Information System in Accounting

INFORMATION SYSTEM IN ACCOUNTING 1

Institution Affiliation

Outline

The introduction provides a definition of the payroll system and howthey are used within organizations. Additionally, it identifies thedepartment of a business enterprise in charge of the preparation ofsuch documents.

Brief History of the Manual Payroll System

This section provides a sequence of events and the transformationthat the payment has undergone since its inception. It recognizes thebeginning of organized forms of government and the subsequentintroduction of the Roman Army paymasters. Moreover, this sectiondiscusses the role played by the European heritage in the form ofBritish paymasters and the industrial revolution. Finally, theconcept of payroll systems is analyzed based on the colonial andpre-revolutionary eras.

Components of the Payroll Systems

This phase of the paper discusses the components of a payroll system.It identifies the fact that there are two forms of payrolls namelythe monthly and annual systems. The former includes salaries andwages, HRA, conveyance, and special allowances. The latter on theother hand include medical reimbursements, incentives, and annualbonuses. Additionally, it highlights various types of tax paymentsmade by the employers on behalf of their employees such as theFederal Income Tax and State and Local Income Tax.

Development Stages of Payroll from the Manual to a TechnologicalSystem

This section shows the process of stabling a more technologicallypayroll system. It provides a step by step guide for the entireprocess.

In accounting,payroll refers to the total expenses incurred by an organization inthe form of payment to the employees. Business organizations have toprepare the payroll on a periodic basis so as to facilitate thereceipt of salaries and wages by the members of the workforce. Tocomplete the process of developing a payroll system, a businessorganization has to determine various factors that are to be includedin the system (Bragg, 2004).

The accountingdepartment is usually conversant with the concepts needed inaccomplishing such a task. Additionally, the human resourcedepartment determines the salaries and wages paid to the employeesand as such has to be consulted by the accounts department whendeveloping a payment system (The United States, 1997). This paperprovides a brief history of the payroll system and the components ofsuch systems. Moreover, it provides the development stages inupgrading a manual system to one that has integrated technology(Bragg, 2013).

Brief History of the Manual Payroll System

The concept ofpayroll system can be derived from several years ago. It can traceits origins to the beginning of organized forms of governments andadministration. The earlier users of the payroll system included theRoman Army Paymaster during the metallic and paper money periods.However, the European Heritage is responsible for the significantgrowth made in the payroll system. It was responsible for thelinkage between pipe roll and payroll systems in the earlier times.It is during this period that the first British army paymasters andgeneral paymaster emerged. The latter, Sir Edmund Burke can becredited or major reforms witnessed in this sector.

The industrialrevolution witnessed massive advancement in technology as well asmodernization of major process. Additionally, this period witnessed aperiod of growth in terms of labor compliance. Various factors wereintroduced by the industrialist nations as a means of offeringlucrative pay packages to their employees engaged in the productionprocesses. Some of the fresh concepts that altered the existingsystems of payroll included the introduction of minimum wages for allemployees, welfare programs and the initiation of termination laws.Later one, employee income tax were also introduced in the payrollsystems (Bragg, 2004).

The colonial andpre-revolutionary periods also saw massive changes to the existingpayroll systems. The Virginia Company was one of the first toinitiate advanced payroll systems. This was followed by theintroduction of barter bookkeeping system and workers and paysystems. The Tax Reform Act of 1986 improved the specificrequirements of payroll systems whereas further changes in the 1990sfocused on the total quality management. Currently, the AmericanPayroll Association provides a conceptual framework for theaccomplishment of the underlying tasks. It emphasizes on educationand training as well influencing legislative outcomes.

Components of the Payroll Systems

The payrollsystem is composed of various factors of consideration. Therefore,for the system to be effective, there are some specific variablesthat must be included. However, there are factors that are notcompulsory and as such the accounting department can choose to leavethem out of the payroll systems. They include healthcarecontributions and workers compensation. The compulsory inclusions aresalaries and wages, federal taxes, state and local taxes, and federalunemployment taxes. Others include state unemployment taxes andcontributions made towards the federal insurance contribution act(FICA) (Bragg, 2004).

The payroll canalso be divided into two components namely the monthly payroll andannual payroll. The former includes basic salaries, HRA at 10%,conveyance and special allowance. Moreover, other monthly payrollcomponents include dearness allowance and the provident fund. Theannual payroll includes the medical reimbursements, incentives,annual bonuses, special allowances, travel leave allowances as wellas meal vouchers (United States, 1997). When developing a payrollsystem, it is mandatory for the accounting departments to identifythe components of the payroll systems. They can then be separatedinto the two major groups and the actual figures to be paidcalculated. Below is an analysis of some components of the payrollsystem (Bragg, 2013).

Salaries and Wages

A salary can bedefined as a fixed form of income earned by employees periodically.The payment periods are likely to last between two weeks and a month.The basis of payment of such incomes is varied and may depend on theposition of an individual within an organization as well as theemployers. Managers, professionals and other members of the workforceare usually given an income that is calculated on an annual basiswhereas the remuneration packages of the contractors are determinedon an hourly basis. The payroll system must ensure that all theincomes inherent to the employees exceed the minimal wages and thatthe employees meet the requirement age of employment regardless ofthe nature of their tasks within an organization (Bragg, 2013).

Federal Income Tax

This form of taxpayment is in the form of pay-as-you-go tax. This is the amount ofmoney that employees owe the federal government of the United States(Bragg, 2013). Except for contractors, the employers are charged withthe responsibility of ensuring that such payments are made to therelevant authorities within the stipulated time frames. Therefore,the employers withhold this part of the income and forward it to theFederal Government. The amount withheld by the employers will dependon two factors namely the gross income and the information containedon the form W-4. The latter relates to the determination of thewithholding rates in either single rate or the lower married rates(Bragg, 2004).

State and Local Income Tax

Though thefederal income tax requirements apply to all employers across theUnited States, states have developed specific tax payment laws. Suchlaws vary depending on the State. Despite states such as Alaska nothaving income taxes, they have relevant agencies tasked with managingtax related issues (United States, 1997). Employers are required bylaw to register with their respective taxing authorities as per theStates of their operations. They are then issued with a withholdingaccount number which is an important component of the payroll system.Finally, the employer remits such tax payments to the Stateauthorities on behalf of their employees.

Federal Unemployment Income Tax (FUTA)

This is a form of employment tax that is remitted by the employerto the relevant tax authorities. Though this form of payment dependson the amount of remuneration packages offered to each member of theworkforce, the employees are not required to pay the FUTA taxes. Theprevailing federal unemployment income tax rate is 0.6%v after whichthe employer is allowed to seek credit up to 5.4% of the taxableincome as long as they have met the state unemployment taxobligations (Bragg, 2013).

Development Stages of Payroll from the Manual to a TechnologicalSystem

Withtechnological developments being witnessed across all sectors of theeconomy, the manual payroll systems are being replaced by moredigitized operational frameworks. However, the decision to adopt atechnologically advanced system at the expense of a manual system isbased on various development stages (United States, 1997).

The employerneeds to obtain an employee identification number (EIN) from theInternal Revenue Service (IRS). This can be obtained through onlineapplications or the IRS. The next stage requires the employers toconfirm whether State or local identification cards are needed(Lambert, 2005). This depends on the State where the businessorganization operates. Thereafter, the type of employment contractshould be identified with regard to contractors or full-timeemployees. The various tax documents such as the Federal Income TaxWithholding form W-4 is then filled and submitted to the relevantgovernment agencies (Bragg, 2004).

The next stagerequires the accounting department to establish the pay period. Thiscan be in the form of monthly or bi-monthly terms. After that, theterms of employee compensation are integrated into the system (Moore,Pope, &amp Strzelecki, 2004). This will determine the hours andovertime bonus payment techniques. The choice of a payroll systemshould take into account accuracy and cost-effectiveness. The systemcan be in-house built or outsources from other service providers. Thesystem administrators then upload all the available informationbefore it is commissioned for operations (Bragg, 2013). With thesystem operational, the accounting department is tasked with makingall the entries while system upgrades are conducted by the ITdepartment on a regular basis. The employees will be required tosubmit certain documents such as the form W-4 within a stipulatedtimeline (Moore, Pope, &amp Strzelecki, 2004). Finally, the payrolltaxes are reported to the relevant tax authorities on a quarterly orannual basis (Lambert, 2005).

ReferencesTop of Form

Bottom of Form

Top of Form

Bottom of Form

Top of Form

Bottom of Form

Top of Form

Top of Form

Bottom of Form

Bottom of Form

Bragg, S. M. (2004).&nbspAccounting for payroll: A comprehensiveguide. Hoboken, N.J: John Wiley &amp Sons.

Bragg, S. M. (2013).&nbspAccounting best practices. Hoboken,N.J: John Wiley &amp Sons.

Lambert, V. (2005).&nbspPayroll: A guide to running an efficientdepartment. Hoboken, N.J: Wiley.

Moore, B. S., Pope, E. C., &amp Strzelecki, J. W. (2004).&nbsp2004U.S. master payroll guide. Chicago: CCH.

United States. (1997).&nbspPersonnel-payroll system checklist:Systems reviewed under the Federal Financial Management ImprovementAct of 1996 : exposure draft. Washington, D.C.