MANAGING PAYROLL SYSTEMS

Employee compensation is an extremely important issue for every manager and over the years
compensation has become a complicated issue. Not only are the issues of international equity
and justice important, but also the larger issue of the wider economy and society impinging
immediately on the problem of compensation. Hence there is need of hour for well designed pay
pocket, method of payment and wage fixation which is in turn required to formulate a prescribed
pay roll system to overcome all these problems
Need for a wage Policy
With the industrial progress and subsequent industrial balance between employers and
employees, wage bargain has become a mater for the three fold concern of the employer,
employee and government.
The pressure of rising price on living standard of employees, the demand for higher wages and
better working condition creates price, market and production problem for the management.
Wage being the price for the labour; have to be in harmony with other price in the system. Hence
it become necessary to maintain balance between the economic development and principle of
democratic system of the policy

Wages
Wages that are subject to federal employment taxes includes all payments you give an employee
for service performance. The pay may be in cash or in other forms salaries, vacation pay,
bonuses., commissions and certain fringe benefits are some examples that you include in wages
for employment tax purposes.. They are composed of two parts-the basic wage and other
allowances. The allowance include dearness, medical and over time pay.
Essential of Satisfactory Wage System
A good wage system should not only reward productivity but should provide an incentive for the
worker to meet or exceed the standard every day. Such a system facilitates production and tends
to reduce the unit cost of production in the long run.
Characteristics of Wage System

Based on fair standard

Fair to the employer and employee
Simplicity
Flexibility
Prompt payment

Provision of incentive
Based on cost of living
Permanent
Just and equitable

Accountable plan
An accountable plan is a reimbursement or allowance arrangement between you and your
employee that meets all the following three rules
Your employee must pay for deductible expenses while performing services as your
employee
Accounts to you for those expenses within a reasonable time
And return to you any advance amounts that are more than the actual expenses within a
reasonable period.
A Non Accountable Plan
A non accountable plan if an employee is not required to, or does not account for expenses in a
timely manner
If you advance an amount to your employee for business expenses and that employees is
not required to or does not return any amounts not used for business expenses.
Payments however, can take many forms and is not always money going directly to the worker.
How to figure a Payroll

First you need to know total amount of compensation and benefits included in each
employee wages for the pay period
Figure the amount of income tax to withhold(use wage bracket method Or percentage
method for higher value)
Figure the amount of employees share of social security and Medicare taxes( Simply
multiply the total wages by the applicable employee social security and Medicare taxes
percentages)
The total after all appropriate deductions is the employees net pay.

Example:
Pam works in a store and gets $500 weekly
But net salary paid received by him is $431.75 after deduction
Pams Gross Salary

$ 500.00

Less:
Under wage bracket table publication
Federal tax to withhold from his salary

$ 30.00

Social Security Tax @ 6.2%

$ 31.00

Medicare Tax @ 1.45%

$ 7.25
--------------

Net salary of Mr. Pam

$ 68.25
--------------$ 431.75
---------------

Payroll administration was originally designed as technical skill but today it has become a
professional discipline. Payroll administrators must be knowledgeable in all aspects of pay roll
and must stay current regarding changes in legislature and regulatory environments. Constant
changes in rules and regulations can make it difficult to keep up.
Components of Pay Structure
The basic elements of Pay structure
Basic wage
Dearness Allowance
House Rent Allowance
City compensation allowance
Bonus
Other components of pay structure

Leave travel allowance

Provident fund
Gratituty
Group linked insurance
Pension fund
Accident and death compensation

Leave with pay

Educational allowance
Medical benefits

Basic Wage
Stable wage paid over a period of time. This could be monthly, weekly or daily basis.
It is the price paid for the job for a period of time. Basic wage of an industrial worked based on
a standard budget concept for family of four, should include food, clothing, housing and fuel. .
Basic wage is built upon the statutory minimum wage. This should provide not merely for the
bare sustenance of life but for the preservation of the efficiency of the worker by providing some
measure of education, medical requirements and amenities.
Dearness Allowance
The DA was to protect wage earners real income by neutralizing the increased cost of living.
The DA was to give relief to the worker during the inflationary period.. The DA is fixed for
every rise in the price index, regardless of the income group, but the lower paid would then get a
higher proportion of their basic as DA and to the capability of the organization.
Flat rate systems provide linking payment of DA with the consumer price index. The system is
simple and easy to administer. The payment is made on the basis of actual price movement in a
given region.
The second from is based on income groups and cost of living brackets or slabs. In this method
the absolute of allowance increase with each higher income group.
Bonus
The payment of bonus was made obligatory on the part of the employer, whether has
organisation made a profit or not.
Minimum of 4% if the company has no profit, it had no compulsion to pay the minimum bonus.
Negotiation to get bonus in excess of 20% if the company gain ample profit
Employees in Bank, Port and Docks, Public Sector receive ex-gratia payment upto 10% in lieu of
bonus.
The amount of reward received should be sufficiently high to encourage staff to accept exacting
targets and standards of performance
The scheme should be able to calculate the reward he can get for a given level of performance
The formula for calculating the bonus and conditions under which it is paid should be clearly
defined
The scheme should contain provisions for a regular review which could result in its being
changed or discontinued.
The scheme should be easy to administer and understand, and it should be tailored to meet the
requirements of the organization.

Commissions
Additional wage compensation paid to the marketing and contract working force in the
organization for the work performed in addition to the regular work to achieve the target fixed by
the organization. The special incentive paid during the festive season for the extra effort being
put in by the work force in the organization.
Hourly Payment
This is the oldest system of remunerating labor. Under this system the worker is paid for the
amount of time he spends on the job. The time unit may be hour, day or month. But the
remuneration is calculated on the basis of predetermined rate per hour. The payment will be
made at the end of the fixed period.
Other Benefits
Living, Health Care and Leave Expenses
City compensatory Expenses
The payment made by the organization to the employees for stay of the higher official within the
city limit whose service is to be made available at the required time for the organization.
House Rent Allowance
The importance and necessary for improving housing condition of industrial workers and
suggested various schemes and method to improve the same. Even Government acquires land
and provides residential facility for the work force. In organization allowance are provided to
work force based on the hierarchy of the jobs.
Educational Expenses
Economic and social progress is dependent on the quality of work force. Education plays a
crucial role in motivating and preparing the worker for constant change and development that
should necessarily happened in industry. The need for imparting necessary education to workers
has been constituted by Rules and Regulation and worker is naturally more receptive and
responsible.
Educating their family, especially their children are essential. It is investment in training future
workforce. Some organizations even run schools for worker children.
Method of Payment

Time Rate System

Payment by result system

Measured day work
Incentive Scheme

Time Rate System

Wages can be determined by the following formula
Wage = Numbers of Hours worked x Rate per hour.
The employees are simply paid a predetermined rate per week or hour for the actual time they
have worked by negotiation by reference to the local rate or by job evaluation. The is prevalent
in the engineering and processing industries where there is no standardized work among the
workforce.
But the system does not provide motivation among the employees. This problem could be
overcome by awarding merit award for the hours they work. They may be awarded on the basis
of the purely subjective judgment of a super of superior or determined by reference to systematic
merit assessment procedures which will review the workers performance in term of output, skill,
versatility or time keeping.
Advantages
Simplicity
Feeling of security
Equality of wages
Better quality
Less wastage
Adaptability
Acceptable to trade unions
Disadvantages
Inefficiency
Lack of motivation
Increased supervision
Fixed wage bill
Payment by result system
Wage can be determined by the following formula
Wage = Number of units produced x Rate per unit
The pay or part of the pay is related to the number of items a worker produces or the time .he
takes to do a certain amount of work. It is applicable to simple manual operation, where the
effort of an individual can be measured in terms of quantity or quality.

Straight Piece work:

It is payment of a uniform price per unit of production. Worker is paid flat money for a piece of
work. If the worker completes the work in less than allowed time he gains the advantage of time
saved.
Differential Piece Work systems
It allows you to adjust wage cost per unit in relation to output. In this system the wages cost per
unit of production falls as output increases. At the same time the hourly rate of workers earnings
still increases.
Advantages:
Incentive for higher production
Fairness
Costing
Lesser supervision
Remedial transfer
Economy
Disadvantage
Low quality
Insecurity to workers
Strained industrial behavior
Difficulty in rate fixation
More administrative work
Wastage
Health hazard
Opposition by trade union
Measured Day Work
The pay of the employee is fixed on the understanding that he will maintain a specified level of
performance. The pay does not fluctuate in the short term with performance. You can define the
required level of performance and monitor the actual level with the help of work measurement
method
Total commitment of management, employees and their unions, This can be achieved by
careful planning, joint consultation, training and a phased introduction of the system.
An effective work measurement system and efficient production planning and control and
inventory control procedures.
The maintenance of good control system to ensure that corrective action in taken quickly
if there is any shortfall in target.
Incentive Schemes
Wage incentives are extra financial motivation. A wage incentive scheme is payment for work of
an acceptable quality produced over and above a specified quantity or standard.

Compensation and Salary Administration

A properly planned and administered salary system is one of the most important aspect of
modern management. Deciding who and what peopled should be paid is what is covered under
salary administration.
Aims of Salary Administration
The aim of salary administration is to develop and maintain a salary system of policies and
procedures. A well developed salary system will enable your organisation to attract, retain and
motivate people of the required calibre and qualifications. Such a system should also be able to
control your payroll cost.
Organizational Aims
The salary system should be tailored to meet the organizations special needs and should be easily
capable of modification in response to change. In particular the aim of the system should be
Ensure that the organisation can recruit the quantity and quality of staff it requires
Encourage suitable staff to remain with the organisation
Provide rewards for good performance and incentives for further improvement in
performance.
Achieve equity in pay for similar jobs
Create appropriate differentials between different level of jobs in accordance with their
relative value.
Operate flexibly enough to accommodate organizational changes and relations in the
relative market rates for different skills.
Be simple to explain, understand, operate and control
Be cost effective in the sense that the benefits of the ystem are obtained without undue
expense.
Individual Aims
The individual wants to feel that he is being treated fairly, and he expects to be paid according to
his own evaluation of his worth.
Collective Aims
The objective of trade union and staffs associates must be to obtain the maximum benefits for
their members. They will want their members pay to keep ahead of inflation.

WAGE INFLUENCING VARIABLES

Individual
Workmen

Employer
Mutually decide
on the wage for
the job

Collective Govt. Laws Local

Tribunal
bargaining wage board area rates counts

Region cum
Industry
Price for
Settlements
The Job

Philosophy
of mgmt
towards
Wages

Internal Capacity to
Employees
pricing
pay
Wage and
thro job
Components
evaluation

Intermixture of these variables

In a particular organizational
Context resulting with the wage
Structure in a particular place

Compensation
Compensation of employees for their service is an important responsibility of Human Resource
Management. Compensation to workers will vary depending upon the nature of job, skill
required, risk involved, nature of working condition, paying capacity of the employer.
Compensation refer to a wide range of financial and non financial rewards to employees for
their service rendered to the organisation. It is paid in the form of salaries, wages and employees
benefits such as paid vacations, insurance, maternity leave, free travel facility, retirement benefits
etc.

Elements of Compensation

Monthly Wage or salary which include basic wage, house rent allowance, dearness
allowance and city compensatory allowance.
Bonus at the end of the year
Economic benefits such as paid holiday , leave travel concession
Contribution towards insurance, retirement benefits (employee provident fund)
Transport and medical facilities
Commission being paid for marketing and contract staffs

Payment to Employees
Checks & Direct Deposit
The remuneration to the employees is made in different mode according to the nature of the job
and according the setup of the organization.
The remuneration is made in cash for the casuals, contract labors and temporary worker who
does not claim any other benefit from the organization and their payment are made in vouchers.
The remuneration in the organization were automated pay roll system is adopted the payment are
normally paid by checks or by direct deposit in the bank and employee are provided with check
in case of wee check payment system adopted and debit cards are provided for direct deposit
payment..

Benefits offered to Employees

Security
Payments

Payment
for time
not
worked
1. Rest Period
2. Holidays
3. Vacation
4. Sick Leave
5. Severance Pay
6. On duty pay

Bonus

Awards

Health
Benefits

Welfare and
Recreational
Facilities

1. Sickness
1.Canteens
benefits
2. Maternity
.Consumer
Benefits
Society
3. Disablement 3.Credit
benefits
Society
4. Housing
4. Dependents 5.Legal Aid
Benefits
6 Employee
5. Medical
Counsel
Benefits
7 Welfare
Organisation
8. Holiday Homes
9. Education
facility
10. Transportation
11. Parties and
Picnics
12 Miscellaneous

TYPES OF INCENTIVES

Financial & Pecuniary

1. Wages
2. Salary
3. Premium
4. Bonus

Non Financial Incentives

1. Job Security
2. Recognition
3. Participation
4. Pride in Job
5. Delegation of Responsibility
6. Quick Promotion
7. Facilities for Development
8. Labour Welfare Amenities

Financial Incentives
Financial Incentives or pecuniary incentives are the most original of all the incentives. It is
given in the form of money. The financial incentives still form the most import influencing and
motivating factor up to a certain limit. Because it is only by virtue of the monetary compensation
that the workers can satisfy their fundamental needs such as food, clothing shelter etc. The
financial incentives may be either direct or indirect. Direct incentives include wages, bonus and
other incentive directly given to the workers in the form of cash. Indirect financial incentives
include subsistence allowance expenses, medical expenses etc.
Non financial Incentives
Non financial or non pecuniary incentive include all other influences planned or unplanned,
which stimulate exertion. Mere monetary incentive cannot help the management in solving all
the problems of industrial unrest. Further additional cash wage, may also tempt the workers to
misuse the money in vices like gambling, drinking etc. Under such circumstances, the non
financial incentives have a significant role to play.. Such incentives create a healthy atmosphere
and change the mental outlook of the workers. They make the working class more stabilized and
economically sound. Thus, in short the workers by virtue of the no financial incentives are
enabled to enjoy a richer and fuller life. Experience of foreign countries particularly in countries
like Britain, America and Japan have shown that there is a high degree of positive correlation
between non financial benefit schemes and labor productivity.
Job Security: The management must try its best to create a sense of job security. There should
be no risk of retrenchment, demotion and termination. Experience has also shown that the
productivity is less in those concerns where workers have no feeling of safe and secure. But ti is
high in those concerns where they have a feeling of job security..

Recognition: Recognition of work is the essence of securing good work. Efficient people would
naturally like to get recognition for their skill and excellence in their work. Such recognition can
do many things than what a cash reward can do. Of course it is not practicable for the superiors
to praise everybody for everything done by them. But the technique of praise must be practiced
as far as possible.
Participation: Workers feel more satisfied when they are given an opportunity to raise their
voice in handling the affairs of the enterprise. Since they actually take part in the decision
making their cooperation is assured
Sincere Interest in Subordinate as Individual Person: The workers will generally respond
favourably when the management shows a keen interest in their experience and feeling. This
immediate response in attitude shall lead to peak performance and thereby enlarge the
productivity of the employee.
Pride in Job: The workers must be made to feel pride in their job. Various techniques can be
employed to develop pride to work. Food product dynamic leadership fair treatment, ethical
conduct etc. can effectively stimulate the workers pride in their job and in the firm..
Delegation of Responsibility: Delegation of rights and responsibilities to execute a given task
often proves to be a strong motivating factor. By delegation the superior trust his workers and
stimulates them to show better results.
Other incentives: Other incentives like quick promotions provision of faculties for
development and training, provision of labour welfare amenities etc. also safe a significant role
to play in motivating the employees

PAYROLL AND THEIR PROCEDURES

What is Pay Roll?

Pay Roll is the compilation of amounts of money due to employees of an organisation. This
involves the calculation of amounts earned the application of all deductions and the payment of
net amounts due both to employees and Tax Collection Authorities.
Payroll is an essential and vital part of an businesses because

Employees expected to receive is net amount of pay that reflex their full entitlement after
authorized and statutory deductions have been made.
Government departments authorized to collect taxes expect payroll calculations to be
correct.
Labour costs from a large part of businesses overhead expenses and must be accurate in
order that profit calculations are correctly ascertained.

Income tax and National Insurance contribution

Everybody whose income is in excess of a certain figure, which is fixed by the Government,
must pay Income Tax. This rule extends to senior citizens, pensions, dividends and interest from
investments, rents received from property leases and benefits in kind.
It is a from of taxation intended to fund state welfare benefits such as

Unemployment benefit
Retirement pensions
Sickness benefits
And other forms of state benefit

Everyone is given a National Insurance Number when they reach 16 years of age. This is
personal and is used throughout a pensions life for identification purposes by Department for
Works and Pensions. It is required to be quoted in all dealings with both the Tax Office and the
Contributions Agency.

Who is an Employee?
It is seen that anyone working for the firm is an employee, this is not always the case. The
distinction between those employed and those who are classed as Self employed is important.
The inland Revenue and the Department for work and Pensions treat these classifications
completely differently.
The most important distinctions between the two are:
PAYE and NI contribution are deducted from employees but not from self employed persons.
Employees are entitled to certain benefits that are denied the self employed unless they have
specifically contracted for their inclusion.

Employee must have a contract of employment may be entitled to redundancy payment and are
covered by employment protection legislation
Employees are entitled to holiday pay.

Who is Self Employed?

Self employed status should be viewed with some caution because notwithstanding the status
that the worker may claim or the employer accept. The Revenue and Department for work and
Pensions will make a decisions as to whether a person can be classified as Self employed.
In most cases it will be obvious whether the person is employed or self employed. For example if
they work for a company on a production line in this factory, they are almost certainly employed
it may be clear that they are an employee because they have been given a written stateme4nt of
their employment terms, or they may be a member of a pension scheme open only to employees.
A person is self-employed if he or she is in business on their own, for example if they run their
own shop, or are buying and selling goods, or providing services direct to the public from their
own premises.
However, sometimes it isnt so easy to decide. You will need to look at the job as a whole,
taking into account all the conditions in the light of the guidelines below.
Employed If you can answer yes to the following questions, the person is probably
employed:

Do They have to do the work rather than employ someone else to do it for them?
Can Someone tell them at any time what to do or when or how to do it?
Are they paid by the hour, week or month? Can they get overtime pay?
Do they work set hours, or given number of hours a week or month?
Do they work at the premises of the person for whom they work, or at a place or places
he or she decides?

Self Employed If you can answer yes to the following questions, it will usually mean that the
person is self employed

Do they have the final say in how the business is run?

Do they risk their own money in the business?
Are they responsible for meeting the losses as well as taking the profits?
Do they provide the main items of equipment they need to do the job, not just the small
tools many employees provide for themselves?
Are they free to hire other people on their own terms to do the work they have taken on?
Do they pay them out of their own pockets?
Do they have to correct unsatisfactory work in their own time and at their own expense?

When do you pay?

During the last war, the Government introduced a scheme whereby employers deducted
Income Tax from gross pay. They realized that this was a very simple and effective way for them
to collect taxes and in addition did not require them to wait as long as they had previously had to
before receiving payment. This became known as taxing at source or, as it is better known, pay
as you earn (PAYE)
PAYE is a national scheme whereby employers make all employers make all statutory deductions
from their employees earnings and subsequently remit those deductions to the Government
Department.
The employer became a Government tax collector!! This was not be the only time a business
would collect taxes for the Government (VAT III).

Methods of calculating Gross Pay

Hourly Rate
Workers are paid an agreed rate for every hour, or part thereof that they work. Usually, total
required hours per day or per week are agreed and any time worked in excess of the these hours
attract extra payment, known as overtime payment.
For example an employee may be required to work 40 hours per week at a basic rate of 5 per
hour. If overtime is being paid at time and a half then the rate for that part of the work will be
7.50 per hour.
Variations of this method of payment are numerous, some examples being :

Overtime paid at varying rates double time, time and a quarter, time and a half.

Different days may attract different rates Sunday double time, Saturday time and a half,
week days time and a quarter.

Time in lieu may be offered in addition to overtime rates Christmas day may pay
double time and a day in lieu.

Workers paid on this basis are usually paid weekly and are required to keep a proper record of
actual hours worked. Records of this nature are varied but mainly consist of :-

Time Sheets
An employee keeps a record of all hours worked on a standard form known as a time sheet.
Each entry will need to be certified by a Supervisor, Line Manager, or someone in a position to
attest that the claimed hours worked is accurate.
This method is useful where an employee is working away from his home base and cannot clock
in.

Clock Cards
An employee is provided with a card which he inserts into an electronic device or a machine
which records the time that the card passes through the system whether it is coming in or going
out. It also provides for time in and out on more than one occasion each day, thus allowing for
in and out for a lunch break. Workers may enjoy a short allowance for late arrival or possible
queues at the clocking in point before being deducted pay for lost time.
Example 1.1 J. D. Davidson whose clock card appears below (fig. 1.1.) normally works a 35
hour week on the basis of 7 hours per day, 5 day per week, and is paid 7 per hour. Overtime is
paid as double time on Saturdays and time a half on weekdays. An allowance of 3 minutes is
given for delays at the clocking in point. Calculated the Gross pay earned.

C & H MANUFACTURING LTD

Employees Name

J. D. Davidson

Week ending

22 January 2005

Day

AM

PM

In

Out

In

Out

Total Hours

Monday

0900

1230

1330

1700

7.00

Tuesday

0859

1300

1400

1700

7.00

Wednesday

0901

1230

1330

1730

7.30

Thursday

0900

1300

1330

1730

8.00

Friday

0830

1230

1330

1730

8.00

Saturday

0930

1300

Hours worked at normal rate

Hours worked at time and a half
Hours worked at double time
TOTAL HOURS WORKED
X Hourly rate
GROSS WAGE

Working Notes

3.30

The first method is to multiply the number of hours worked at each pay rate by the time rate to
calculate the total number of hours to be paid at the standard hourly rate.
Day
Hours

Standard
a half

Time and

Monday

Tuesday

Wednesday

0.5

Thursday

1.0

Friday

1.0

Saturday

3.5

Total Hours

35

2.5

3.5

X time rate

35

3.75

Total Hours 45.75

Double time

Total pay = $ 320.25

Alternatively multiply the time rate

Total Hours
Rate
Pay

35.00

2.50

3.50

7.00

10.50

14.00

245.00

26.25

49.00
Total Pay = $ 320.25

HR Pay Human Resources and Automated Payroll Applications

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Action dates are tracked for tenure, probation, evaluation, longevity, exams, training and
leaves of absence.
Every change to an employee record, including the date, time, data changed and the
person making the change, is tracked for audit and historical reporting.
Multiple employee addresses are tracked with activation dates for each address.

A U T O M A T E D P AYR O L L S Y S T E M
Automated Payroll System experts in streamlining the payroll
process
Comprehensive reports every pay period
Detailed individual pay calculation reflects all daily 'ins' and 'outs'.
Current payroll register
Year-to-date payroll register
Departmental detail and totals
Detailed laser-printed payroll check (Current and YTD Data)
Check register

Direct Deposit Available

Periodic federal and state deposit notification (as required)

Federal and State Electronic tax deposits available

Quarterly 941's
Quarterly and annual federal and state unemployment reports
Annual W-2's and W-3
Process commissions, bonuses, tips, cafeteria plans, 401k's, etc.
Daily or weekly overtime
Start anytime during the year
No computer required

TIME MANAGEMENT
Computerized time capture
Costs less than traditional time clocks
No purchase required
No manual time clocks
No time card calculations
No time consuming "call ins"
Automatic time transmission
24 Hour/day transmission availability
Daily time edits (Facilitates daily labor cost calculations)
Automatic meal/break time deduction option
Time and attendance report
Allows input of tips, bonuses, commissions, pay changes, temporary deductions etc.
PAYROLL SERVICES AVAILABLE WITH OR WITHOUT A TIME CAPTURE DEVICE
Service available nationwide

24 hour/day assistance available

Minimum 4 hour turnaround
Maximum one day turnaround
Service available with or without time capture device
Direct Deposit
Electronic Federal and State Deposits
Unlimited phone consultation

7 WONDERS OF AUTOMATED PAYROLL

Seven of the many ways automation can make payroll easier for your staff and employeesand
less costly for your company.
1. Simplified data entry saves time and helps reduce errors.
Automated payroll can make employee record setup easier and faster with templates that can
be modified for each individual. For instance, with Microsoft Dynamics GP, templates make it
simpler for your human resources professionals to enter data once for multiple payroll tasks,
which saves time and reduces errors
2. Processing pay runs is a snap compared to manual systems.
Streamline the process of recording, collecting, reviewing, and approving timesheet data with
online self-service options delivered through a personalized Web portal. Automated payroll
processing helps eliminate many routine transactions, freeing staff to focus on higher
priorities.
3. Direct deposit saves time for everyone.
Automated payrolls systems can provide reliable, confidential direct deposit of payroll
checks to unlimited accounts and financial institutions, as well as split deposits between
multiple bank accounts. Employees will be happy to save the hassle of having to deposit their
checks at the bank, and there will be less chance for lost or stolen checks. Plus, your
company can offer the convenience of direct deposit with minimal overhead costs.
4. Employee self-help tools help enhance productivity across the board.
Online self-service options enable employees to quickly and easily update their own personal
information, enroll in direct deposit, view vacation time, and submit timesheets. This saves
them the time of having to contact staff with requests and details. The system updates
requests automatically upon approval, saving time for payroll and other human resources
staff.
5. All payroll information is in one place and accessible at your fingertips.

Increase your flexibility and gain more control over your payroll information, keeping track
of it easily and maintaining a comprehensive, up-to-date perspective on your payroll
expenses.
6. Taxes are less taxing.
Payroll tax updates available from software providers like Microsoft Dynamics ensure tax
tables are current. Automatic tax table downloads for those with online access help avoid the
hassle of ordering and installing updates. Taxes, deductions, and benefits are calculated
automatically. You can also manage variable tax deductions for employees working in
multiple states.
7. Government reporting and requirements can be delivered easier and on time.
Produce the government reports such as W-2 forms and other tax statements with little
additional administrative cost or trouble, in both printed and magnetic media forma

Creating a Payroll System

Introduction
This chapter* provides an overview of how the payroll process typically functions, using a
payroll supplier, an in-house payroll process assisted by computer systems, or an in-house
system that is entirely processed by hand. These descriptions also include flowcharts of each
process and coverage of the exact controls that are most useful for each situation. Additionally,
the chapter covers the types of documents used to set up a new employee in the payroll system,
how to organize this information into a personnel folder, and how to process changes to
employee information through the payroll system.
Overview of the General Payroll Process
The next three sections describe how the payroll process flows for specific types of systems
outsourced payroll, in-house computerized payroll, and in-house manual payroll. In this section,
we cover the general beginning-to-end processing of payroll, step-by-step, irrespective of the
specific payroll system, in order to show the general process flow. Though some of these steps
will not apply to each of the processes noted in later sections, it gives a good feel for how a
payroll is completed. The steps:
1. Set up new employees. New employees must fill out payroll-specific information as part of the
hiring process, such as the W-4 form and medical insurance forms that may require payroll
deductions. Copies of this information should be set aside in the payroll department in
anticipation of its inclusion in the next payroll.

2. Collect timecard information. Salaried employees require no change in wages paid for each
payroll, but an employer must collect and interpret information about hours worked for
nonexempt employees. This may involve having employees scan a badge through a
computerized time clock, punch a card in a stamp clock, or manually fill out a time sheet
.
3. Verify timecard information. Whatever the type of data collection system used in the last step,
the payroll staff must summarize this information and verify that employees have recorded the
correct amount of time. This typically involves having supervisors review the information after it
has been summarized, though more advanced computerized timekeeping systems can perform
most of these tasks automatically.
4. Summarize wages due. This should be a straightforward process of multiplying the number
of hours worked by an employees standard wage rate. However, it can be complicated by
overtime wages, shift differentials, bonuses, or the presence of a wage change partway through
the reporting period.
5. Enter employee changes. Employees may ask to have changes made to their paychecks,
typically in the form of alterations to the number of tax exemptions allowed, pension deductions,
or medical deductions. Much of this information must be recorded for payroll processing
purposes, since it may alter the amount of taxes or other types of deductions
6. Calculate applicable taxes. The payroll staff must either use IRS-supplied tax tables to
manually calculate tax withholdings or have a computerized system or a supplier determine this
information. Taxes will vary not only by wage levels and tax allowances taken but also by the
amount of wages that have already been earned for the year-to-date
7. Calculate applicable wage deductions. There are both voluntary and involuntary deductions.
Voluntary deductions include payments into pension and medical plans, while involuntary ones
include garnishments and union dues. These can be made in regular amounts for each paycheck,
once a month, in arrears, or prospectively. The payroll staff must also track goal amounts for
some deductions, such as loans or garnishments, in order to know when to stop making
deductions when required totals have been reached
8. Account for separate manual payments. There will inevitably be cases where the payroll staff
has issued manual paychecks to employees between payrolls. This may be caused by an incorrect
prior paycheck, an advance, or perhaps a termination. Whatever the case, the amount of each
manual check should be included in the regular payroll, at least so that it can be included in the
formal payroll register for reporting purposes, and sometimes to ensure that the proper amount of
employer-specific taxes are also withheld to accompany the amounts deducted for the employee.
9. Create a payroll register. Summarize the wage and deduction information for each employee
on a payroll register, which can then be used to compile a journal entry for inclusion in the
general ledger, prepare tax reports, and for general research purposes. This document is always
prepared automatically by payroll suppliers or by in-house computerized systems.

10. Verify wage and tax amounts. Conduct a final cross-check of all wage calculations and
deductions. This can involve a comparison to the same amounts for prior periods, or a general
check for both missing information and numbers that are clearly out of line with expectations.
11. Print paychecks. Print paychecks, either manually on individual checks or, much more
commonly, through a computer printer, with the printouts using a standard format that itemizes
all wage calculations and deductions on the remittance advice. If direct deposits are made, a
remittance advice should still be printed and issued.
12. Enter payroll information in general ledger. Use the information in the payroll register to
compile a journal entry that transfers the payroll expense, all deductions, and the reduction in
cash to the general ledger.
13. Send out direct deposit notifications. If a company arranges with a local bank to issue
payments directly to employee accounts, then a notification of the accounts to which payments
are to be sent and the amounts to be paid must be assembled, stored on tape or other media, and
sent to the bank
14. Deposit withheld taxes. The employer must deposit all related payroll tax deductions and
employer-matched taxes at a local bank that is authorized to handle these transactions. The IRS
imposes a rigid deposit schedule and format for making deposits that must be followed in order
to avoid penalties
.
15. Issue paychecks. Paychecks should, at least occasionally, be handed out directly to
employees, with proof of identification required; this is a useful control point in larger companies
where the payroll staff may not know each employee by name, and where there is, therefore,
some risk of paychecks being created for people who no longer work for the company.
.
16. Issue government payroll reports. The government requires several payrollrelated reports at
regular intervals, which require information on the payroll register to complete.
Overview of the Outsourced Payroll Process
Outsourcing the payroll processing function shifts a number of key payroll processing tasks to a
supplier, resulting in a significant drop in the payroll departments workload, its required level of
expertise in operating computer software, and in the risk that payroll taxes will not be remitted to
the government in a timely manner. For these and other reasons, outsourcing payroll is an
extremely popular option, especially for smaller businesses that do not have in-house payroll
expertise on hand.
The basic process flow for an outsourced payroll function is as shown below. The key items in
the exhibit are the tasks that are not shown because they have been taken over by the payroll
supplier. These tasks include processing the payroll transactions, printing payroll reports and
paychecks, and making tax deposits and reports to the government on behalf of the company. By
removing these activities, the payroll staff is reduced to compiling and verifying incoming data
about hours worked, loading it into the suppliers payroll system, and verifying that the results

are accurate. The process tasks noted in Exhibit 1.1 can be streamlined by taking several
additional steps. First, use a computerized timekeeping system that will prevent unauthorized
overtime and automatically issue reports that highlight hours that were not logged in by
employees, thereby eliminating two steps from the data collection part of the process. Second,
some payroll suppliers sell computerized timekeeping systems that link directly into their
systems, so there is no need to manually load this information into the suppliers system (or call
it in to a dataentry person). Third, a company can pay the supplier to create customized
summary- level reports that can be used as the foundation for journal entries, which eliminates
additional work. Finally, some suppliers now issue payroll reports on Compact disc, which
nearly eliminates the filing chore. By taking advantage of these additional outsourcing features,
the payroll process can become a very efficient system.
Controls over the outsourced payroll process are fewer than required for other systems because
there is no need to control the check stock or signature plates, which are handled by the supplier.
Consequently, the primary controls tend to be at the beginning and end of the process. As shown
in Exhibit 1.2, there should be an approval process for overtime hours worked, as well as for
negative deductions; a negative deduction is essentially a payment to an employee, and if used
repeatedly, even incrementally small amounts could add up to a significant pay increase for an
employee. For larger companies with many employees, one should also compare the addresses
on the employee paychecks to see if a fake employee has been added to the system, with the
check being mailed to a current employees address to be cashed by that person. One can also
issue a list of people receiving paychecks to the department supervisors to see if any fake names
or the names of departed employees crop up. Finally, fake employees can also be spotted by
handing
out checks directly to employees and having them show some form of identification before they
receive their checks. Though not all of these controls are necessary, one should select those that
make the most sense for a companys specific circumstances.
Overview of the In-House Computerized Payroll Process
A payroll system that is just as popular as outsourcing is the in-house computerized system.
Payroll software is very inexpensive, as it is now bundled with accounting software that costs
just a few hundred dollars. More comprehensive systems that can be used for large numbers of
employees are much more expensive, but are a cost-effective solution for large entities. The basic
process flow for an in-house computerized payroll process is shown below A fully automated
process involves the review and verification of hours worked and other changes as entered by the
employees, followed by the processing
and printing of payroll reports, filing of direct deposit information and payroll taxes, and the
distribution of paychecks. The flowchart assumes a complete automation of all key payroll
functions. For example, a computerized timekeeping system is assumed. This system, as
described in Chapter 2, requires employees to run a badge through a time clock that can reject
the scan if the employee is clocking in at the wrong time or attempting to work during an
unauthorized overtime period. By using such a system, the payroll process is considerably
reduced at the front end, with the payroll staff only having to investigate missing badge scans.
Also, the process flow assumes that employees can make their own deduction and address

changes through an interface to the payroll software, so that the payroll staff only has to review
these changes. Further, the process flow assumes that the timekeeping database used by the time
clock computer feeds directly into the in-house payroll software, which eliminates the
keypunching of payroll data. If any of these automation elements are not present, then the
process flowchart appears as a mix between in-house computerization and a manual system,
which is shown later in Exhibit 1.5. There are several key differences between the automated inhouse system shown in Exhibit 1.3 and the outsourced solution shown earlier in Exhibit 1.1. One
difference is that an in-house system requires the payroll department to file several
tax returns, which would otherwise have been filed by the payroll supplier. These include the
quarterly federal tax return, the annual federal unemployment tax return, and annual W-2 forms
to employees. There may also be a variety of state reports to file. Further, an in-house system that
uses direct deposit requires the payroll staff to create a database of direct deposit information and
send it to the companys bank, which uses it to process direct deposits to employees; this would
have been handled by a payroll supplier. Third, the in-house payroll database must be backed up
and stored, which is normally handled by the payroll supplier.Finally, an in-house system
requires the payroll staff to summarize all tax deposits, fill out remittance forms, and file
payments with the federal and state governments at regular intervals. Consequently, no matter
how much control a company may feel it has by using an in-house computerized system, the
payroll staff will have a number of additional tasks to perform. Controls for the in-house
computerized payroll process are noted in Exhibit 1.4. Based on the assumption that a
computerized timekeeping system is being used, we further assume that there are no controls
required for timekeeping ities, since the computer can spot them. If your company does not have
such a system, then please review either the outsourced or manual control systems in Exhibits
1.2 or 1.6 for the controls covering this area. Besides those controls shownearlier for the
outsourced system, new controls are also needed for check stock and signature plates, both of
which should be securely locked up at all times. Also, at the very end of the process flowchart
are controls for reviewing uncashed checks and performing bank reconciliations. These controls
are designed to spot payments made to employees who are no longer with the company and who,
therefore, never received the checks (which were probably issued in error). These two controls
can also be added to the earlier outsourced payroll system, though some suppliers will notify a
company of any uncashed checks, depending on the outsourcing arrangement.
Overview of the In-House Manual Payroll Process
An increasingly rare payroll system is the completely manual approach that avoids all use of
payroll suppliers or in-house computer systems. This system is most commonly found in very
small organizations where the additional labor required to calculate wages and taxes is not too
onerous for the small accounting staff. The manual process requires extra labor in three key
areas. First, employees are filling out timecards by hand or with a punch clock, so the payroll
staff must use a calculator to add up the hours worked, verify the calculations (since this task is
highly subject to errors), notify employees about missing time entries, and have supervisors
approve any overtime hours worked. Second, the payroll staff must multiply hours worked by
hourly pay rates to determine wages for the nonexempt employees and then use IRS-provided
tax tables to determine the amount of taxes to withhold, plus the amount of matching taxes to be
remitted by the company.

This task is also subject to a high error rate and should be reviewed with care. Third, the payroll
staff must create paychecks from the prior information and manually summarize the results into a
payroll register. Since employees want to see all deductions broken out on their paychecks, the
paycheck writing process is lengthy. In comparison to the outsourcing and in-house computer
system solutions described previously, the manual payroll process is painfully slow and is at risk
of so many errors that the payroll staff will find itself taking a disproportionate amount of its
time to ensure that outputs from the process are correct. The manual payroll process is shown in
the flowchart in Exhibit 1.5.
The flowchart does not mention the preparation of a direct deposit database that can be
forwarded to a bank, since it is most unlikely that a company without means to calculate its
payroll on a computer will be able to create the direct deposit database. Also, the three types of
reports shown in the lower left corner of Exhibit 1.5 will require manual completion, which
would not necessarily be the case if an in-house computerized system were used, since such
systems can have the capability to produce these standard tax reports at the touch of a button.
The controls for an in-house manual payroll process are shown in Exhibit 1.6. Since there is an
assumption of having no automated timekeeping system in place,
Controls for the In-House Manual Payroll Process
The two key controls are verifying total hours worked and obtaining supervisory approval
of overtime hours worked. Other controls later in the process are similar to those found in the
computerized in-house system, since some watch over check stock and signature plates must be
maintained. However, some of the reviews for fake employees at the end of the process, such as
comparing addresses on checks, can probably be discarded, since this type of process is typically
used for companies so small that the payroll staff knows exactly who works for the company.
Setting Up the New Employee
When a new employee is hired, the human resources staff will go over a variety of paperwork
with the person and forward to the payroll department any items required by the payroll staff to
calculate the persons wages, taxes, and other deductions. However, it is common in a smaller
firm with no human resources staff for the payroll department to perform this function. If the
latter situation is the case, the payroll staff should be aware of the variety of forms that are
typically included in the new employee packet. Though some forms may be specific to an
individual business, the following forms will be found in most cases:
Check-Off Sheet. Each new employee packet should begin with a check-off list that itemizes all
documents that should be contained within the packet. By using it to verify a complete package,
there is minimal risk that employees will not be issued critical information. It is also useful to
include the latest form release date on this sheet, so one can use it to verify the document dates
contained within the packet.
Company Go-To List. A new employee has no idea who to approach regarding basic daily issues,
such as phone and network problems, pension plan enrollments, expense reports, and so on. This

list should itemize which people to approach about each type of problem, as well as a backup
person.
Company Phone List. For a smaller company, this list should itemize not only the work number
for each employee, but also the cell phone or other number at which they can be most easily
reached. It is also increasingly customary to include e-mail addresses on this list. For larger
companies with massive phone lists, the phone list for the department to which an employee
belongs may be sufficient.
Company Seating Chart. For a smaller company, it is quite useful to issue a seating chart that
lists every person in the company. Once again, a larger company may be forced to issue a chart
for smaller subsets of the company. This chart will require a reasonable amount of maintenance,
given the number of moves typically experienced.
Insurance Enrollment Forms. Enrollment forms for a variety of insurance types can be issued
to a new employee at a later date if there is a waiting period before they go into effect. However,
it is possible for some employees to fall between the cracks and never be issued the forms.
Consequently, a better approach is to issue them at the same time that an employee receives all
other paperwork, so there is no chance of them being missed. Enrollment forms can cover
medical, vision, dental, life, supplemental life, short-term disability, and long-term disability
insurance. Some insurance carriers provide a wide range of coverages with a single application,
but this is the exceptionbe prepared to issue a large number of documents.
Veterans Check-Off Form. Companies are required to submit the VETS-100 form to the federal
government once a year, which specifies the proportion of military veterans in the corporate
workforce. It is easiest to track this information by having new employees fill out a simple
check-off form that itemizes whether or not they have been engaged in military service in the
past. Employee Manual. There should be a comprehensive employee manual in the new
employee packet that includes a tear-out acknowledgement of receipt. The employee signs this
receipt to indicate that he or she has received and read the employee manual; the receipt goes
into the employees personnel file. This is useful in case an issue regarding employee benefits or
rights arises at a later date and an employee claims to have no knowledge of the issue, even when
it is stated in the employee manual.
Pay Period Schedule. The pay period schedule may be obvious for salaried personnel, since it
should always fall on the same date. However, employees who are paid on an hourly basis must
know when a pay period ends, which can vary in relation to the pay date. This is an especially
common problem when the timekeeping system is on a weekly basis and the payroll system is on
some other system, such as biweekly.
Form W-4. All employees must fill out the IRS Form W-4, in which they claim a certain number
of allowances and possibly additional tax withholdings. This information is needed in order to
compute their income tax withholdings. Turn to Chapter 8, Payroll Taxes and Remittances, for
a more in-depth discussion of this form.

Form I-9. The Immigration and Naturalization Service requires all new employees to fill out the
Form I-9, the Employment Eligibility Verification form. A sample copy of the form and its
instruction sheet are shown in Exhibit 1.7. This form serves two purposes. First, it requires the
employer to establish the identity of a new employee, which can be done with a drivers license,
a variety of government identification cards, a voters registration card, or a Native American
tribal document. Second, it requires the employer to establish that a new employee is eligible to
work, which can be done with a Social Security card, birth certificate, Native American tribal
document, or an unexpired employment authorization document. These two requirements can be
satisfied with a single document, such as a U.S. passport, certificate of U.S. citizenship or
naturalization, unexpired temporary resident card, or several other documents that are specified
Creating the Personnel File
When a new employee starts work, either the human resources or payroll
staffs should create a personnel folder in which all employee-related
documents are stored. This folder should be capable of holding several
hundred pages of documents and also have multiple dividers, so that
information can be logically divided and easily accessed. Information can be
grouped in a variety of ways within the folder; here are some common
subsets of information to consider:
Deduction Information. One block of information will be the deductions
related to all types of benefits, such as medical, life, and dental insurance.
This means that the sign-up or waiver sheets for each type of insurance
should be included in the folder.
Employee Correspondence. Employees may communicate with the payroll
or human resources departments from time to time, perhaps to make
complaints, notify the company of time off for various reasons (such as jury
duty), or ask for special treatment in some manner. If these communications
are in writing, they should be included in the folder. If they are verbal, the
person receiving the information may include them in a memo if the matter
appears sufficiently important, and store them in the folder.
Employee Reviews. All employee reviews should be kept in the folder. They
are particularly important if employees later file suit against the company in
the event of a termination, since the company must be able to prove that an
employee was terminated for cause. Also, one should note if both the
reviewer and the employee have signed a review, and if possible obtain
these signatures if either one is missing, so that additional proof of employee
receipt is made.
Garnishment Information. If there are court orders for garnishing an
employees pay for any reason (e.g., tax levies, creditor levies, child support,
or alimony), then a copy of each one should be included in the folder.

Tax-Related Information. Tax deductions can only be made from an

employees wages if prior written authorization has been made by the
employee. The employer should retain proof of these requests (nearly always
in the form of a W-4 form) in the folder.
It is absolutely essential that the entire set of personnel files for all
employees be kept under the strictest security at all times. These files
contain potentially damaging information about employees, such as job
reviews, medical information, or
The Payroll Change System
There will be changes in employees lives that require them to constantly ask for changes to the
information used to create their paychecks. For example, an employee may have a baby, which
requires an alteration in that persons medical insurance from two adults (which is at one price)
to a family plan (which is at another price); this change will probably require a different payroll
deduction for the employees portion of the insurance expense, which must be reflected in his or
her paycheck. As another example, an employee is diagnosed with a long-term medical problem
that will require a great deal of medication, so this person enrolls in a cafeteria plan in order to
deduct the medication cost from his or her pretax wages. These and other scenarios will occur
constantly, so the payroll staff must have a procedure in place for handling them. One approach
is to create a separate form for each type of payroll change, but this can result in a blizzard of
paperwork. A better approach is a single summary-level change document such as the one shown
in Exhibit 1.8. This employee change form can be used as the source document for new
employees, as well as for each incremental change requested by existing employees. In the latter
case, one enters just the information relating to a specific request (such as a change in short-term
disability, supplemental life insurance, or a 401k deduction), has the employee sign it to confirm
the transaction, and submits it to the payroll staff for processing. The completed form is then
filed in the employees personnel folder.

Automated payroll system and services

The administration of the financial record of employees' salaries, wages, bonuses, net pay, and
deductions The payroll module automates the pay process by gathering data on employee time
and attendance, calculating various deductions and taxes, and generating periodic pay cheques
and employee tax reports. Data is generally fed from the human resources and time keeping
modules to calculate automatic deposit and manual cheque writing capabilities. Sophisticated
HCM systems can set up accounts payable transactions from employee deduction or produce
garnishment cheques. The payroll module sends accounting information to the general ledger for
posting subsequent to a pay cycle. Providing timely, accurate payroll processing is an absolute
business need, which presents a unique challenge to large organizations. Employee compensation
requirements are diverse, and they seem to change overnight. Your employees expect the best in
accuracy and ease-of-use.

An employer, regardless of the number of workers they employ, must maintain all records
pertaining to payroll taxes (income tax withholding, Social Security and federal unemployment
tax) for at least four years after the tax becomes due or is paid, whichever is later. Altogether, 20
different kinds of employment records must be kept just to satisfy federal requirements.
Income Tax Withholding Records
1. Name, address, and Social Security number of each employee
2. Amount and date of each payment for compensation
3. Amount of wages subject to withholding in each payment
4. Amount of withholding tax collected from each payment
5. Reason that the taxable amount is less than the total payment
6. Statements relating to employees' nonresident alien status
7. Market value and date of noncash compensation
8. Information about payments made under sick-pay plans
9. Withholding exemption certificates
10. Agreements regarding the voluntary withholding of extra cash
11. Dates and payments to employees for non-business services
12. Statements of tips received by employees
13. Requests for different computation of withholding taxes
Social Security (FICA) Tax Records
1. Amount of each payment subject to FICA tax
2. Amount and date of FICA tax collected from each payment
3. Explanation for any difference
Federal Unemployment Tax (FUTA) Records
1. Total amount paid during calendar year
2. Amount subject to unemployment tax
3. Amount of contributions paid into the state unemployment fund
4. Any other information requested on the unemployment tax return
Payroll for a small firm is a simple task with a good one-write system. Any office supply store
can show you samples of one-write systems, which most accountants recommend because they
reduce errors and save time in making payroll entries.
Payroll management can be quite a challenge for the new business owner. There are many
federal and state laws regulating what you have to track related to payroll. Failure to do so could
result in heavy fines--or worse.
Many business owners use automated payroll services. These companies guarantee compliance
with all the applicable laws. This keeps the business owner out of trouble with the law and saves
time that can be devoted to something else in the business. If you choose to do your own payroll,

it's recommended that you purchase an automated payroll system. Even if the rest of your books
are done manually, an automated payroll system will save you time and help considerably with
compliance.
Quality of an organizations employee population is a critical competitive advantage. Partnering
with APS with the tools to pay, manage and retain high quality employees. As a result,
organizations can focus more time on strategic initiatives.
APS's flexible payroll service models cover the broad spectrum of payroll needs, ensuring a
smooth payroll process from start to finish. Our multiple payroll solutions offer you choices for
payroll outsourcing administration and implementation, each designed to meet the evolving
requirements of today's large employers.

Payroll Solutions and Services

AUTOMATED PAY ROLL SYSTEM flex to your organization's needs:
PayForce
The ideal payroll solution for large organizations needing a best-in-class, hosted
solution for payroll services
Enterprise HR
The leading HRMS solution for clients looking for robust Human Resources,
Benefits, and Payroll functionality. The Enterprise HR solution is tailored to
meet each client's individual needs.
APS vision has always been about helping clients succeed with efficient payroll outsourcing
solutions. Our knowledge of best practices frees organizations to focus on their core business and
provides solutions that help them grow and adapt.
By leveraging the experience of a dedicated payroll outsourcing provider, you benefit from
enhanced service delivery, access to superior technology, and reduced costs. By accessing the
knowledge base automated system in Human Resources Services, Benefits Administration, and
Payroll Processing. Our knowledge of best practices and world-class service provides solutions
that can help your business grow and adapt.
Flexibility
APS is an vital employee data is securely and conveniently accessible Ultimate flexibility is
achieved with the following features:

Real-time access to all of your employee information

Paperless Payroll processing advantages, offering multiple payment options

Both standard and ad-hoc reporting

Employee access to payroll records
A payroll "results preview" available prior to processing
Options for importing, exporting, and integrating payroll data

Efficiency
APS is designed with ease-of-use and long-term business goals in mind, streamlining payroll
processes through the use of the following functions:
Intuitive navigation
Rapid pay data entry
An employee transfer agent to eliminate redundant data entries
Effective Dating and Audit Trails for true reporting and identification of trends
Employee Self-Service to perform common HR administrative tasks
Consistently up-to-date versions of payroll software and security
Control
APS provides built-in best practices and secure technology that work in concert with feature-rich
functionality to keep you in control of vital information. Key advantages of APS include:

An integrated database of all of your employee information

Multi-level security configured to your standards
Payroll-on-Demand to process pay days on your own timeframe
ADP's best practices for payroll processes, based on 55+ years of experience as
an industry leader
Integrated HR and benefits services functionality

Additional features of Automated Pay Roll system:

APS provides your organization with sophisticated options for interfacing and
exchanging data with leading financial software providers.
APS gives employees easy online access to their own data, allowing them to view
and make changes online.
APS transfers administration responsibilities to ADP and ensures that your
organization is always current with national and local payroll regulations and
updated with the latest technology and security features.
How do you improve efficiencies and operational capabilities, reduce your workload, and help
your payroll department achieve its full potential and recognition?
With the demands made upon todays payroll departments to do more work in less time and still
not sacrifice compliance or customer service, it is essential for payroll professionals to look for
smarter and faster ways to accomplish the multitude of tasks that encompass running a payroll
department.

Maximizing efficiency by concentrating on the basics of payroll

o Time records: Are we using too much time to audit or not enough?
o Form W-4: Are we processing valid forms or wasting time trying to get valid
ones?
o Who is handling new hires for maximum efficiency?
o Payroll reconciliations: are we using them effectively?
o Handling garnishments: Does our current method encompass both efficiency and
compliance or neither?
Staffing the Payroll Department
o How to create a first rate payroll department to ensure maximum efficiency
o Managing the staff effectively to keep them efficient
o Motivation and Moral: how to keep them both high
o Working with human resources and other departments to ensure payrolls own
efficiency is not affected by others
Management Issues
o Fraud and its effect on the departments performance
o Customer service can actually increase efficiency if used correctly
o Research needs: get the most out of limit resources in the fastest time
o Security basics: a secure department is an efficient department
Payroll Systems
o Disaster recovery now
o Employee self service systems: do they make less work for the department
o Paying the employees: paper vs. plastic: does it impact efficiency

Payroll Administration
ORGANIZATION
The Senior Associate Vice President for Business and Finance has delegated responsibility for
the administration of the University's payroll function to the Executive Assistant Vice President
for Business Operations and External Affairs. The Executive Assistant Vice President further
delegates responsibility for this function to the Executive Director of University Payroll.
MISSION
The mission of University Payroll is to manage the University's payroll system, to ensure that
employees are paid on time and are provided payroll information efficiently and accurately.
The mission will be accomplished by:

Maintaining compliance with changing government policies and laws pertaining to

employment and taxation.
Providing prompt service to employees.
Promoting the use of electronic methods for transactions and payments to employees.

PAYROLL CHECKS AND EARNINGS STATEMENTS

The University is required by Federal and State law to pay all University employees salary and
wages within specified time periods according to employee contracts, union contracts or other
agreements. The University is required to make these payments in a form convertible to cash,
such as check or direct deposit to a financial institution. The University is required to make
deductions from the salary and wage payments according to Federal and State laws, union
contracts and other agreements between the University and the employee. The University is
required to issue an itemized statement of all deductions for each pay period.
STATUTORY COMPLIANCE
The University is required by the Federal and State law to administer certain processes that may
have employment tax consequences to employees. University Payroll, along with other
University units, collaborate to administer these processes. These programs include:

Nonresident aliens taxation

Student Federal Insurance Contributions Act (FICA)
Personal Use of University Owned Vehicles
Fringe Benefits

DEPARTMENTAL RESPONSIBILITIES AND PAYROLL CONTACTS

Departments are required to provide a payroll contact to act as liaison between the Payroll
Service Centers and the employees of the payroll contact's department. The payroll contact
ensures that communications from University Payroll are distributed in a timely manner.
It is a department's responsibility to follow the processing schedule to ensure that employees are
paid on time. Departments should have a contingency plan to cover for a vacation or an illness of
payroll contacts.
PAYROLL SCHEDULE
Employees of the University are paid either on a bi-weekly or a monthly basis. University
Payroll publishes a payroll schedule, which is available on the Office of Business and Financial
Services.
PAYROLL AND EARNINGS STATEMENT DISTRIBUTION
The Illinois Department of Labor requires every employer to pay all wages earned at least semimonthly. The wages are to be paid no later than thirteen (13) days after the end of the pay period
in which the wages were earned. Wages of executive, administrative and professional employees
as defined in the Fair Labor Standards Act of 1938, will be paid once per month. Employers must
keep records of names and addresses of all employees and of wages paid each payday, and must
furnish each employee with an itemized statement of deductions made from his/her wages for
each pay period. The University complies with the law by issuing current earnings statements on

line via NESSIE and as an attachment to the employee's paycheck or direct deposit notice upon
request.
Payroll checks and/or requested paper direct deposit notices with earnings statements are
distributed via campus mail. Employees' checks that have off campus distribution codes are
mailed via U.S. mail on the scheduled payday.
Direct Deposit
All employees hired on or after August 1, 2003, will have their pay electronically deposited into
an account at a financial institution. Employees will have a one month grace period to sign up for
direct deposit. The University has a listing of financial institutions in and around the campus
communities as well as the Paycheck Plus pay card that can be utilized for direct deposit.
Employees hired before August 1, 2003, can have their pay electronically deposited into an
account at a financial institution; they can also request a Paycheck Plus pay card for use in direct
deposit. The funds are available for use in the employee's account on the morning of the payday.
Employees must have an account at a financial institution and provide the necessary information
for transfer of funds between the University's bank and the employee's financial institution. The
employee can provide the necessary information through his/her NESSIE account or complete a
direct deposit authorization form in the Payroll office. (See Direct Deposit Banking for lists of
financial institutions that offer low or no cost banking services in the Chicago, Springfield and
Urbana-Champaign areas.)
Employees hired on or after August 1, 2003, may request an exception in writing from the
Executive Director of University Payroll to the policy requiring direct deposit of paychecks.
UNCLAIMED PAYROLL CHECKS AND EARNINGS STATEMENTS
All unclaimed payroll checks and earnings statements should be returned to OBFS, University
Payroll within a week of payday for active employees. Units are responsible for mailing payroll
checks to employees that have separated from the University. The OBFS, University Payroll
Service Center will hold unclaimed checks. Employees may claim undelivered payroll checks at
their campus's Service Center.
Payroll Checks
The University complies with the requirements of the Uniform Disposition of Unclaimed
Property Act (Illinois Compiled Statutes, Chapter 765, Act ILCS 1025), January 1, 1998, as well
as the governing escheatment laws of other states as they relate to various forms of abandoned
property including uncashed checks.
Unclaimed payroll checks are retained by the OBFS, University Payroll up to six months from
the date of issue. Employees can pick up their checks from the Campus Payroll Service Center
within that period. After six months unclaimed checks that remain will be considered stale dated,
and will not be honored by the University's bank. These checks are surrendered to the Office of
Cash Management and Investments. Employees must follow the procedures outlined in Section
8.6, Uncashed Checks to claim the funds.

Unclaimed Direct Deposit Notices

Unclaimed direct deposit notices are logged into a record by the OBFS, University Payroll and
then shredded. If two or more earnings statements are returned, the OBFS, University Payroll
will terminate the paper print for the employee(s) whose earning statments have been returned.
Employees can access their earnings statements for a period of up to fifteen months after the
paydate via NESSIE or request a printout of their earnings from the Campus Payroll Service
Center.
FORM W-2
The OBFS, University Payroll is responsible for issuing Forms W-2, Wage and Tax Statement.
According to Federal Treasury Regulation 31.6051-1, Form W-2 must be furnished, meaning
properly addressed and postmarked, by January 31. Form W-2 is sent to the employee's mailing
address that is recorded in the University's Banner HR Payroll system. Inquiries regarding Form
W-2 should be directed to the OBFS, University Payroll at 866-476-3586.
TAX RELATED PAYROLL ISSUES
University Payroll is responsible for ensuring that the University is in compliance with numerous
Federal and State laws and regulations relating to the withholding of employment taxes on
various types of remuneration, including payments made to nonresident aliens, student FICA
exceptions, and fringe benefits, such as tuition waivers. See Section 18 - Taxes for policies
relating to nonresident aliens, taxability of tuition waivers, student employee FICA exception and
fringe benefits.
Payroll Time and Attendance
The Office of Business and Financial Services (OBFS), University Payroll is responsible for
developing and maintaining systems necessary to keep accurate records on employee time and
attendance, to appropriately issue payments and apply benefit time. Departments are responsible
for the accurate and timely reporting of hours worked and benefit time used, according to
published schedules and deadlines. The systems used to record time reports and benefit usage is
SCT Banner WEB Time for Employees, Department Time Entry, and NBAJOBS.
TIME REPORTING
WEB Time for Employees
WEB Time for Employees allows employees to submit timesheet information electronically to an
approver in the Time Sheet organization to be reviewed and electronically approved for payment
in the Banner payroll module for academic hourly, exempt and non exempt status, and student
employees. The WEB Time for Employees provides for an electronic reporting of regular and
overtime hours worked, additional earnings, vacation/sick leave, and other leave usage directly
by the employee in lieu of a paper time sheet. Data submitted and approved via the WEB Time
for Employees is used to calculate and prepare payroll checks and direct deposits for biweekly
employees.

Department Time Entry

Department Time Entry allows departments to submit employee timesheet information
electronically to an approver in the Time Sheet organization to be reviewed and electronically
approved for payment in the Banner payroll module for academic hourly, exempt and non
exempt status, and student employees. Department Time Entry provides an electronic reporting
of regular and overtime hours worked, additional earnings, vacation/sick leave, and other leave
usage from a timesheet submitted to the department by the employee. Data submitted and
approved via Department Time Entry is used to calculate and prepare payroll checks and direct
deposits for biweekly employees.

Departmental Responsibilities
The department is responsible for establishing the following four necessary functions in Banner:
1. Employees for WEB Time for Employees;
2. A Department Time Entry originator;
3. A Department Time Entry approver; and
4. A Superuser for Time Entry
The employee or the originator enters the employee's hours worked (regular and overtime) and
benefits usage (sick leave, vacation, funeral leave, leave without pay, etc.) into the Time Entry
Forms in Banner. The approver reviews and approves the information entered by the employee or
originator. The approver also ensures that any necessary changes are made before approving the
data. Employees who are to function as the Superuser, approver, and originator must have
security access set up by UI2/AITS before the department employees can access the forms in
Banner. It is the responsibility of the Supersuser to set up at least one approver for the Time
Sheet organization. It is the department's responsibility to approve the time entered in WEB Time
and Department Time according to the deadlines associated with the payroll schedule.
Setting Up a New Department or Location
When a new organization is created within the University, the Time Sheet organization must be
set up within the Finance module of Banner before it will be available for use as a Time Sheet
organization for time entry. The organization must have a business need approved by the OBFS,
University Accounting and Financial Reporting before the new organization will be set up. The
new organization must have a superuser set up as well as an approval routing que.
PAYROLL ADJUSTMENTS
To pay an employee for hourly rate changes, additional hours worked, and/or additional pay that
was not reported or paid earlier, a Payroll Adjustment (PZAADJT OR ANA) must be submitted.
Banner and Adjustment Notification Application (ANA) will electronically submit adjustments
to the Processing Section of the OBFS, University Payroll. Adjustments should be submitted for
both biweekly and monthly paid employees for any change to the amount paid. Adjustments are
needed for both overpayments and underpayments. An adjustment must also be submitted to pay

for terminal vacation or sick leave due an employee. Adjustments for pay due an employee
which are submitted and approved by Tuesday at noon will be paid by Friday. Adjustments for
terminal vacation or sick leave if in by Tuesday at noon will be paid the following Friday.
CHANGES TO EMPLOYEE JOBS
Departments must submit changes to employee jobs to the campus Human Resources Office.
Each campus office determines the method the changes are submitted. Contact the appropriate
campus Human Resources office to determine the proper way to submit changes.
Payroll Operations
The University must occasionally make payments or adjustments outside of the normal payment
processing schedule. The employing department is responsible for following the proper
procedure when requesting these adjustments.
AWARD PAYMENTS
According to Internal Revenue Service (IRS) Publication 15, Section 7, award payments are
considered supplemental wages (see Section 8.13, Funding and Allowability of Certain
Expenditures). Federal and State tax withholding on supplemental wages are based on whether
the payment is included in regular wages or a separate payment. Award payments made to
University employees are paid as a separate payment and are therefore subject to supplemental
tax rates (25% Federal, 3% State, and, if applicable, 1.45% Medicare and 6.2% Social Security.)
Award payments should be given to the employee during an appropriate and meaningful
ceremony and can be given a check during the ceremony or the payment can be direct deposited
and a certificate can be awarded during the ceremony. Processing of awards payments are done
through the Adjustment Notification Application (ANA). A one week notice is needed to ensure a
check is available if required for the ceremony.
Tax withholding on award payments can be calculated with the net amount paid or grossed up so
that the net amount equals the award amount. The OBFS, University Payroll will calculate the
grossed up amount but the calculations are shown below for departmental information.
Net Amount Paid - To calculate an employee award paid at the net amount, calculate and deduct
Federal and State income tax at the supplemental rates, OASDI and Medicare taxes, if
applicable, from the determined award amount. The remaining amount is the net amount and will
be disbursed in a check payable to the employee.
Grossed up Amount - To calculate an employee award to be paid at the grossed up amount, a
"gross up" amount must be determined that will lead to a net payout of the actual award amount.
The department issuing the award will be charged for the total gross amount of the award
payment. To calculate the applicable gross amount for taxes, add all appropriate tax rates
together for a total tax rate. Subtract the total tax rate from 100% to calculate the net percentage
amount. Divide the net payment by the net percentage to arrive at a tax "grossed up" amount.

This will calculate the total grossed up amount of the award. The OBFS, University Payroll will
include this grossed up amount on the employee's Form W-2, Wage and Tax Statement.

Following is an example of calculating a "gross up" award amount:

Federal Tax

25.00%

State Tax

3.00%

Medicare Tax

1.45%

OASDI Tax

6.2 %

Total tax rate

35.65%

Net percentage 100-35.65 = 64.35%

Net Award payment of $500.00
$500.00 / 64.35% = $777.00
Gross amount of award would be $777.00
Federal tax

$194.25

State tax

23.31

Medicare tax

11.27

OASDI Tax

48.17

Net amount

$500.00

Cash awards, gift certificate awards, and cash equivalent awards of less than $400 and awards of
tangible personal property valued less than $400 require the approval of the department head.
Those exceeding $400 also require the approval of the Chancellor or his/her designee. (For

Springfield, awards less than $400 also require the approval of the Chancellor or his/her
designee.)
OVER COMPENSATION
When a University employee provides services in addition to his/her approved appointment, it is
referred to as overcompensation or a special work assignment. The recruiting department must
have the additional assignment and compensation approved by the Office of Human Resources
and the Office of the Provost, if applicable, prior to the employee performing any additional
duties. After the approvals for the additional assignment have been obtained, the department
processes a PITR/Checklist or Payroll Adjustment and submits it to the appropriate office (HR
for PITR/Checklist and the OBFS, University Payroll for Payroll Adjustment) for payment
processing.
TERMINAL BENEFIT PAY
Employees accrue vacation and sick leave based on the type of appointment they have with the
University. When an employee terminates employment with the University, the accrued and
unused vacation and 50% of compensable sick leave hours, if applicable, are paid to the
employee at the employee's current rate of pay averaged for multiple jobs. The department must
process a DART separation and PITR/checklist to end the job and forward it to the Office of
Human Resources for completion. The department must also submit a Payroll Adjustment to the
OBFS, University Payroll for the accrued vacation and sick leave due the employee. The
balances to pay must agree with the PEALEAV form in Banner, the system of record. Accrued
vacation pay is subject to Federal and State tax withholding, as well as Medicare and SURS.
Compensable sick leave is subject to Federal, State, and Medicare tax withholding. SURS must
be notified at the time of separation. The notification form, "Termination Report", must include
the reason for separation, the last day worked and the last pay period the employee is paid. SURS
will not process a retirement request, "roll over" of funds to another pension account, or a refund
without the termination report from the University. . The DART separation and the Payroll
Adjustment will trigger the reporting to SURS.

ONE-TIME PAYMENTS
One-time payments are typically used for temporary employees who are not on the University
payroll and who have rendered service only once during the calendar year for a period not
exceeding thirty (30) days. One Time Payments are processed through Banner with form
PEA1PAY. Workflow will route the submitted form to the Office of Human Resources for
approval. Once approved by the Office of Human Resources, the form will route to the OBFS,
University Payroll for payment.
Requirements for One-Time Payments
The employee must be eligible to work in the United States according to Immigration and
Naturalization Service (INS) regulations. To determine if an employee is eligible to work, a
Form I-9, Employment Eligibility Verification, must be completed. In addition to Form I-9, the

employee must complete the demographic and Form W-4 withholding information and sign it.
The I-9 should be retained in the department and the Form W-4 should be forwarded to the
OBFS, University Payroll. If the W-4 is not received by the OBFS, University Payroll the
payment will be subject to Single withholding with no allowances. The employee department
must complete all the required information in the form. The form will route to the approver in the
department and then to the Office of Human Resources for the campus the payment is made
from. It is the initiating department's responsibility to complete the required documents,
inlcuding the I-9 prior to completing the request for a one time payment. The Office of Human
Resources will forward the One-Time Payment form electronically to the OBFS, University
Payroll for payment processing. Form W-2 will be sent to the employee's address on the OneTime Payment form at year-end for tax reporting purposes.
OVERPAYMENTS
Overpayments may occasionally occur when an employee's hourly rate or percentage
appointment is changed retroactively or when the department did not submit the hours worked
correctly. Overpayments must be recaptured from the employee. After the employee repays the
overpayment, the amount will be credited back to the employee's department, based on the
account originally charged and the fiscal year.
Department Responsibilities
When a change in an appointment occurs, the employing department must complete a
PITR/Checklist reflecting the change. Delays in processing these forms may result in an
incorrect amount paid to the employee. If the department has information regarding a pending
change in an employee's status, but the PITR/Checklist has not been processed, the department
should process the appropriate transaction as outlined below:
Pay Event

ANA Transaction

Current pay period,

prior
to
payroll
calculation

Current Pay Period

Adjustment Correction

Current pay period,

prior
to
pay
distribution

Pay Stop adjustment

Prior pay period

Overpayment

Overpayments that span fiscal years - If an overpayment occurs in one fiscal year and the
repaid funds are received from the employee in a new fiscal year the funds will be credited to the
department's account for the current fiscal year. Funds on state accounts lapse and will not be
credited if received from the employee in a new fiscal year, unless they are received prior to the

end of the lapse accounting processing period. The funds will revert to the State if received after
the lapse processing period.
Overpayments that span calendar years - The Internal Revenue Service (IRS) has defined the
calendar year (January 1 through December 31) as the reporting period for which salary and
wage payments are reported on Form W-2. The IRS has defined the method of constructive
receipt to determine which calendar year a payment is reported in. If salary and wage payments
are available to employees any time during the calendar year, the payments are considered paid
in that year and reportable on Form W-2 for that calendar year. If an overpayment occurs in one
calendar year, and is repaid in a new calendar year, the University must follow the guidelines as
provided in IRS Publication 15, Section 13. The University may not offset repayment of wages
paid in error against current-year wages unless the repayment is for an amount received in error
for the current year. The University may only adjust the Medicare and or Social Security taxes, if
applicable, for a prior calendar year by issuing Form W-2C, Corrected Wage and Tax Statement.
Because the employee received and had use of the funds during that tax year, wages paid in error
in a prior year remain taxable to the employee for the year in which they were received. To
recover income tax on repaid wages the employee is entitled to either a deduction or credit,
depending on the amount repaid, on his/her income tax return in the year the wages were repaid.
The employee should not file an amended tax return. The OBFS, University Payroll will issue a
statement of receipt of funds indicating the amount repaid from an overpayment in a previous
year. The individual can offset income on his/her tax return in the year in which the repayment
was made. The statement of receipt can be used to determine the amount to offset.
At the time of repayment, the OBFS, University Payroll will process a Payroll Adjustment to
credit the department's FOAPAL for the repayment.
TAXABLE BENEFITS
Overview
According to IRS Publication 15B, Employer's Tax Guide to Fringe Benefits, fringe benefits
provided to employees are subject to employment taxes and must be reported on Form W-2
(Wage and Tax Statement). Fringe benefits are items such as, but not limited to:
Event Tickets
Country Club Dues
Housing
Non-Qualified Moving Expenses
Tuition Reduction
The University uses the flat 25% withholding rate for Federal, 3% for State of Illinois, and, if
applicable, 1.45% Medicare and 6.2% Social Security withholding on supplemental wages. As
defined in IRS Publication 15B, the University uses the Special Accounting rule, which provides
that benefits provided during the last two months of the calendar year can be treated as paid in
the following year.
Taxable Benefit Process Guidelines
Units that provide these fringe benefits must report the value of the benefit to the OBFS,
University Payroll. There are two mechanisms to report these benefits: Adjustment Notification

Application (ANA) and Microsoft Excel. Volume determines which route the provider should
use to report to the OBFS, University Payroll: ANA, if units need to report for 10 or fewer; or
Microsoft Excel, if units need to report greater than 10 employees.
Banner requires specific data elements in order to report these taxable benefits. Units that submit
the benefits via ANA select adjustment type "Taxable Benefit" and follow the prompts of the
application. Units that submit the benefit via Microsoft Excel must use the Fringe Benefit Report
Template (MS Excel) in order to ensure all required fields have been provided. The deadline for
reporting these taxable benefits to the OBFS University Payroll is November 30 for benefits
provided November 1 of the prior tax year though October 31 of the current tax year.
The University is required by Federal and State regulations to withhold certain deductions from
wage payments. The requirements for each required withholding differs according to the
deduction and the wages being paid. Employees can also request voluntary deductions, such as
supplemental retirement funds, credit unions and deductions to pay for certain work related
expenses, such as parking.
FEDERAL TAX WITHHOLDING
To ensure proper Federal tax withholding, all employees are required to complete Form W-4,
Employee's Withholding Allowance Certificate, or an appropriate substitute form. The amount of
tax withheld is based on marital status and the number of allowances indicated on Form W-4.
The employee may also indicate a whole dollar amount to be withheld in addition to the required
withholding. Employees should either contact their tax advisors or use the withholding
allowance calculator available online at the proper number of allowances needed for their tax
liability for the year. If Form W-4 is not submitted, taxes will be withheld at the rate for the
marital status of single with no allowances. If an employee's tax status changes, a new Form W-4
must be submitted to reflect the changes. This can be done via NESSIE or by submitting a paper
form to the OBFS, University Payroll.
Employees may claim exempt from Federal taxes if they meet the following two requirements:

In the prior year, the employee received a refund of all Federal income tax withheld
because he or she had no tax liability.
During the current year, the employee expects a refund of all Federal income tax withheld
because he or she will not have a tax liability.

To claim this exemption, the employee must file a paper Form W-4 with the OBFS, University
Payroll and write "Exempt" in the allowance space. This exemption must be renewed annually
by submitting a new Form W-4 to the OBFS, University Payroll by February 15th.
If the Internal Revenue Service (IRS) requests a copy of an employee's Form W-4, the University
is required to and will submit an employee's Form W-4 to the IRS.

STATE TAX WITHHOLDING

To ensure proper State tax withholding, all employees are required to complete Form IL-W-4,
Employee's Illinois Withholding Allowance Certificate, or an appropriate substitute form. The
amount of tax withheld is based on the number of allowances indicated on Form IL-W-4. The
employee may also indicate a whole dollar amount to be withheld in addition to the required
withholding. If Form IL-W-4 is not submitted, taxes will be withheld with no allowances. If an
employee's tax status changes, a new Form IL-W-4 must be submitted to reflect the changes.
This can be done via NESSIE or by submitting a paper form to the OBFS, University Payroll.
Individuals who work in the State of Illinois but are residents of Iowa, Kentucky, Michigan, or
Wisconsin may claim withholding for their state of residence under the reciprocal withholding
agreements between Illinois and the states indicated. Form IL-W-5-NR, Employee's Statement of
Nonresidence in Illinois, must be submitted to the OBFS, University Payroll to claim the
reciprocal withholding. Upon receipt of Form IL-W-5-NR, the OBFS, University Payroll will
withhold State tax for the reciprocal state of residence and forward the tax withheld to the
appropriate state agency. To cancel the reciprocal state withholding a new Form IL-W-4 must be
completed and submitted to the OBFS, University Payroll.
In situations where an employee works in the State of Illinois and is not a resident in the State of
Illinois, nor any of the reciprocal states mentioned above, the University withholds State of
Illinois tax. However, if an employee does not work in the State of Illinois and is not a resident in
the State of Illinois, nor any of the reciprocal states mentioned above, the University will not
withhold State of Illinois tax if a certification is submitted to the OBFS, University Payroll
indicating that the employee is not a resident of Illinois nor is the service performed in Illinois. In
either type of situation, the University recommends that the employee submit quarterly estimated
tax to their state of residence, if necessary.

FOREIGN NATIONAL TAX WITHHOLDING

All foreign national employees must complete their Form W-4 at the OBFS, University Payroll
(see Section 18.2 - Foreign Nationals).
For tax purposes, Nonresident Aliens have special withholding rules and must complete Forms
W-4 as follows:

Single status with zero allowances must be claimed.

"Single" marital status must be checked, regardless of actual marital status.
Only one withholding allowance may be claimed unless a resident of Canada, Mexico,
Japan, or South Korea, or an U.S. national.
An additional $7.60 per week withholding must be requested in an additional withholding
line. This additional withholding is to adjust for the standard deduction built into the
withholding table because foreign nationals cannot claim the standard deduction.
(Foreign nationals from India are not required to request this additional withholding.)

"Exempt" withholding status cannot be claimed.

STATE UNIVERSITIES RETIREMENT SYSTEM (SURS)

The State Universities Retirement System (SURS) covers all permanent status employees, with
an appointment of at least four (4) months and at least 1% full time employment. Each employee
contributes 8% of his/her salary to SURS; fire and police employees contribute 9.5%. Employees
that contribute to SURS do not contribute to the Old Age Survivor and Disability Insurance
(OASDI) portion of Social Security (6.2%). All other employees would be subject to OASDI
unless exempted for nonresident alien status or as a student. All employees hired after April 1,
1986 are subject to the Medicare portion of Social Security (1.45%).
Additional payments - For University purposes, additional payments that are related to services
performed over a period of less than one year are subject to SURS withholding.
Retirement Plan Option - Employees have the option to select one of the following three
retirement plan options: the traditional benefit package, the portable benefit package and selfmanaged plan. If a new employee fails to make the election within six (6) months, the new
employee will automatically be enrolled in the traditional benefit package. For more information
regarding retirement plan options contact SURS (1-800-ASK-SURS) or the Office of Human
Resources, Benefits Office.
INVOLUNTARY DEDUCTIONS
Legal orders requiring deductions from wages, whether pursuant to a support order, bankruptcy,
tax levy, or from general creditor debts are termed as involuntary deductions. An employee does
not have the authorization to revoke these deductions.

FEDERAL TAX LEVIES

Federal tax levies are wage garnishments by the Federal government for the collection of
employees' earnings for unpaid Federal taxes. Federal tax levies are different than most
involuntary deductions because the Internal Revenue Service (IRS) gives the employee an
exemption of a certain amount and the balance of his/her net pay is required to be remitted to the
IRS. If the employee does not return Form 668-W(c), Notice of Levy on Wages, Salary, and
Other Income, or a written request, the OBFS, University Payroll will use "Married/Separate"
with one exemption for all employees until a new exemption amount and status is received. The
University will continue to withhold the deductions until the release order is received from the
IRS. No changes may be made to the employee's deductions (add, remove, or change amounts of
deductions) without approval from the IRS, until the employee has been released from the tax
levy.

GARNISHMENTS
Garnishments are court ordered deductions for monies owed to a company or an individual. The
University must answer the garnishment on or before the return date listed on the court order.
This allows the court and the garnishment attorney to determine the employee's pay status and
calculate the amount of the garnishment deduction. The deduction will begin as soon as the
garnishment order is received and continue until it is paid in full.
The amount of the deduction is the lesser of:

15% of gross pay minus retirement; or

Disposable income (gross pay, less retirement, less taxes) minus minimum wage under
Illinois law (45 multiplied by the hourly minimum wage per week).

The OBFS, University Payroll cannot deduct for garnishments if the employee earns less than
minimum wage (45 multiplied by the hourly minimum wage per week). Garnishment deductions
may be reduced if an employee has an ongoing child support order. In this case, the garnishment
deduction is the difference between the amount calculated above and the child support payment.
If the employee files bankruptcy or is in the process of filing bankruptcy, the OBFS, University
Payroll must receive an "Automatic Stay" from the bankruptcy attorney to terminate the
garnishment deduction.
INVOLUNTARY STATE DEDUCTIONS (State Offset Deductions)
The State offset deduction is imposed by the Illinois State Comptroller's Office. The State
collection law requires that all State agencies place receivables older than ninety (90) days into
the State offset system. Once a week, a file is matched against the University's payroll system to
match University employees to the State offset system. If there is a match, an automatic
deduction of 25% of disposable pay is placed against the employee's payroll check.
The OBFS, University Payroll does not have any information regarding the deduction except that
it has been matched from the State offset system. For additional information regarding the
deduction an employee must contact the Illinois State Comptroller's Office at 217-785-2463 or
217-782-7525.
CHILD SUPPORT
Child support is a payment made by a non-custodial parent, for the support of a child, to a
custodial parent in accordance with a court or state agency order. The support amount is stated in
the order and it takes priority over a garnishment or any other legal order, except a pre-existing
Federal tax levy. Child support orders will not terminate until a release is received from the court
or agency issuing the order, or at termination of employment.

The withholding of the support amount will commence the pay period immediately following the
date the order was received. The withholdings will be remitted to the State Disbursement Unit or
other applicable agency.
VOLUNTARY DEDUCTIONS
Voluntary deductions commence and terminate upon the employee's authorization. The
University allows voluntary deductions that are permitted by Federal and State regulations and
have been approved by the Senior Associate Vice President for Business and Finance or his/her
designee.
Employee Authorizations - Employees must complete the appropriate form as designated by the
regulatory agencies or the University, as may be applicable, to authorize a voluntary deduction.
Termination of Authorization - Any authorization to withhold from the salary or wage of an
employee will terminate and such withholding will cease for any of the following events:

Termination of employment
Written notice by the employee of cancellation of such former authorization
Expiration of the time during which such withholding was authorized
When the total amount authorized has been withheld

ADVANCE EARNED INCOME CREDIT PAYMENT

Employees who are eligible for the Advanced Earned Income Credit (EIC) and have a qualifying
child are entitled to receive payments up to the limits set by the IRS. Gross earnings are not
affected. To determine eligibility and request the EIC payment, employees must complete the
Form W-5, Earned Income Credit Advance Payment Certificate, and submit it to the OBFS,
University Payroll. Form W-5 is effective only in the calendar year it is submitted to the OBFS,
University Payroll.