Salaries & Wages

What are salaries and wages ?

-Material expense

-Wages influence stock valuation - cost allocation .

-Impacts cash : fraud / theft .

-Small amounts vs. high volume of transaction .

-Internally generated transaction without physical documentation .

Salary

-Fixed , pre - determined amount , not affected by hours worked ( basic salary ) .

-Paid monthly by cheque / direct deposit .

-NB : Time worked, Calculation, Payment, Control over cash

Wages

-Paid for productive hours .

-Timekeeping required .

-Paid weekly with cash .

-NB : Calculation, Payment

Transaction types and functions

1. Appointment and authorisation: Initiate

2. Personal records: initiate

3. Time keeping & checking of hours worked: execute

4. Calculation & preperation of payroll: record

5. Transfer of deductions + Payments: processing

6. Unclaimed wages (from payments): processing

7. Account: reporting

Segregation of duties :

-Appointment

-Maintenance of permanent files

-Safe guarding of clock cards & calculations

-Account

-Pay - out

SCI : Expense accounts

-Salaries ( nett , excluding fringe benefits ) ;

-Wages ( nett , excluding fringe benefits ) ;

-Commission ;

-Bonus Leave pay expense ;

-UIF ;

-Leave pay ;

-Pension ;

-Medical aid

SFP accounts

-Bank

-Accrual for deductions payable

-Provision for leave pay

Journal entries

Dr SCI

Cr Bank Cr Provisions and accruals

Risks: appointment and authorisation

Unauthorised appointments / dismissals

Risks: personal records

1. Unauthorised deductions / fringe benefits

2. Unauthorised & wrong changes to salaries / wages

Risks: calculation and preparation of payroll

1. Employees dismissed remain on payroll

2. Employee paid for services not rendered

3. Employee paid at unauthorised scale / tariff

4. Deductions paid over incorrectly

5. Employee not paid for services rendered

6. Pay incorrect employee

7. Inaccurate calculations wrong wage scale or basic salary or hours or deductions

8. Ineffective control over unclaimed wages

Risks p: recording

1. Fictitious employees on salary & wage journals

2. Incorrect recording of information

3. Not all salary / wage transactions are recorded

Perfect system 1. Appointment and authorisation

-Specific department / head of the personnel division requiring employees informs the personnel division of the position needing to be filled .

-The personnel division will then do the following : Advertise the position ( With authorisation from higher management ), Receive applications together with a CV ( which should contain their qualifications ) . Suitable candidates are then interviewed .

-The interview should be performed by the personnel division

-Two employees ( 1 from the personnel division and 1 from the division requiring employees should conduct the interview: Aptitude tests must be performed.

-The individual shall then be offered the job .

- a pre - numbered appointment letter / contract of employment shall be authorised and signed by the personnel manager in two - fold : 1 copy shall go to the new employee 1 copy should be kept by the personnel division Appointment letter / contract of employment should contain details on the terms and conditions of the employment .

-It must be signed by the employee accepting the job .

-The hourly wage shall be determined by the wage foreman and authorised and signed by the personnel / wage manager .

-Or factory foreman together with the personnel department must decide on a wage and this shall be authorised and signed by management .

Perfect system: Personnel records: employee file

-Information about every employee is kept in the personnel division within an employee file

-Each employee shall have their own file .

-The file can be a physical paper file or a computerised file .

-The following information should be kept in the files : Personnel information, Employee number, Appointment date, Compensations, Fringe benefits, Deductions

-Any amendment in wages must be recorded in the employee's personnel file by the personnel department

Perfect system: Personnel records: deduction authorisation form

-A pre - numbered deduction authorisation form should be completed by the wage foreman giving permission to the company to deduct certain amounts of the employee's wage and to pay those amounts to 3rd parties on his behalf .

-This should be signed by the employee as proof .

-This form must be authorised and signed by the personnel manager and shall be issued in 2 fold : One copy shall be kept by the employee . One copy should be kept by the personnel division .

Perfect cycle: Personnel records: compensation ammendment form

-Any change in the following functions : Remuneration rate, Working conditions, Terms of employment, must be recorded in this document .

-A pre - numbered compensation amendment form must be issued in 2 fold and authorised and signed by the head of the personnel division : One copy shall go to the employee : in order to notify the employee of the wage changes . One copy should be kept by the personnel division .

-Wage scale adjustments shall also be authorised by the wage foreman .

-Made out by two persons from the personnel division in writing .

-The following parties shall be notified in writing : The payment division / wages division The employee ( compensation amendment form )

Perfect cycle: Personnel records: termination service form

-When either party decides to terminate the employment contract , this must occur in writing .

-This form can be completed by either parties : Employee upon resignation . Employer through retrenchment or firing

-A pre - numbered termination of service form must be completed by either one of the parties in 2 fold and must be authorised and signed by the head of the personnel division . One copy should be kept by the employee One copy should be kept by the personnel division Both parties must sign .

Perfect cycle: Timekeeping and checking hours worked: Timecard / clock card / timesheet WAGES

-records the hours of which a wage earner has worked

-Cock cards / timesheets should be pre - numbered and prepared by the personnel department using the employee list and must be authorised and signed by the foreman / supervisor

-Details include: Employee number, Name, Date, amount of hours worked, overtime hours worked

-There should be control over the issue and receiving of clock cards namely that there should be register for cards issued and received back .

-The issuing of the time cards shall be done by Admin Clerk A and the receiving of the time cards shall be done by Admin Clerk B of the personnel division . ( Segregation of duties over issuing and receiving )

-The blank clock cards shall be kept secure in a safe .

Perfect cycle: Timekeeping and checking hours worked: clock card machine WAGES

-Location : Entry / Exit point ( only in one location preferably ) .

-Protected by a turnstyle mechanism - where employees must use their time cards to swipe in and swipe out .

-There should be adequate supervision by the supervisor / foreman : Only one clock card machine . Supervision during clocking in and out times to ensure that the employee only swipes their own card and to ensure the validity of information recorded .

-All clock cards / timesheets must be collected at the end of the day ( and not left for a period of time ) .

-Clock cards should be checked for errors and manipulation by the supervisor / foreman which should be signed

-Overtime hours recorded on the clock cards should be checked by an independent person and approved in terms of the company's policy .

Calculation and preparation of payroll WAGES

-The wages journal / payroll should be prepared with reference to the hours worked through the clock cards as well as with reference to the clock card machine .

-Calculation : Hours ( Clock card ) X Tarrfif ( Tariff form ) = Gross wage ( Deductions ) = Net wage

The following details should be included in the wages journal / payroll : WAGES

-Employee number

-Employee name

-Date

-Tariff

-Amount of hours worked

-Overtime hours worked

-Gross wage

-Deductions

The wage journal / payroll shall be checked and authorised by an independent person / manager of the wage department for validity ( common weakness ) : WAGES

-Recalculation

-Checked with reference to the budget

-Checked for unusual expenses

-Check that the hours indicated match that of the clock cards

-Any differences should be investigated by the supervisor / wage foreman

Perfect cycle: Payments WAGES

-A cheque shall first be requested for total wages for week from the personnel division and the wage journal / payroll should be sent as proof / supporting documentation ( which has been signed and authorised ) .

-The supporting documentation should be cancelled to prevent double recording

-A cash cheque shall then be issued by the payments division with evidence of the money withdrawn such as a bank slip . The cheque is then cashed immediately .

-The cash should be kept in the safe until they are placed in the pay packets .

-The wage manager must compare the total of the wage journal with the cheques and cancel the wage journal in order to prevent double recording .

Perfect cycle: Payments: wage slip/wage record WAGES

-The wages for the employees are placed in a pay packet by the wage clerk : -Wage clerk must sign as evidence of receipt of the cash .

-The making up of the pay packets should be performed 2 wage clerks from the payments division . The contents must be checked and authorised by the manager of the wage department

-A pre - numbered wage slip shall be issued by the payment / wage clerk in 2 fold which indicates all the transactions applicable to the employee and the totals of their wages to date . These shall be approved and signed by the manager of the wage department . One copy is sent to the employee . One copy remains in the payments division .

Perfect cycle: Payments: wage payout WAGES

1. The payout must be attended by the accountant and the foreman ( i.e. two persons ) .

2. Employees must identify themselves when they come to fetch their wages e.g. by means of a personnel card of identity document .

3. Employees must sign the wage journal as evidence that they received their wages .

4. The employee must immediately check the cash in the envelope under supervision of the accountant and foreman and any differences must be recorded immediately .

5. Wage envelopes must be handed to the employees in person only .

6. Wage envelopes , not fetched , must be taken back to the secretary who will keep it safe together with an unclaimed wage register . Wage must be recorded unpaid in wage journal and entered in the unclaimed wage register .

7. The unclaimed wage register and the wage journal must be reconciled weekly

8. Similar procedures must be in place as in 1-4 above when the employee claims his / her wage envelope at a later stage . Entries then in unclaimed wage register only and not in wage journal .

9. The unclaimed wages must be banked again within a reasonable period

10. Long - outstanding wages must be checked by a senior member and reasons must be obtained .

Perfect cycle: payments: unclaimed wages WAGES

-The details of all unclaimed wage envelopes ( employee name and number date of payout and amount of wages ) must immediately be recorded in a register of unclaimed wages and it must be indicated in the wage journal that the relevant wage was not paid out .

-The wage envelope , together with the register of unclaimed wages , must be handed over to the accountant who must sign the register as proof of receipt . Until it is claimed ( or banked ) unclaimed wages must be placed in , for example , a safe .

-If an employee comes to claim his / her wage : the employee must be identified property ( by , for example , an employee card or identity book ) ; the employee must check his / her wage and sign the register as proof of receipt of his / her wage ; and the wage must be handed to the employee in person only .

-All envelopes which are not claimed in a reasonable time ( 3-5 days ) , must be handed to the cashiers , who must sign the register as proof of receipt of the money .

-The cash must then be deposited in the bank account of the company .

-The unclaimed wage register and the wage journal must be reconciled weekly

-The register of unclaimed wages must be reviewed by the managing director in order to identify and follow up on any long outstanding wages or regular unclaimed wages .

There should be segregation of duties in the following functions : (payments) WAGES

1. Preparing of the wage

2. Authorisation of the wage cheque

3. Payment of the wages

4. Recording

Salaries are similar to wages but :

1. there are no clock cards

2. No unclaimed wages .

Calculation and preparation of the payroll (salaries)

Basic salary ( tariff form ) + Fringe benefits ( Deductions ) = Net salary

Salary journal

-A pre - numbered salary journal must be prepared by the payments division with reference to the employee list provided by the personnel division , which shall be authorised and signed by the head of the personnel division

-This shall be prepared a week before payment is made

Salary journal Details

-Net salary

-Fringe benefits

-Gross salary

-Deductions

-Employee number

-Employee name

-Date

-Salary scale

The Salary journal shall be checked by the head of the personnel division and authorised and signed :

-Recalculated

-Checked with reference to the budget

-Checked for unusual expenses

-Any differences shall be investigated

Perfect cycle: Payments: Paylsip SALARIES

-A pre - numbered pay slip shall be issued in 2 fold by the payments division in order to ensure that employees receive the correct amount

-Copies : 1 copy shall go to the employee 1 copy shall go the personnel division

-Details: Employee number, Employee name, Basic salary, Salary scale, net salary, fringe benefits, gross salary, deductions

Perfect cycle: Payments: payment by cheque SALARIES

-The cheque shall be requested with the necessary supporting documentation cheque requisition ) .

-Supporting documentation shall be cancelled to prevent double recordings .

-The cheque number shall be noted in the salary journal , to note if the cheque has already been paid .

-The cheque shall be signed and authorised by 2 persons .

-The cheque shall be made out in the employee's name and crossed ( non- transferrable ) .

-The cheque shall be compared with the salary journal to ensure the results are the same before the cheque is signed .

-A salary control account or separate bank account shall be used to pay the salaries .

Perfect cycle: Payments by direct bank transfer and electronic funds transfer SALARIES

-This shall be performed by the responsible individual

-Should prepare an electronic funds transfer file and details shall be recorded in the file such as : salary , name and number of the employee and banking details , etc.

-The manager of the payments division should review the file and compare it to the salary journal , the file shall then be approved by a password being entered .

-The actual paying of the salaries should occur from a separate bank account or a salary control account .

-Proof of payment must be printed out as evidence .

-The head of the personnel division / accountant should check for fictitious employees .

-There shall then be reconciliation between the separate salary control / bank account and the transfer made by the accountant .

Perfect cycle: Payments of deductions to third parties SALARIES

I. IRP 5 FORM : deals with the income tax of the employee .

-Must be pre - numbered .

-Details on : payments received by the employee for the year and the corresponding tax deductions .

-2 copies : 1 copy goes to the employee -1 copy goes to their own records Accounting department )

-Other deductions included should be checked and authorised by the head of the payments division / accountant .

Monthly return : all deductions of company in total .

-Includes : tax , pension funds , medical aid fund , RAF , RSC UIF ( All these amounts must be checked against the companies own records ) .

-Shall be checked , authorised and signed by the accountant of the personnel division : Preparation and authorisation of the cheque ( supporting documentation , supporting documentation cancelled , signed by 2 persons etc. )

-The deductions shall then be paid over the 3rd party after being authorised and signed .

-Late payments will lead to the business being liable for fines and penalties

Account

-Preparation of the wage journal entries .

-Processing of the wage journal entries to the general journal and general ledger .

Account Clock Cards

1. Wage jnl

2. General Ledger

3. Trial Balance

4. Financial Statements

Account Monthly salary run

1. Salary jnl

2. General Ledger

3. Trial Balance

4. Financial Statements

List the controls that should be in place over the authorising and payout of bonuses

1. The directors ' resolution on the bonus issues ( in detail per employee or per post level ) must be recorded in the minutes of the meeting .

2. Minutes must be approved and kept safe in a systematic manner .

3. A separate ledger account for bonuses must be opened so that the bonus payout is easy to identify .

4. The financial accountant must : a . Agree amount in ledger account with amount in minutes b . Select a sample of employees and ask the wage manager to provide him with the payslips and IRP5 certificates of the relevant employees in order to check that bonus amount per individual agrees with approved list .

5. The financial accountant must check the supporting documentation before he authorises the bonus cheques .

6. The cheques must be approved by a member of management as second assignee

Internal control objectives : Salary System

To ensure that :

-only authorised engagements of competent , qualified persons occur payments take place at authorised , approved scales or tariffs

-all salary calculations are accurate . all deductions and fringe benefits / allowances are properly authorised . payments to employees ( salary cheques ) are properly authorised .

-all salary changes / increases / adjustments are properly authorised .

-all dismissals are duly authorised .

-no fictitious employees exist in the salary system ( or that payments only occur to valid employees ) .

-all salary transactions ( salary expenses and payments ) are properly ( completely ) recorded in the accounting records .

-all salary transactions are recorded accurately in the accounting records .

-salary journals are correctly cast and that all salary transactions are accurately posted to the correct general ledger account . )

-all salary transactions are recorded in time and are classified correctly in the accounting records .

Internal control objectives : Wages

To ensure that :

1. all wage pay - outs are prepared according to actual hours worked as per authorised clock cards .

2. all wages are calculated at authorised rates .

3. all changes to wage rates are correct and authorised .

4. all deductions and fringe benefits are authorised .

5. all payments of deductions are correctly calculated .

6. all deductions are paid to the correct organisation .

7. all wage payments are correctly calculated .

8. all wage payments are made to actual employees of the organisation .

9. all wage payments are made to the correct employee .

10. all wage workers are paid for all services rendered .