Managing employee payroll

August 2019 —  One of the most complex and sensitive expense categories in real estate, or any other type of business, is employee payroll. What makes employee payroll confusing is that it includes more than just salaries. Depending on the employee benefits package, there may be additional payroll items such as long-term disability, health/dental insurance, life insurance, savings plans, and a myriad of other benefits, including dental insurance and day care. In addition, employers are subject to state, local, and federal income and sometimes city tax withholding requirements, not to mention payroll taxes specified under the Federal Insurance Contribution Act (FICA), the Federal Unemployment Tax Act (FUTA), and the State Unemployment Tax Act (SUTA) and union benefits.

In Canada, the federal, territorial and provincial government deductions mirror the United States and include income taxes, employment insurance (EI), and the Canada Pension Plan (CPP). Significantly, employers in Canada bear the burden of the health system costs, which are paid by the employer based on the employee’s income.

When preparing the payroll budget, the human resources department should be consulted, and all information should be kept confidential. Options for managing and executing payroll include using payroll service bureaus or maintaining an in-house payroll system.

Outside Administration through Payroll Services Bureaus

Because of the complexity of benefit options and payroll taxes, many companies elect to engage a payroll processing service to administer employee payroll. A payroll service bureau accumulates employee data such as exemptions claimed by employees on a W-4 form in the United States or a TD 1 form in Canada. Additionally, payroll service bureaus track employee wage rates and benefits selection. The bureau then applies this information to ongoing hourly information supplied by employees and generates paychecks on a periodic basis depending on pay period frequency.

In addition, payroll service bureaus file quarterly payroll tax returns, administer benefits plans, calculate all payroll withholdings and deductions, and issue employee W-2 forms in the United States and T4 forms in Canada at the end of each year. Payroll service bureaus can be relied on to provide timely and accurate reporting of all facets of the payroll process. A payroll service bureau performs the same activities as discussed in the following section on in-house payroll systems.

The Challenge of In-House Payroll Systems

In-house payroll systems function similarly to payroll service bureaus, except the payroll service is accomplished by company employees. An in-house system automatically transfers the payroll data to the appropriate expense categories when paychecks are issued. This system eliminates the duplicating and rekeying of data into an in-house database, which is a requirement when using a service bureau. Employees are typically similar to vendors in their commitment to providing reliable, quality service as long as they are getting paid according to their employment agreement. Administering in-house payroll can result in dire consequences if it is not done properly.

A typical building may have the following employees on the payroll:

  • Property manager
  • Assistant property manager
  • Building secretary/receptionist
  • Chief engineer
  • Assistant engineers
  • Day porter
  • Security personnel
  • Parking lot attendant
  • Accounts payable clerk
  • Accounts receivable clerk
  • Project accountant

These employees may work on different projects or buildings, requiring their salaries to be allocated to the different projects or buildings. The allocation of salaries and related payroll costs may be done based on actual hours spent on each project, or on a set percentage split determined by percentage of square footage occupied, or on some other reasonable measurement.

Their salaries may also be allocated to separate expense accounts corresponding to the projects the employees work on. For example, an engineer may perform a maintenance check on boilers one day, paint a tenant’s suite the next, and sweep the parking lot on the third day. The time spent on these activities should be reflected in each expense classification in order not to distort any one expense category.

Before any paychecks can be issued, a typical payroll software program must be used to update the following files:

  • Employee database—including name, address, social security number, dependents, and claimed exemptions
  • Benefit database—including benefits, options, rates, and deductions available to all employees
  • Payroll tax database—including current payroll taxes for local, municipal, state, provincial, national, and other taxes and charges

Paychecks, a payroll register, quarterly payroll tax data, and a payroll allocation report may all be generated from the information in these files.

The checks associated with the payroll function are rarely written from the same account from which vendor payments are written. Because of the volume and complexity of the payroll function and the need to protect the confidentiality of sensitive payroll information, a separate account is typically established. The account is used only for issuing checks and consequently is established with and maintains a constant balance. When checks are actually issued from the payroll account for any payroll-related item, including employee pay, health benefits, and other items, the main cash account transfers only enough cash into the payroll account to cover the total amount of the checks written. Any difference in the account balance should be fully accounted for by uncashed checks.

If a payroll service bureau is used, employee hours worked may be reported to the payroll service by a digital file or automatic download. Generally, the payroll service can process payroll data in a matter of days, thus allowing up-to-date time reporting to coincide with employee pay dates. In any case, property and facilities managers must verify the number of hours worked, overtime, and holiday pay.

This article is adapted from BOMI International’s Budgeting and Accounting course, part of the RPA designation program. More information regarding this course or BOMI International’s new High-Performance Sustainable Buildings credential (BOMI-HP™) is available by calling 1-800-235-2664. Visit BOMI International’s website,