1. CHAPTER 11 Manual payroll system • Learning outcome • To calculate income tax rates for employees, prepare manual payroll sheets and to record details in accounting records PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

2. KEY TERMS • Awards • Deductions • Enterprise bargaining • Instalment activity statements • Internal controls over the pay procedure • PAYG summary PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

3. KEY TERMS cont. • PAYG tax system • Payroll sheets • Pay slips • Suspense accounts • Time sheets • Withholding tax PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

4. DEFINITIONS • Awards are terms and conditions of employment for particular industries • Deductions are amounts withheld from employees’ pay as per legislation or employee request PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

5. DEFINITIONS cont. • Enterprise bargaining results in a workplace agreement between employer and employee • Payslips document wage payments to show tax, amounts deducted and net payment to the employee PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

6. DEFINITIONS cont. • PAYG tax system gives effect to the legislative requirement that tax be withheld from employees’ pay and paid to the ATO on a regular basis • Salaries are payments to employees on an annual salary PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

7. DEFINITIONS cont. • Suspense accounts contain amounts held by the business on behalf of the employee • Wages are paid to employees for work under an award or for casual work PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

8. PAYG SYSTEM • Employer deducts income tax from employees’ wages • Employer remits tax collected to the ATO • Employer reconciles PAYG for the ATO at year end (30 June) PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

9. PAYG SYSTEM cont. • Employers prepare payment summaries, with an employee copy and a copy for the ATO • Taxation deductions must comply with the latest Income Tax Instalment Schedule PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

10. PAYG SYSTEM cont. • Income Tax Instalment Schedules are issued by the ATO to assist in the calculation of tax deducted • Most computerised payroll packages automatically calculate PAYG PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

11. SIX MAIN FUNCTIONS OF PAYROLL PROCEDURE • Engaging staff and keeping personnel records • Recording time worked by employees • Preparing payroll • Disbursing payroll • Accounting for salaries and wages • Remittance of PAYG, superannuation and other withholdings PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

12. PAYROLL INTERNAL CONTROLS • Adequate internal controls required because: • payroll is a large business expense • payroll information is confidential • payroll fraud is very common • legislative requirements must be met PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

13. PAYROLL INTERNAL CONTROLS cont. • The most usual control is to allocate the payroll procedures to different departments or staff members within the organisation PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

14. SEGREGATION OF PAYROLL DUTIES • To provide security within the payroll system, different staff or departments should be allocated the following jobs: • Updating payroll database • Preparing time sheets • Preparing payroll • Authorising payment PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

15. SEGREGATION OF PAYROLL DUTIES cont. • Helps reduce the incidence of fraud and error, for example: • cheques drawn for incorrect amounts • fictitious employees • overstatement of pay rates • disappearance of unclaimed wages PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

16. OTHER INTERNAL CONTROLS FOR PAYROLL • Proper employee records • Employee history, payroll records, entitlement records, time sheets • Reconciliation of payroll • Individual pays to total payroll PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

17. OTHER INTERNAL CONTROLS FOR PAYROLL cont. • Proper authorisation • Payroll or cheques authorised by signature of two officers • Employee to sign for pay (if appropriate) • Security • Unclaimed pay locked in safe place PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

18. OTHER INTERNAL CONTROLS FOR PAYROLL cont. • Proper accounting records • Correct classification in journals and ledgers • Automated payroll systems • Ensure operation of internal controls PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

19. PAYROLL PROCEDURES PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

20. ACCOUNTING FOR PAYROLL • The recorded expense is gross pay • The difference between gross pay and net pay is deductions (both mandatory and elective) PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

21. ACCOUNTING FOR PAYROLL cont. • Mandatory deductions may be: • PAYG tax • Child Support Agency payments • HECS repayments • Deductions are held in ‘suspense’ or ‘holding’ (liability) accounts until paid out (e.g. to superannuation fund) PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

22. ACCOUNTING FOR PAYROLL cont. • Net pay is credited to Payroll clearing account • Payment of wages clears the Payroll clearing account PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

23. ACCOUNTING FOR PAYROLL cont. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

24. ACCOUNTING FOR PAYROLL cont. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

25. ACCOUNTING FOR PAYROLL cont. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

26. ACCOUNTING FOR PAYROLL cont. PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd