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INVESTIGATING THE NATURE OF PAYROLL ACCOUNTING IN PUBLIC SECTORS...

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

A payroll is a company’s list of its employees, but the term is commonly used to refer to: the total amount of money that a company pays to its employees, a company’s records of its employees’ salaries and wages, bonuses, and withheld taxes(http//:wekipedia.org). Payroll in the sense of “money paid to employees” plays a major role in a company for several reasons. From an accounting perspective, payroll is crucial because payroll and payroll taxes considerably affect the net income of most companies and because they are subject to laws and regulations (e.g. in the US payroll is subject to federal, state, and local regulations).

From a human resources viewpoint, the payroll is critical because employees are sensitive to payroll errors and irregularities: Good employee morale requires payroll to be paid timely and accurately. The primary mission of the payroll department is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions, and that the withholdings and deductions are remitted in a timely manner. This includes salary payments, tax withholdings, and deductions from pay checks.

Companies typically generate their payrolls at regular intervals, for the benefit of regular income to their employees. The regularity of the intervals varies from company to company, and sometimes between job grades within a given company. Common payroll frequencies include: daily, weekly, bi-weekly/fortnightly (once every two weeks), semi-monthly (twice per month), and monthly(Payne & Charlie,2014) Less common payroll frequencies include: 4-weekly (13 times per year), bi-monthly (once every two months), quarterly (once every 13 weeks), semi-annually (twice per year), and annually (yearly) Businesses may decide to outsource their payroll functions to an outsourcing service like a Payroll service bureau or a fully managed payroll service. These can normally reduce the costs involved in having payroll trained employees in-house as well as the costs of systems and software needed to process a payroll. Where this may reduce the cost for some companies many will foot a bigger bill to outsource their payroll if they have a special designed payroll programme or payouts for their employees(Payne & Charlie,2014). In many countries, business payrolls are complicated in that taxes must be filed consistently and accurately to applicable regulatory agencies. Restaurant payrolls which typically include tip calculations, deductions, garnishments and other variables, can be difficult to manage especially for new or small business owners. Payroll bureaus also produce reports for the businesses’ account department and payslips for the employees and can also make the payments to the employees if required.

Another reason many businesses outsource their payroll is because of the ever increasing complexity of payroll legislation. Annual changes in tax codes, Pay as you earn (PAYE) and National Insurance bands as well as statutory payments and deductions having to go through the payroll often mean there is a lot to keep abreast of in order to maintain compliance with the current legislation.

On the other hand, businesses may also decide to utilize payroll software to supplement the efforts of a payroll accountant or office instead of hiring more payroll specialists and outsourcing a payroll company.

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