Chapter 8: EMPLOYEE COSTS

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Topic list

1. Calculating wages and salaries

2. Recording of wages and salaries and
deduction
3. Payment of wages and salaries

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1. Calculating wages and salaries

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Risks and control objectives
• The company may pay employees too much
money
• The company may pay employees who have
left

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Controls
• Staffing and segregation of duties
• Maintenance of personnel records and regular
checking of wages and salaries to details in
personnel records
• Authorisation
– Engagement and discharge of employees
– Changes in pay rates
– Overtime
– Non-statutory deductions (for example
pension contributions)
– Advances of pay
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Controls
• Recording of changes in personnel and pay rates
• Recording of hours worked by timesheets,
clocking in and out arrangements
• Review of hours worked
• Recording of advances of pay
• Holiday pay arrangements
• Answering queries
• Review of wages against budget

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2. Recording of wages and
salaries and deduction

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Risks and control objectives
• The various elements of pay might not be
recorded correctly in the payroll
• Amounts paid to employees might not be
reflected in the cash books
• Pay might not be recorded correctly in the
nominal ledger

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Controls
• Bases for compilation of payroll (for example,
clock cards, overtime records, agreed hours)
• Arrangements for the preparation, checking
(reconciling to payroll information) and
approval of payroll
• Procedures for dealing with non-routine matters
• Maintenance of separate employees’ previous
records

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Controls
• One for one checking of payroll details back to
independently maintained personnel records
• Reconciliation of total pay and deductions
between one pay day and the next
• Comparison of actual pay totals with budget
estimates or standard costs and the investigation
of differences between them
• Agreement of gross earnings and total tax
deducted with taxation returns

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3. Payment

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Risks and control objectives
• The key risks here are that people who are not
employees are paid and those that are
employees are not paid

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Controls
Payment of cash • Segregation of duties
wages (this is – Preparing the payroll net pay summary
increasingly rare) – Filling of pay packets
– Distribution of wages
• Authorisation of wage cheque cashed
• Custody of cash
• Verification of identity
• Recording of distributions
Payment of • Preparation and authorisation of cheques and bank transfer
salaries lists
• Comparison of cheques and bank transfer list with payroll
• Maintenance and reconciliation of wages and salaries control
account

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