CHAPTER 4 FINDINGS AND DISCUSSION. 4.1 Current Payroll System in Inan Salon Before Change into PT. following performance measure:

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1 1 CHAPTER 4 FINDINGS AND DISCUSSION 4.1 Current Payroll System in Inan Salon Before Change into PT Payroll Component This chapter emphasizes on discussion about the current practice of payroll system at Inan Salon. The current payroll measurement undertakes following performance measure: 1) Achievement of sales target This is measured by comparing actual sales and budgeted sales prepared by the owner. This performance measures also used to calculate payroll and bonuses for employees. 2) Absenteeism This is a non financial measurement used to calculate bonus for each employees. If they do not have any sick day or take leave in one month they will receive additional income.

2 2 3) Competency This is a non financial measurement based on questioner filled by customers. This questioner gives a suggestion of improvement that Inan Salon can give based on customers perspective. Customers also can write about their complaints regarding the employees performance, cleanliness of salon and satisfaction.

3 Internal Control Figure. 4.1 Current Flow in Inan Salon receipt reconcile Attandance list Director Sorted payroll data Prepare and Distribute Payroll report Paycheck management

4 4 From that diagram the payroll activity started when cashier will make a daily report of Inan Salon cash flow. Cashier also hold attendance list which is filled and signed by each employee. In addition, based on their report they also calculate the payroll that each employee deserved based on their performance in that month. Once cashier done, they will send it to owner for cross check. Owner will also prepare s report of each branch s performances based on cashier s daily report and payroll. After the cross check finish, owner will disburse payroll to each employee that already have an account using internet banking. If some of the employee, usually a new one, still do not have a bank account the owner give paycheck directly to them. In addition, the entire Inan Salon employee urged to have a bank account Weakness of Current System Based on the current flow in Inan Salon there are some weaknesses identified under the current payroll system in this current system: 1. Currently, there is lack of segregation of duty in that flow of payroll system. Duties that should be segregated including authorization and recording transaction. If there both of duties does not exist it could create a misappropriation assets, misstated in financial statements, inaccurate financial documentation and misuse of cash or modification of data could be undetected.

5 5 2. Also there is no written policies and procedure in this system. This will create inaccurate and unreliable financial records and inappropriate recording transaction, inconsistent practices among employee and owner and processing errors due to lack of knowledge. 3. There is lack of approval and review in this system. There should be another level of approval and review from individual who is capable. The approval should be documented and verified that it was done. Approval and review can help the management to control the operations whether goals and objectives are being met. By lacking approval and review errors maybe occurs in financal and operational decisions and inaccurate or incomplete in reporting. 4.2 Advantages and Disadvantages Before Changes The advantage on the current system in Inan Salon is it uses a very simple method in its business operation. All of the documents are paper work and use handwriting. Inan s employees do not need a high education background since the only thing they need is a beautician skill and a simple arithmetic knowledge. On the other hand, if the person who responsible for the whole operation is only Inan and Ferrial it can create a bias result also there is no segregation of duty. All of the decision made come from their head regarding the amount of salary, employee s performance and performance of each branch.

6 6 Those works are consuming a lot of time and energy, especially near the end of the month directors will be very busy to prepare payroll and make a monthly report. Moreover, both of them are getting old and they need fresh ideas. 4.3 Suggested Payroll System in in Inan Salon After Change into PT Inan Salon Organizational Structure Based on theory of Bodnar and Hopwood (2004) regarding internal control and Wilkinson (2000) regarding payroll system, Inan Salon need a payroll system that has a purpose to make a payroll that occurs in monthly basis become easy and effective also improving the internal control to payroll through automated system and manual system. This system started from recruiting new employee by head of Human Resource Department and input data contains that new employee also make a contract agreement letter which will be signed by Director and forwarding to Finance Manager who responsible for payroll system. After several months, if this new employee perform well then she will hire as a permanent employee by HRD Manager and she will signed another contract agreement letter as a permanent employee. Also, each of branches will be observed by a supervisor. Therefore a new organizational structure for Inan Salon will become:

7 7 Figure 4.2 Inan Salon Suggeted Organizational Structure note: it goes until 6 branches (this diagram only shows 4 branches) Figure explanation: 1: Director 2: HRD Manager 3: Finance Manager 4: Supervisor 5: Beautician/cleaning service 6: Cashier/cosmetic service

8 Job Description In order to have a better segregation of duty and clear job description Inan Salon need to make new actors in its accounting system: 1. Supervisor In every branch of Inan Salon there should be 1 Supervisor who has a responsibility to supervised all of the activity in it. Starting from control the absenteeism, cleanliness, makes a decision who should work over time to handle a special request from customer. A Supervisor need to take responsibility for all the activity happens in that branch including they subordinates and customer complaints. Also, help the HRD Manager to evaluate the performance of employee. 2. Finance Manager Finance Manager is responsible for monetary of Inan Salon including payroll and other disbursement made by Inan Salon. Inan Salon need to choose a very trustful person to become a Finance Manager also this person need to be very careful in doing this task since there is a lot of transaction occur in order not to make Inan Salon suffer loss.

9 9 3. Director Director is responsible to make an approval for any raise from employee salary and payroll report. Director may also reject the raise and payroll report if those are not appropriate based on Director s opinion. Director need to develops and directs the implementation of strategies, goals, objectives, policies, procedures and work standards for Inan Salon. Director is responsible from all of level and all operation in Inan Salon. Director need to have an ability to make an important decision regarding this business also be aware in order not to be manipulated from subordinates. 4. HRD Manager HRD Manager is responsible to meet Inan Salon needs and the needs of the employee hired by Inan Salon. HRD Manager need to keep track of vast amount of data such as costs, monitoring and evaluating productivity levels, employee records such as payroll, bonus, and personnel files.

10 Internal Control In every day before starting and after finishing the day all employees need to sign attendance list by filling the attendance record. This action will be managed by a supervisor in every branch. At the end of the month, there will be a recapitulation of attendance showing who attend late, who has sick day and who has a good attendance records, who has a warning letter, who has overtime work and sales made by each employee. From this report, a system will determine a deserved payment for each employee in Inan Salon each month. However, every employee has rights to ask leave to HRD Manager. If the HRD Manager agrees then that employee will not have a maximum amount of payment that she deserved in that particular month since the system will decrease a deserve payment for her. Inan Salon entitles to ask the employee to work over time if needed. For overtime procedure, the supervisor will give an over time letter to cashier and the cashier will record who work overtime and what kind of treatment she done to particular customer. Each month a system will calculate how many treatments each employee done for overtime work to determine the amount of payment for them. In addition, this overtime work started before working hours at and after working hours at

11 11 Once the payroll transaction finished, the copy of that file goes to HRD Manager in order to prepare a report to management. After the payroll register and employee paycheck being review and signed also approved by the Finance Manager, Finance Manager will prepare a disbursement voucher for accounting documentation, signed paycheck for take home pay employee, payroll transfer paycheck to transfer the amount of wages for employee also payroll register for database.

12 12 Figure 4.3 the suggested flowchart for Inan Salon Made by HR Department Made by Accounting Department B A List of employee Payroll register Employee paychecks Attendance list reconcile Over time letter Sort payroll data Approve Review and sign Sales made by beautician Disbursement voucher Sales made by cosmetic service Sorted payroll transaction Payroll register Sales made by cashier Payroll register Disbursement voucher Prepare pay checks Signed paychecks Payroll register Payroll transfer checks Employee paychecks Payroll register Verify Bank Report Payroll register Employee A B Management Accounting

13 Inan Salon Payroll System Payroll system will calculate basic salary for each employee added with several bonuses, if any, and subtract it with meal allowance. The salary for beautician will be based on how many treatments they have done in one month. For cashier and cosmetic service, their salary comes from how much income Inan Salon can generate in one month. While for cleaning service and supervisor their salary will be based on agreement with HRD Manager. All of this record regarding performance in one month made by cashier and approved by Finance Manager. Incentive or bonus provide by Inan Salon to its workers consists of performance at particular month, if employee regularly attend and arrive on time, along with bonus if a worker can generate sales more than the expectation, also life time achievement for senior employee, this bonus will be given to employees yearly who worked more than 7 years and they will get special prizes such as jewelry, gadget, and motor cycle. Additionally, yearly bonus for every employee in Iedul Fitri, moreover special occasion bonuses for all employees such as a trip to interesting places such as Puncak, West Sumatra, and Bali.

14 14 This is an example of calculation for Inan s beautician: Figure 4.4 example of wages calculation for Inan Salon employee INAN SALON NAME POSITION BRANCH wahyu beautician depok PAYCHECK July-08 REVENUE DEDUCTION Salary 1,080,240 Penalty 0 Overtime 0 Bonus/ied fitri's bonus 0 Support 0 Tax Meal Fee 125,000 TOTAL REVENUE 1,205,240 TOTAL DEDUCTION 0 TAKE HOME PAY 1,205,240 Jakarta, 4 July 2008 Transferred to: Made by: Accept by: BCA Cabang Depok Acc. No. xxx-xxxxxx Finance Manager wahyu Based on this example on wages calculation employee get their salary based on their performances. The percentage of salary determine by the finance manager based on approval from director. There are no fixed salaries for low level management in Inan Salon since the top management want every employee perform on their maximum capacity. If they want to get bigger salary they have to perform better. The overtime column calculates overtime works which is when there is special request made by customer before or after office hour.

15 15 Bonus comes when in that particular month the employee can achieve more than targeted revenue and she always attend work days. Ied Fitri s bonus will be given to employee once in a year. The amount of Ied Fitri s bonus will be different for each employee since the performance of employee will determine the amount of bonus. Inan Salon also provided its employee some support occasionally. For example, in some cases their employee needs more money to give birth or sick. Also, Inan Salon will pay lunch for its employee in order to keep them in location when lunch break comes therefore they will not spend too much time to find lunch and customer will not held for too long. On the other hand, penalty arises if there is mistake done by employee. For example, when there is a mistreatment the customer will get substitute treatment and the beautician who responsible for that need to pay that treatment. Also, Tax is required since every employee entitled to pay PPh 21. The salary will be paid at the beginning of the following month. The HRD Manager will make a transaction payment for each of employees. The system required approval from Director for list of salary that will be paid to all employees. After approval, Finance Manager can transfer the salary to bank account of each employee and make a report consists of names of employees, salary amount, and account number to make it as an attachment on payroll report.

16 16 If there is a violation made by employee regarding regulation in Inan Salon the HRD Manager will mark those employees and give them a warning. For those who made for maximum 3 violations then the HRD Manager have rights to sack them. Dismissal of employee can occur because of 3 situations. First, the employee want to leave, employee get sacked, or pension. Employee has right to get an appreciation money and pension based on their contract agreement letter. For those who want quit, there will bea letter signed by Director and forwarding to Finance Manager who will send a deserved payment along with termination payment to the employee. On the other hand, mutation employee can occur when there is a shortage of employee in one of Inan Salon branch because of one of its employee leave or retire. Moreover, if there is a conflict between one employee with the other the trouble maker will transfer into another branch, also if there is an employee need to learn with their senior to improve they competency in beautician or handling customer. Therefore, regarding the disadvantages that occur once Inan Salon change its system the benefit from the changes is

17 Payroll Components Based on the theory stated above by Winarno (2006) to simplify the clerical work what Inan Salon need to prepare once they become PT they need to make an accounting system such as: 1. Make a new list of employee This list contains of employees name, id number, their position (beautician, cashier, and cosmetic service), marital status, address, age, contact number and their branch office. 2. Attendance list This list should be provided in every Inan branch and contains name, id number, position also works in and out. 3. Over time letter This letter made and signed by Supervisor to command one of beautician to works overtime if there is a special order from customer. 4. Sales made by beautician This system counts the number of sales made by beautician. Every treatment they have done to customer will increase their monthly salary.

18 18 5. Sales made by cosmetic service This system counts the number of sales made by cosmetic service. Every cosmetic used by customer will increase their monthly salary. 6. Sales made by cashier This system counts the number of sales made by cashier. Every treatment taken by customer will increase their monthly salary. 7. Payment for beautician This system counts the amount of salary paid for beauticians. 8. Payment for cosmetic service This system counts the amount of salary paid for cosmetic services. 9. Payment for cashier This system counts the amount of salary paid for cashiers. 10. Payment for supervisor This system counts the amount of salary paid for supervisors. 11. Payment for cleaning service This system counts the amount of salary paid for cleaning services.

19 Approve payroll register This system contains an approval of payroll register from director before finance manager disburse money to pay salary. 13. Print a payroll report This payroll report made by finance manager and gives it to director as a company file. This report also contains who already has their salary and has not. 4.4 Advantages and Disadvantages After Changes Inan Salon started as a home industry, most of its employee only graduated from Elementary school. If those employee force to face changes they need extra training to handle a sophisticated software and technology. Those training could be costly and consume a lot of time. Inan s employee need to understand how to operate computer. Also, new people who come in as a supervisor, HRD manager and Finance Manager will create a new disbursement such as larger amount of salary. However, once Inan Salon becomes PT several new people will enter to join forces with Inan and Ferrial in making decisions. Those new people also help in controlling the employee, workplace, preparing payroll and monthly report. Furthermore, once there is a segregation of duty the task of each person handles would be easier and effective.

20 20 For example, directors do not need to check, prepare and pay the salary for employee. What they need to do is delegate it to HRD and Finance Manager to handle it. Also, directors do not need to involve in daily operation such as controlling its employee and cleanliness of workplace in every branch since Inan Salon has supervisor who handles it. Moreover, once Inan Salon use computer to input their data, they will reduce the paper work and they can use a simple gadget such as removable hard disk to store, edit and gather all data required in making decision. In conclusion, even though there are disadvantages occur of the changes, the company can generate bigger advantages compare to the disadvantages. Therefore, it is recommended for companies to apply this new system.