingly).

Finally, Finance may also require a payroll journal to be given to them along with the final payroll information so they know how to allocate the costs to the respected cost objects. We will discuss this in Part 4 of this series, Payroll Documents for Finance and Accounting.

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