The Pay Methods And Procedures Accounting Essay


As per Employment Rights Act 1996, an employee would normally be required to work in accordance with his contract of employment and the employee is entitled to be paid by his employer an amount in respect of that day. Therefore, it is crucial for payroll department to ensure employees must be paid accurately and on time.

In addition, pay frequency and method are very important objectives for payroll department. It is normal for most organisations to keep fixed day of a week/month or a fixed calendar date. Failure to meet the objectives can lead to not only problems in employee and employer relationships but also damaging industrial relationship. Therefore, payroll department provides Pay Schedules to schools to share the pay frequency, pay day or pay method, which are also clearly states in the employees' contract of employment.

Payment by Cash

Although the Truck Acts 1831-1940 and the Payment Wages Act 1960 gave all manual workers the right to insist on wages being paid in cash, the Wage Act 1986 has enforced towards cashless pay.

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Due to high risk in security both inside and outside the organisation, expensive task and time limitation, the company do not use cash payment to employees.

Payment by Cheque

The company avoid using uncrossed cheque or crossed cheque payments due to high security risk internally and externally. The use of open cheque has decreased rapidly and many banks are refusing to deal.

Direct Bank Credit - Automated Credit Transfers - BACS System

BACS system is a United Kingdom scheme for the electronic funds transfer between the banks. BACS transactions take approximately 361/2 hours to credit such as the fund is entered into the system on the first day, processed on the second day, and cleared on the third day.

Not only Cambridge Education company use BACS system to pay their employees but also majority of the UK companies pays their employees via BACS system. One of the main reasons company prefers to use BACS system is time efficient and cost effective. In addition, it is widely accepted as modern approach and secure funds transfers.

In order to pay on time, the payroll department provide pay schedule to schools to share pay dates, payroll input/output dates and time.

Faster Payments and CHAPS

Faster payment is an enhancing electronic payment in the UK. The company do not use the faster payment system to pay salary and wages, due to delay in existing clearing cycle and value limits by some banks. However, some corporates use this payment to pay a large number of employee expenses.

CHAPS is a same day electronic transfer of money from one bank to another. The payment is guaranteed to credit to payees account on the same working day provided instructions are received before 3.15 pm. However, there will be a charge due to payer for the payment request.

International Money Transfers

This is a way of electronically transferring money to overseas bank account for employees and pensioners in overseas countries.

Firstly, overseas banks has to agree with employers to able to process the payment, however employee usually has to incur the cost.

Payroll Audit Requirements

Main audit objectives for the payroll department are to identify potential payroll fraud, to review methods of internal control to deter any attempts fraud to the company and to assess the payment of salaries and related expenditure are made in accordance with statutory legislation and company t terms and conditions.

2.1 Internal Auditor

In 2007, the company integrated a new HR and Payroll system. During the set-up process, the payroll department ensure that various audit trails (appendix2.1) are followed up according to companies' internal audit requirement.

Over the years, the internal auditors (appendix 2.2) ensure that statutory legislation, company rules and regulation are being applied correctly. In addition, the internal auditors make sure that the payroll manager and department is responsible to control and monitor employee costs, the number of employees paid each month (appendix 2.3) to minimise potential fraud and to maintain the payroll procedures are up to date.

Moreover, the company auditors randomly or in person (appendix 2.4) test the schools payroll reports such as costing, pensions, overpayments, payroll documentation, associated procedures to ensure adequate financial control mechanisms are set up and maintained. Before and during the test, the payroll manager has an obligation to ensure that acceptable documentations are available for the auditors.

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Most importantly, the payroll department has a responsibility to process only documents that have been correctly authorised. In addition, the payroll manager must ensure payments are correctly authorised which is review by the internal auditor on a regular basis.

2.2 External/ Statutory Audits

As the company is working for Islington Council, all their financial affairs are required to audit externally. Payroll manager must need to involve in assessing and testing the payroll cost and expenditure by external auditors (appendix 2.5).

Therefore, the payroll department has to ensure all relevant payroll documentations such as overtime hours claim, allowances, expense, pension forms ( opt in/out forms),etc and associated procedures are in place. So that auditor could access as and when required to review.

In future, some company will get an exempt from a statutory audit based on the company size as the government has decided to reduce unnecessary burdens and make the UK one of the best places in the world to start, finance and grow a business.

2.3 HM Revenue External Audit

The HMRC auditor (appendix 2.6) will review assurance processes and actions in relation to payroll legislations such as income tax, NI contribution, student loan deductions, pension, maternity/paternity/adoption pay and statutory sick pay, minimum wage are applied within the law.

The HMRC audit normally do a random testing on the company due to low numbers of temporary and part-time staff exist or no remuneration packages or expenses are claimed within the company.

Design and Distribution of Payroll Outputs

The company payroll department has a responsibility to provide payroll outputs to relevant internal and external departments. That is, employers must meet the contractual and statutory obligations to employees and external organisations such as HMRC, Courts, Trade Union, Pensions, etc.

To able to produce required outputs and employees are paid on time and accurately, employers should have a reliable payroll system (appendix 3.1). Therefore, the Cambridge Education's current application is covered the relationship of the payroll system to the total organisation such as HR, Finance, Audit, ICT, Pensions.

In addition, the payroll system is capable of correctly calculating tax, national insurance, statutory pays ( i.e. sick, maternity, adoption, paternity), child support agency, student loans, court orders and attachment of earnings. Moreover, payroll manager ensure that the system meet the basic requirements of the Employment Legislation such as providing employees with a pay advice slip and statutory obligations such as flexible to change legislation within a short notice and data protection.

Data Output For Employees

One of the main data output for employees is pay advice slip. As per Employment Rights Act 1996, all employees (excluding pensioners) are lawfully entitled to a payslip, which should be included, the statutory and compulsory information (appendix 3.2).

As the Cambridge Education is working with Local Authority, the payroll system utilise a standard type payslip in narrative style (appendix 3.3)to be adapted to large workforce with very different pay structures. In addition, the payroll manager ensures that payslips are accurate, informative, neat and clear.

In addition, the payroll department provide to employees P60s, P9D or P11D at the end of each tax year and P45 when employee left from employment. The payroll department also provide outputs to employees at AD-HOC basis such as notification of pay changes, tax changes, current personal information, certification of various document, etc.

Data Output for Employers

As the continual improvements in new technology, there are others software available for passing information which can be constantly reviewed by payroll manager and other departments managers. To run an effective and efficient business, the employer is expected payroll manager to provide employee expenditure reports regularly to finance department as the cost of employment is a very large component of any organisation's total budget. Therefore, the payroll department is not only responsible for employee but also give crucial responsibilities to employers in particular.

As the Cambridge Education company is also providing Education services to local authority, employee costs will form a very substantial part of overall expenditure. The payroll manager has to ensure to provide feasible and important payroll information securely to all separate establishments, schools and internal auditors. Providing unnecessary reports will affect potential costs to payroll department nevertheless no benefits to other departments.

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Therefore, payroll manager is regularly reviewed all the effectiveness and actual use of reports and consult with other end users of the report before making decision. In some other cases, the report may require to improvement or redesign to able to use by other departments. Most importantly, regardless of the payroll system the company is in use, financial outputs will always be required to every department including payroll department.

Data Output for External Organisations

As rapid improvement in technology, the computer based payroll systems are designed to include the facility to produce statutory requirements outputs within timescale. According to legal requirements, the employer must produce relevant outputs/reports for the appropriate government departments. Therefore, payroll staffs are required to produce relevant output on a day to day basis.

One of the government departments for whom payroll must produce payroll output is Inland Revenue. From tax year 2004/2005, the Inland Revenue made mandatory to employers to submit statutory output via Electronic Data Interchange (EDI) ( appendix 3). This has introduced due to the statutory obligation to produce high volume of information to the Inland Revenue at the end of the tax year by employers and increase in using computer payroll system by employers.

Currently, the company payroll system is able to submit or receive annual returns, P14, P35, P6, P9, P46 (Car), P11D, P45(1), P45(3),P46 via EDI. There are impressive benefits such as cost savings, efficiency, speed and accuracy to Inland Revenue and employers from implementing EDI. The payroll department has an obligation to calculate and deduct correct tax, national insurance contributions, student loan, pensions, court orders, child support agency.

Quality Standards to the Payroll Function

4.1 Total Quality Management ( TQM)

TQM is a management approach of any size of organizations which focus on quality based on the participation of all its members and customers and aiming at long-term success through customer satisfaction, and benefits to all members of the organization and to society. In other words, TQM is a process for managing quality to meet customer requirements every time. In practice, TQM is found in the fundamental words as Total, Quality and Management.


All organisation have a management structure, however to able to run a successful business, all employees must be aware of business objectives. Moreover, all members of staff have responsibilities, and authority to carry out different tasks to achieve the organisational goals.

One of the main objectives for the payroll department is all employees must be paid on time and accurately. To achieve the objective, not only the payroll department as whole but also other departments have committed to customer satisfaction through a continuous process of improvement and the contribution to meet the objective.


The successful organisations are constantly seeking opportunities to improve the quality of its products and services and processes. Under the Japanese concept, Kaizen (appendix, all employees must know their own responsibility and work together to improve the process without capital investments.

Many employers accept the idea that errors and defects are bound to happen and it is an avoidable cost to the organisation. To reduce the errors, the payroll manager set a zero defect (appendix target to reduce error and defects rate. In addition, all department managers need to review a total process involving all operations to improve with a low cost.

TQM also underlines the importance of people such as employees, internal customers, external customers, internal suppliers; external suppliers (appendix are the keys to quality. Therefore, the payroll manager ensures all outputs are being recognised and met by internal customers such as internal departments and external customers such as schools, HMRC, trade unions, etc.

External suppliers payroll system providers, pension suppliers,

Internal suppliers, payslips print services, ICT,

Moreover, TQM emphasis the methodology of "Plan-Do-Check-Act" (appendix on customers' feedback.

Some organisations comply with ) Quality Management System ISO 9001(2008 as it demonstrate that a business can provide a consistent standard of quality.