- Email: [email protected]
Choosing a payroll package
Choosinga payrollpackage by ELAINE SHEPHERD
A
t first sight, choosing a payroll package which has to perform statutory calculations for tax and national insurance seems relatively straightforward. However, packages differ enormously in the way in which they handle the nonstandard aspects of payroll, and it is in this respect that the suitability, or otherwise, of a particular system should be determined. Probably the major decision when considering implementing a payroll system is whether it should be produced inhouse or by a third party. Producing the payroll inhouse computer offers considerable flexibility, but there are the inevitable problems of internal security of salary payments, since many of the systems and programming staff will be able to inspect payroll files. Even if this information is guarded by security codes and passwords it is those who implement the security system that can access it. So many companies with the necessary inhouse expertise have decided to have the payroll produced by a third party, simply to ensure that this personal information is kept private.
Importance of flexibility The overall structure of the payroll reporting system should be flexible enough to reflect the structure of your company. For example, it is important Abstract: Agoodpayroll systemmust be &xible enough todeal with nonstandard payments and deductionsas well as statutory calculations. The choice ofpackage, if one is to be bought in rather than produced inhouse, depends on itssuitabilityfor a particular organization. Keywords: data processing, computer software, computerapplications. Elaine Shepherd
34
0011J584X/83/080034-02$03.00
0
1983 Buttexworth
is a technical
& Co (Publishers)
journalist.
Ltd.
that separate reports and analyses can be easily produced for each department, company or group within your organization, or time will be wasted in manual report production for various managers. This flexibility can be obtained by using a report analysis code which has sufficient digits to identify each employee and to provide information about the department or company, or even the section-head in which they work. Ideally, this code should be completely flexibility and allow the user to arrange and group employees in any conceivable way. Using the Telepay II system from Allen Computers International as an example, a six digit code can be used to provide as many levels of analysis as necessary, each with its own alphabetical description which is automatically printed whenever a report is produced. The frequency of the payroll run can sometimes cause problems. Obviously, the majority of payroll packages will handle the standard weekly or monthly payments, which is all that most companies require. If, for any reason you operate any unusual payment periods, particularly biweekly, quarterly or six-monthly, it can be dangerous to assume that these requirements can be easily integrated into the standard payment frequencies. For example, for tax reasons, many company directors only receive payment on a three-monthly or halfyearly basis. Although these exceptions can always be handled manually, the extra work involved should not be underestimated, particularly when it comes to coordinating all the year-end government returns. Another consideration is to check that the buildup to gross routine can handle all present and any possible future methods of payment. For exam-
data processing
applications ple, for weekly paid employees the system needs to handle the maximum number of different standard hourly rates that the company needs. This is particularly important in manufacturing organizations where employees are engaged in a variety of tasks, each of which is paid at a different rate. The problem is further compounded by overtime work, since not all of these rates are fixed multiples of the standard rates. Instead, many companies arrange for employees to be paid specially agreed overtime rates that are completely independent of the standard ones. The system should also be capable of paying several bonus amounts, either as hourly rate bonuses or bonus amounts pai’d as a percentage of the basic or gross pay. Incidentally, the number of decimal places to which the rates are held can be important. If the system only holds rates to one or two decimal places it may be necessary, when calculating an employee’s pay, to round up the rates, adding to the company salary bill. Otherwise, the system will have to round them down, which is likely to be unpopular with the employees and their unions. So three decimal places are probably the minimum amount necessary to make sure that problems are not encountered when calculating the pay of hourly paid :staff. In Telepay II for example, the standard hourly and overtime rates are held at 3 and 4 decimal places respectively. Each amount in the buildup to gross calculation should carry an identifier which determines how that particular figure will be treated in the gross to net calculation. Using such an indicator, it should be possible to tell the system that a particular payment is either exempt from statutory deductions, subjec,t to tax. subject to national insurance or subject to company pension etc. in any combination. It is also important to be able to identify how a particular payment should be treated when the employee goes on holiday, since it is possible that the tax paid will differ significantly de-
~0125 no 8
October 1983
pending on how the payroll system handles holiday payments. Although several of the gross to net calculations, including tax and national insurance, are standard calculations specified by the government, the payroll system’s routine for handling personalized deductions should also be suitably comprehensive. When analyzing this part of the system it is worth checking that it has sufficient deductions to handle a ‘worst’ case situation where an employee may be paying company loan repayments, compulsory and voluntary company pension schemes, social club contributions and union dues etc. The system should also be able to hold year-to-date figures for all these deductions to answer enquiries from employees or government bodies.
Methods of payment The proposed package should provide several different methods of payment to offer maximum flexibility to both the company and its employees. First, it must provide a comprehensive coin analysis for those employees who are paid in cash, with rounding up when required. Second, it should be able to print cheques automatically at the end of the payroll run, together with a proof list. A more complicated, but increasingly popular, payment method is credit transfer. Such a system requires additional information to be held in each employee’s record, so it can be difficult to add this facility to an existing system, especially when the record space allocated to each employee is filled with other information. The additional data that credit transfers require include the name or an identifier for the employee’s bank, its six-digit bank code and the individual’s bank account number. Providing space has been allocated in the employees record it is possible to print out credit transfers as an alternative to cheque and cash payments with an appropriate proof listing. If the proposed system meets all the above criteria, the next step is to check
that it is easily operated and understood by the operator. The package should be entirely under the control of the user, and should not automatically progress from one step to the next, particularly with regard to updating employees’ year-to-date mformation, until the operator is confident that all the information that has been entered correctly. Telepay II, for example, produces an interim payroll report. When all the variable information has been entered for each employee, the system prepares .a buildup to gross and a gross to net calculation for every employee, without a:ffecting any previous year-to-date figures. These results may be printed either in full, or checked online. Only when the operator confirms that the interim report is completely correct will the payroll system start to produce actual payslips, the payroll register and update all the year-to-date fields. The flexibility which this facility provides cannot be overemphasized, since once the yearto-date figures have been updated it can prove extrem’ely difficult and timeconsuming to COI: rect them. Finally, it is worth inspecting the layout of the actual payslip for clarity. This saves time for payroll clerks who would otherwise have to answer extra queries about the figures shown on employees’ payslips. Although not di.rectly related to the payroll itself, it is worth considering whether or not the proposed system can be linked to other commercial systems including th.e general ledger and personnel record files. This can eliminate the need for the manual transfer of information and consequently another possible source of errors. A further requirement, particularly in manufacturing :might be a separate analysis of the hours which have been worked on various projects or contracts. Telepay II., for example, prepares a separate fibe containing hourly information from the input to the payroll system, wlhich is available to other programs for independent analysis, cl
35
A
t first sight, choosing a payroll package which has to perform statutory calculations for tax and national insurance seems relatively straightforward. However, packages differ enormously in the way in which they handle the nonstandard aspects of payroll, and it is in this respect that the suitability, or otherwise, of a particular system should be determined. Probably the major decision when considering implementing a payroll system is whether it should be produced inhouse or by a third party. Producing the payroll inhouse computer offers considerable flexibility, but there are the inevitable problems of internal security of salary payments, since many of the systems and programming staff will be able to inspect payroll files. Even if this information is guarded by security codes and passwords it is those who implement the security system that can access it. So many companies with the necessary inhouse expertise have decided to have the payroll produced by a third party, simply to ensure that this personal information is kept private.
Importance of flexibility The overall structure of the payroll reporting system should be flexible enough to reflect the structure of your company. For example, it is important Abstract: Agoodpayroll systemmust be &xible enough todeal with nonstandard payments and deductionsas well as statutory calculations. The choice ofpackage, if one is to be bought in rather than produced inhouse, depends on itssuitabilityfor a particular organization. Keywords: data processing, computer software, computerapplications. Elaine Shepherd
34
0011J584X/83/080034-02$03.00
0
1983 Buttexworth
is a technical
& Co (Publishers)
journalist.
Ltd.
that separate reports and analyses can be easily produced for each department, company or group within your organization, or time will be wasted in manual report production for various managers. This flexibility can be obtained by using a report analysis code which has sufficient digits to identify each employee and to provide information about the department or company, or even the section-head in which they work. Ideally, this code should be completely flexibility and allow the user to arrange and group employees in any conceivable way. Using the Telepay II system from Allen Computers International as an example, a six digit code can be used to provide as many levels of analysis as necessary, each with its own alphabetical description which is automatically printed whenever a report is produced. The frequency of the payroll run can sometimes cause problems. Obviously, the majority of payroll packages will handle the standard weekly or monthly payments, which is all that most companies require. If, for any reason you operate any unusual payment periods, particularly biweekly, quarterly or six-monthly, it can be dangerous to assume that these requirements can be easily integrated into the standard payment frequencies. For example, for tax reasons, many company directors only receive payment on a three-monthly or halfyearly basis. Although these exceptions can always be handled manually, the extra work involved should not be underestimated, particularly when it comes to coordinating all the year-end government returns. Another consideration is to check that the buildup to gross routine can handle all present and any possible future methods of payment. For exam-
data processing
applications ple, for weekly paid employees the system needs to handle the maximum number of different standard hourly rates that the company needs. This is particularly important in manufacturing organizations where employees are engaged in a variety of tasks, each of which is paid at a different rate. The problem is further compounded by overtime work, since not all of these rates are fixed multiples of the standard rates. Instead, many companies arrange for employees to be paid specially agreed overtime rates that are completely independent of the standard ones. The system should also be capable of paying several bonus amounts, either as hourly rate bonuses or bonus amounts pai’d as a percentage of the basic or gross pay. Incidentally, the number of decimal places to which the rates are held can be important. If the system only holds rates to one or two decimal places it may be necessary, when calculating an employee’s pay, to round up the rates, adding to the company salary bill. Otherwise, the system will have to round them down, which is likely to be unpopular with the employees and their unions. So three decimal places are probably the minimum amount necessary to make sure that problems are not encountered when calculating the pay of hourly paid :staff. In Telepay II for example, the standard hourly and overtime rates are held at 3 and 4 decimal places respectively. Each amount in the buildup to gross calculation should carry an identifier which determines how that particular figure will be treated in the gross to net calculation. Using such an indicator, it should be possible to tell the system that a particular payment is either exempt from statutory deductions, subjec,t to tax. subject to national insurance or subject to company pension etc. in any combination. It is also important to be able to identify how a particular payment should be treated when the employee goes on holiday, since it is possible that the tax paid will differ significantly de-
~0125 no 8
October 1983
pending on how the payroll system handles holiday payments. Although several of the gross to net calculations, including tax and national insurance, are standard calculations specified by the government, the payroll system’s routine for handling personalized deductions should also be suitably comprehensive. When analyzing this part of the system it is worth checking that it has sufficient deductions to handle a ‘worst’ case situation where an employee may be paying company loan repayments, compulsory and voluntary company pension schemes, social club contributions and union dues etc. The system should also be able to hold year-to-date figures for all these deductions to answer enquiries from employees or government bodies.
Methods of payment The proposed package should provide several different methods of payment to offer maximum flexibility to both the company and its employees. First, it must provide a comprehensive coin analysis for those employees who are paid in cash, with rounding up when required. Second, it should be able to print cheques automatically at the end of the payroll run, together with a proof list. A more complicated, but increasingly popular, payment method is credit transfer. Such a system requires additional information to be held in each employee’s record, so it can be difficult to add this facility to an existing system, especially when the record space allocated to each employee is filled with other information. The additional data that credit transfers require include the name or an identifier for the employee’s bank, its six-digit bank code and the individual’s bank account number. Providing space has been allocated in the employees record it is possible to print out credit transfers as an alternative to cheque and cash payments with an appropriate proof listing. If the proposed system meets all the above criteria, the next step is to check
that it is easily operated and understood by the operator. The package should be entirely under the control of the user, and should not automatically progress from one step to the next, particularly with regard to updating employees’ year-to-date mformation, until the operator is confident that all the information that has been entered correctly. Telepay II, for example, produces an interim payroll report. When all the variable information has been entered for each employee, the system prepares .a buildup to gross and a gross to net calculation for every employee, without a:ffecting any previous year-to-date figures. These results may be printed either in full, or checked online. Only when the operator confirms that the interim report is completely correct will the payroll system start to produce actual payslips, the payroll register and update all the year-to-date fields. The flexibility which this facility provides cannot be overemphasized, since once the yearto-date figures have been updated it can prove extrem’ely difficult and timeconsuming to COI: rect them. Finally, it is worth inspecting the layout of the actual payslip for clarity. This saves time for payroll clerks who would otherwise have to answer extra queries about the figures shown on employees’ payslips. Although not di.rectly related to the payroll itself, it is worth considering whether or not the proposed system can be linked to other commercial systems including th.e general ledger and personnel record files. This can eliminate the need for the manual transfer of information and consequently another possible source of errors. A further requirement, particularly in manufacturing :might be a separate analysis of the hours which have been worked on various projects or contracts. Telepay II., for example, prepares a separate fibe containing hourly information from the input to the payroll system, wlhich is available to other programs for independent analysis, cl
35