Ch. 10 - HCM, Payroll, Internal Controls

Chapter 10 Learning Objectives

  • Become familiar with functionality in ERP Human Capital Management modules

  • Know the steps in the recruitment management life cycle

  • Know the difference between career planning and succession planning

  • Understand the reasons organizations outsource human resources functions

  • Comprehend Internal Control in the recruitment management life cycle

- - - - - - - Recruit-To-Retire Process

Figure 10-1: Employee Life Cycle

  • Key phases of the employee life cycle include:

    • Recruit 

    • Hire and Onboard 

    • Compensate 

    • Succession Planning 

    • Develop and Learn 

    • Review performance 

    • Plan career 

    • Transition

- - - - - - - 2024 Magic Quadrant

Magic Quadrant Overview

Quadrants

Entities

Leaders

Workday, Oracle, Dayforce, SAP, UKG

Challengers

ADP, Darwinbox, Infor, Cornerstone

Niche Players

Yonyou, Cegid

Visionaries

[To be detailed]

  • As of Aug 2024, Gartner, Inc. reports on various entities across the quadrants of understanding and capability relating to human capital management technologies.

- - - - - - - Hype Cycle Items

Hype Cycle Breakdown

  • Time to Plateau Indicators:

    • Less than 2 years

    • 2 to 5 years

    • 5 to 10 years

    • More than 10 years

    • Obsolete

  • Notable Insights on Hype Cycle:

    • Internal Talent Marketplaces

    • AI in HR

    • Labor Market Intelligence

    • Responsible AI

    • Digitally Enabled DEI

    • Global Employer of Record Solutions

    • VR and AR in Corporate Learning

    • Coaching/Mentoring Applications

    • AI-Enabled Skills Management

    • Workstyle Analytics

    • Composable HR

    • Application Frameworks

    • Frontline Worker Experience Technology

    • Generative AI in HR

    • PaaS in HR Technology

    • Flexible Earned Wage Access

    • HR Virtual Assistants

    • Learning Experience Platforms

    • Employee Productivity Monitoring

    • Digital Adoption Platforms

    • Hyperautomation in HR

    • Employee Onboarding

    • Unified Multicountry Payroll

    • Talent Analytics

    • Voice of the Employee

    • Employee Well-Being Solutions

    • Machine Learning in HR

    • Workforce Planning

Innovation Indicators

  • Transitional phases as indicated in the Hype Cycle:

    • Performance Management

    • Recognition and Reward Systems

    • Integrated HR Service Management

    • Digital HR Document Management

    • AI in Talent Acquisition

  • As of July 2024, key insights and projections become defined.

- - - - - - - Recruitment Management Module

  • Objectives of the Recruitment Management Module include:

    • Attracting job candidates

    • Converting talented individuals into successful hires.

Figure 10-2: Recruitment Management Life Cycle

  • Source credited to D. Rietsema.

- - - - - - - Personnel Administration Module

  • Functions of the Personnel Administration Module include:

    • Managing employee master data

    • Tracking demographics, skills, roles, and organizational assignments

    • Handling hiring actions, organizational assignments, reassignments, promotions, and terminations

- - - - - - - Time and Attendance Module

  • Core functionalities encompass:

    • Tracking hours worked

    • Documenting start and end times

    • Managing sick days and personal time off (PTO)

    • Facilitating scheduling

  • Attendance recording serves as an internal control function, which includes:

    • Use of smart time clocks

    • Geofencing technology to monitor attendance remotely.

- - - - - - - Benefits Module

  • The Benefits Module aims to manage comprehensive benefits for employees, including:

    • Medical insurance

    • Retirement plans

    • Health savings plans

    • Flexible spending plans

- - - - - - - Payroll Module

  • Payroll Module functions include:

    • Processing periodic payroll

    • Calculation of gross salaries/wages

    • Management of taxes and employee benefits

    • Handling withholdings

  • Required inputs for Payroll processing are:

    • Employee master data

    • Hours worked

    • Benefits selections

    • Deductions

  • Internal control associated with payroll includes segregation of duties using a separate payroll account for direct deposit management.

- - - - - - - Employee Self-Service

  • The Employee Self-Service module allows employees to manage some data entries, which include:

    • Annual benefits enrollment

    • Updating certain master data

  • Benefits associated with Self-Service include improved employee services, enhanced communications, streamlined administrative tasks, and reduced operating costs.

- - - - - - - Cost Savings from Outsourcing HR Functions

  • Cost Savings Described:

    • HR Salaries: Organizations can spend less on HR staff by reducing or eliminating human resource personnel.

    • Benefits Costs: Professional Employer Organizations (PEO) can negotiate lower benefits costs that are particularly advantageous for small businesses.

    • Hiring and Training Costs: PEOs can assist in hiring and training at a lower expense.

    • Time Savings: Businesses can concentrate on strategic initiatives instead of non-core HR activities.

    • Avoiding Compliance Penalties: Compliance with various regulations is crucial to avoid financial liabilities.

  • According to research, payroll represents the most commonly outsourced HR function.

- - - - - - - HCM Outsourcing Risks and Fraud

  • Risks of Outsourcing:

    • Third-party management presents inherent risks including the potential of lower service quality.

    • Fraud risks, highlighting the necessity for strong internal controls to protect data security and privacy.

  • Examples of HR-related Fraud:

    • Issues such as ghost employees

    • Commission manipulation

    • Falsification of hours worked

- - - - - - - Frequently Missed Question

  • Question: Which of the following is NOT considered an internal control in HCM?

    • A. Using a separate bank account for payroll

    • B. Using direct deposit

    • C. Using a professional employer organization (PEO, outsourcing)

    • D. Using smart time clocks with geofencing 

Answer is 

- - - - - - - Payroll/Human Resources Audits

Overview

  • A payroll/human resources audit involves a systematic review of an organization's payroll and HR functions to ascertain compliance risks and vulnerabilities.

  • Purpose of the Audit Includes:

    • Identify compliance risks in payroll and HR processes.

    • Assess existing compliance controls effectiveness.

    • Recommend improvements to align with laws and regulations.

Audit Phases

  1. Data Collection: Gathering information associated from payroll and HR systems.

  2. Data Analysis: Reviewing the information for compliance issues.

  3. Reporting: Documenting findings and providing improvement recommendations.

  • Essential for maintaining compliance within an organization.

- - - - - - - Personnel Number in SAP

  • The personnel number serves as the primary identifier for employees within SAP systems, consisting of up to eight digits. Assignments can be manual or system-generated.

  • All employee data is accessed and referenced using the personnel number.