Common legal risks in payroll outsourcing

Are you interested in establishing an internal control system in your business to ensure efficiency and transparency in business operations? Specifically, you are interested in building a scientific and legally compliant payroll process for employees. If you need information about the steps to control the internal payroll cycle, please refer to the updated information of payroll outsourcing and tax obligations from Faro Vietnam through the article below!

1. Objectives of internal control of the internal payroll cycle

First, determining the appropriate salary level for each employee, ensuring legality, validity and reasonableness is the most important goal of this process;

Second, calculating the salary of each employee fully, accurately and promptly based on the following data:

• The company's human resources data is always updated fully, accurately and promptly.
• Assessing the productivity of each employee according to the company's timekeeping regulations.
• Employee salaries are calculated fully, accurately and promptly based on timekeeping data.

Third, salary payments to employees throughout the company are always made fully, accurately and on time;
Fourth, all company activities are recorded and reported correctly, fully, promptly, concisely, clearly and easily understood according to regulations.
 

Common legal risks in payroll outsourcing

2.  Internal control procedures and documents of the payroll cycle

• Labor tracking sheet;
• Timesheet;
• Payroll;
• Payroll slip, salary payment declaration for each person (Payroll Slip);
• Payment voucher/Payroll payment order via bank.

3. Common legal risks in payroll outsourcing

Below is information on the risks of internal control in the payroll cycle:

3.1. Three groups of internal control risks in the payroll process

In the payroll process, the risk related to salary determination is the risk with the highest probability of occurrence and the biggest consequence when it occurs.

The group of common legal risks in payroll outsourcing includes:

• Risks of updating personnel data:
• Risks of timekeeping: Incomplete, inaccurate and untimely timekeeping;
• Risks of salary calculation: Insufficient calculation; Incorrect calculation; Untimely calculation.
• Risks of updating personnel data include:
• Incomplete data on the number of employees in the payroll period;
• Incorrect information on job titles, positions, ranks, departments, etc.;
• Delay in updating compared to the personnel situation in the payroll period (employees who have resigned, new employees, promoted employees, employees with reduced salaries, etc.).

3.2. Risk Control Mechanism in Payroll Process

• Approval
• Use of Targets
• Non-Concurrent
• Protection of Assets
• Reconciliation
• Irregular Reporting
• Check & Monitor
• Pre-Format

How to ensure compliance when outsourcing payroll

4. Some Other Risks & Corresponding Control Mechanisms

The risk of continuing to pay salaries to employees who have left or are not actually present in the company requires the following control mechanisms:

• Timesheets are prepared for each department, approved by the Department Head, who is also responsible for this timesheet;
• The timekeeper and the payroll person must be distinguished, along with the person paying the salary;
• Approve all changes in the payroll;
• Use time cards to record working time.

Payroll calculations that are not in accordance with company policy need to be controlled by:

• The salary policy must be clearly outlined;
• The payroll department needs to regularly update changes in personnel;
• Approve all changes in the payroll software and on the payroll.

Incorrect personal income tax calculations leading to tax compensation for employees require a control mechanism:

• Periodically check the calculation of personal income tax;
• Use expert advice on how to calculate personal income tax.

Wages not in accordance with the payroll require:

• Approve before paying wages;
• Comprehensive analysis of the reasonableness of the payroll fund;
• Use the method of signing for wages/payments via bank accounts.

Accurate and complete recording/reporting of salary expenses:

• Payroll and payroll documents are sent to the accounting department for recording;
• Reconcile salary expenses with actual salary payments and payroll fund plans.

4. 5. Internal control mechanisms in the payroll process for risk detection

• First, reporting on unusual fluctuations: Information on overtime, overtime and changes in the number of employees in each department;
• Second, analyzing the employee fluctuation rate;
• Third, comparing the actual payroll fund with the proposed plan;
• Fourth, analyzing the fluctuations in average salaries.

Internal control of the payroll cycle is not only an important step but also a factor that determines the transparency, efficiency and reputation of the organization. Payroll management requires accuracy, compliance with the law as well as the ability to respond flexibly to changes and variations.

Managing Payroll outsourcing regulations can be a complex and time-consuming task, especially for businesses navigating Vietnam’s dynamic regulatory environment. We hope that the article has provided you information on how to ensure compliance when outsourcing payroll. Let Faro Vietnam handle your payroll complexities so you can focus on growing your business. Contact us today for a free consultation and discover how we can optimize your payroll process with efficiency, accuracy, and full compliance!

Faro Vietnam
Email: service@farovietnam.com.vn
HANOI HEAD OFFICE

• Tel: + 84 24 3974 3091

HO CHI MINH CITY OFFICE

• Tel: + 84 28 3821 4654

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