Planning document

Steps to establish payroll system in Pitstop

1. Obtain a Federal Tax ID or an Employee Identification Number (EIN). Get a Federal Tax
ID or EIN before hiring new employees. An employment identification number (EIN) is
important for reporting taxes and other necessary documents to the relevant authorities
which can be done online as well.
2. Confirm whether you need local/state IDs. Most local/state governments require business
entities to have ID numbers to process taxes within their territories.
3. Know the types of people who will work for you - whether they are independent
contractors or employee. One should clearly know the difference between an employee
and an independent contractor since this will affect how you withhold the income taxes,
pay and withhold social security and medical taxes as well as how you pay
unemployment taxes.
4. Ensure employee paperwork is done in the right way. New employees must complete
filling out various taxes forms provided by the state or the federal government. The
employee should fill the form and return them so that you are able to withhold the correct
federal income tax form their salaries.
5. Determine the pay period. Payment in Pitstop service stations will be done twice per
month and most states favour this kind of payment mode. The taxation authorities require
that you withhold income taxes for the time period even when an employee doesn’t finish
the full duration.
6. Document employee compensation terms. When setting up a payroll, it is important to
know how you will handle time off, employee working hours, whether or not to pay
overtime, and many more business variables.
7. Choose a payroll system. Payroll administration needs a good attention to accuracy and
details hence the need for some research to understand well your options. This can be
done by asking other people who are in the same business about the method the use in
administering payroll. Pitstop service stations will use MYOB AccountRight
computerised accounting system to set up and administer payroll in this case.
8. Run the payroll. Once everything is done from form filling to information gathering, you
can start running the payroll.Jim Murphy who is the owner, chairman and CEO can either
run the payroll or he may as well give the information to the accountant.
9. Set up a record keeping mechanism. The federal and state laws requires that employers
should keep certain types of information for a given time period. It is worth keeping this
information in case you loss some and it will help in rebuilding your database and
getting back your business to normal will be an easy task.
10. Report payroll taxes. These are payroll tax reports that you are supposed to submit to the
relevant authorities either quarterly or annually.
 Policy and procedures document
Establish procedures to ensure the confidentiality and security of payroll information.

An organisation needs to collect important personal information from new employees as

stipulated by the law and the organisation requirement. Security in the payroll processes
and functions is important to ensure that confidentiality is given priority always by staff
and management.
The importance of security is efficient and competent management of the payroll and
good internal control processes which assist in minimising risks while providing other
benefits which include the following:
 Compliance to legislation and organisational requirements
 Timely transactions processing
 Accurate and up to date payroll information which ensure correct payment are
made to employees
 Documents and reports are produced with ease
 Appropriate authorisations are given throughout the payroll process
 Correct entering and coding of all the transactions
 Backup data, documents and records are kept

Personal information required to be recorded when new employee is hired

 Date of birth
 Postal address
 Home address
 Email address
 Phone numbers
 Bank account
 Next of kin
 Emergency contact numbers

Deduction made on salary and wages

They are several type of voluntary and statutory deductions that apply to salary and wages and
details of such deductions needs to be kept in employee’s file. Here are some of the common
deductions that are applied to wages or salary.

 PAYG withholding tax

 Family support deductions
 Deductions towards Higher Education Loan program debts
 Voluntary superannuation contribution on top of what employer paid
 Union fees or membership fees
  Charity donations

Management controls

Control procedures

 Establish a detailed budget for both payroll liabilities and expenditures

 Establish pre employment processes to check qualification and references
 Check frequently the actual expenditures to budgets and ensure you perform investigation
of variances
 Investigate and develop appropriate investigation reports to guide you in making
corrective adjustments to the payroll or development of preventive reports for the
already identified issues

Update controls

Control procedures

 Make sure all transaction documents are processed

 Make sure all payroll data files are in the correct versions
 Review and act on reports with changes to payroll records, data errors and data rejection

Duty separation

Control procedures

 The function of the payroll staff should be separated from the role of approval and that of
authorization
 Payroll staff should be rotated so as to be able to carry out different duties at different
time frame

Security controls

Control procedures

 Physical security should be present for payroll and personnel records

 Make use of access controls for the payroll system for instance the use passwords and
changing them regularly
 Confidential information should be separated from general information and access should
be restricted always
 Produce and review the audit reports on any access to the payroll system for unauthorized
or unusual activity

Reflection of the paper

The main purpose of a payroll system is to control and record the regular payment of salaries and
wages for employees of an organisation in accordance with organisational and legal
requirements.

Payroll systems can be computer based, paper based or as combination of the two. When an
organisation keeps records in electronic form, it ought to keep paper records for the employees to
comply with the legal requirements to retain such records. Any payroll system has rules that
govern all its processes and these rules are listed down in policies and procedures.

Payroll management emphasizes the need to protect employee privacy and maintain
confidentiality. Organisations have the responsibility to protect their employees’ privacy. Under
the provisions of the Privacy Act 1988 (Cth), which state that details of the payroll or employee
records should not be shown to anybody except in accordance with the organisation policy and
confidentiality is kept at all times.

Security procedures should be available to protect all hard copy and electronic payroll
information and substantiation is needed for any claimable allowances that an organisation
employee is entitled. Procedures should be available for easy substantiation of such claims. For
an organisation to be successful, it should have appropriate safeguards to protect the financial
resources form theft, fraud and error in the connection with the payroll.

Organisational and legislative requirements will determine the control measures which need to
be implemented in payroll management. These requirement include the following: ATO
regulations, the Australian Accounting and Auditing Standards, ASIC requirements, the
Superannuation Guarantee (Administration) Act, the employee’s TFN and PAYG tax

Government legislation have put in place a number of obligations on organisations in terms of

the payroll system to implement in payroll management to meet the desired requirements for
records being kept and generated. They include the Fair Work Act 2009 (Cth), Workplace
Relations Regulations 2006, income tax, payroll tax, the National Employment Standards and the
Superannuation Guarantee (Administration) Act 1992 (Cth).