Payment of Wages | Procedure | Possible Frauds | Prevention of Frauds

Procedure for payment of wages

Pay slip is prepared on the basis of the payroll or wages sheet. Pay slip is prepared for each worker separately. Now, each worker is given his/her pay slip in advance so that he/she can check the calculations before the actual payment is made.

Payment of Wages - Procedure, Possible Frauds, Prevention of Frauds
Payment of Wages – Procedure, Possible Frauds, Prevention of Frauds

The particulars of net amount for the wage payment are forwarded to the cashier who draws money from the bank and arranges payment. After drawing the amount from bank, pay pocket is prepared for each worker separately and sealed after checking.

The pay pocket contains the details like the name of worker, his/her number, designation and the name of department under which he/she is working. The pay pocket is handed over to workers under the presence of responsible officer and the department head under which the worker is working. The signature or thumb impression of an employee is received in the Wage Payment Register.

If any worker remains absent on the payment date, the wage may be paid to a person duly authorized by the worker If the absent worker does not authorize any person to receive the wages, the amount shall be kept with the cashier after making due entry in the un-disbursed wages book.

Possible frauds in Wage Payment

A proper care is devoted by the Accounts Department or Pay Roll Department in the preparation of wages sheet and actual payment of wages.

Even though, there is a possibility of making frauds in wage payment. There is no specific format in the preparation of wages sheet. Moreover, there is no uniform procedure followed in the disbursement of wages in all organization.

Therefore, types of frauds differ from one organization to another. Some of the types of frauds are presented below.

1. Inclusion of dummy worker in the payrolls.

A lower rated worker is prepared in higher rate of pay and other allowances.

Inclusion of long hours than actually worked.

Inclusion of bonus even though the worker is not eligible to get or in excess of the amount due.

Payment for work not completed.

Omission to deduct any deductions either partially or totally.

Payment on the payment date on the basis of fraudulent payment latter. It means that claiming of payment to an absent worker who does not give any authorization letter to anybody.

Prevention of Frauds in Wage Payment (Internal Check System of Wage Payment)

Due care can be exercised by the top management to prevent the frauds in wage payment. The following steps may be taken to prevent the frauds by the organization.

1. Payment should be made to all the workers under the supervision of respective departmental heads on the payment day.

2. The working hours is checked along with the records of time booked and idle time.

3. The responsible officer should authorize payment for overtime, idle time and for scrap and defective production.

4. Different workers are paid in different rate of pay. Hence, the rate of pay for each worker should be verified while preparing pay roll or wages sheet.

5. A same person is not allowed to prepare actual hours worked and payroll preparation.

6. Deductions should be verified from the deduction lists.

7. Another person verifies the pay roll calculation.

8. Pay packet preparation is handover to two persons. One person counts the notes and coins in a packet. Another person makes the seal on the pay packet. Moreover, these two persons should put their signatures on the pay packets.

9. Only net wage payment amount is drawn from the bank.

10. Head office staff should make payment to out workers.

11. Undisbursed wage is recorded in undisbursed wage book.

12. Undisbursed pay packets are handover to the cashier after getting his/her signature in the undisbursed wage book.

13. The absent workers on wage payment day should be called for getting explanation to know the reasons for absence. Thereafter, the pay packets are handover to the respective workers under the supervision of responsible officer.

14. The gatekeeper or watchman is also requested to get signature from the workers while entering into the factory. If so, cross verification of hours worked is very easy.

15. The payment for over time should not exceed authorized over time. It means that only authorized overtime is taken into account for payment.

16. No worker is allowed to leave the factory before the closing time.

17. The preparation of wages sheet is handover to two employees of each department on rotation basis. If so, fraud is eliminated at the maximum.

18. The personnel manager or works manager should do a test check of wages sheet calculation.

19. If workers are paid on piece rate system, the output is certified by the supervisor and counter signed by the manager.

20. Any change in pay scale that should be properly authorized by a responsible official.

21. The latest wages sheet may be compared with previous wages sheet. The differences are taken into account for cross verification.

22. An employee who disburses the wages should not have anything to do with the preparation of wages sheet.

23. Likewise, an employee who prepares the wages sheet should not take part in the disbursement of wages.