Payroll Policy and Procedures

A payroll policy describes the payroll process as it relates to administration of salaries, timekeeping, payroll schedules and payment methods. Procedures documented in a payroll policy handbook ensure a clear and defined approval process, efficient payroll activities, availability of forms and appropriate controls. An organization with established payroll policy and procedures can assure employees of accurate and timely payment of salaries and wages.

Payroll is one of the largest expenses in any organization. A payroll administration policy establishes internal checks and balances to control and protect this expense. It reduces the incidence of errors and possibility of fraud. In large companies, the payroll process involves a lot of time and resources. Payroll procedures create efficiencies in terms of time collection, document processing, data entry, payment and record keeping. By incorporating automation and advances in systems technology, procedures can be cost-effective and save the company money.

A payroll policy guarantees that employees will always receive the correct pay at the right time. It ensures that the company adheres to federal, state and local laws, especially those that refer to taxes, Medicare, Social Security and fair labor standards. Compliance with legislation will help the company avoid paying penalties. Payroll procedures also support the implementation of established compensation structures and systems, department budgets and collective bargaining agreements.

A payroll policy defines the responsibilities and accountabilities of payroll staff and managers. Since payroll involves confidential information, the policy must specify access and security levels. It also identifies the training required by different employee groups.

Procedures should be detailed in the payroll policy handbook, outlining the entire process beginning from when the employee is hired. They include payroll activities and forms required for processing new hires, employment changes, information updates, special payments, deductions, time reporting and termination.

To minimize the risk of fraud, the payroll policy must include internal controls. One form of control is separation of duties. For example, if there are two employees involved in payroll processing, one would prepare payroll documents while the other would authorize and approve. An approving authority must review all pay and leave information.

Another group or department such as accounting can audit payroll transactions. They would step in when there was a payroll discrepancy, meaning they would investigate the error and adjust a paycheck as necessary. Payroll procedures must also protect the confidentiality of payroll information, ensuring that only authorized persons have access to them.

The payroll department is responsible for managing the payroll work flow to ensure efficient and timely payroll processing. It establishes payroll schedules and deadlines for submission of payroll documents. Payroll staff assign and control access to information in the payroll system. They enter information in the system and make changes as required.

Managers must ensure that required payroll documents are completed and forwarded within set time lines. Employees are responsible for reviewing payments and deductions, and advising the payroll department of any discrepancies. They should also keep their information up-to-date.