Payroll Functional Specification

Document Overview

This document provides detailed functional specifications for the BizFirstFi Payroll Platform. It covers business requirements, system architecture, data models, business logic, and integration requirements for development teams and business analysts.

Document Information	Details
Version	2.1.0
Last Updated	January 2025
Document Type	Functional Specification
Audience	Development Teams, Business Analysts, QA Engineers

Business Requirements

Primary Business Objectives

Automate end-to-end payroll processing for businesses of all sizes
Ensure compliance with federal, state, and local tax regulations
Provide real-time payroll calculations and reporting
Support multiple employee types and payment methods
Enable self-service capabilities for employees and managers
Integrate seamlessly with existing HR and accounting systems

Key Performance Requirements

Processing Performance

- Payroll processing: < 5 minutes for 1000 employees
- Real-time calculations: < 2 seconds response time
- Report generation: < 30 seconds for standard reports
- API response time: < 500ms for 95% of requests
                        

Availability & Reliability

- System availability: 99.9% uptime
- Data backup: Real-time replication
- Disaster recovery: < 4 hours RTO
- Security: SOC 2 Type II compliance
                        

Scalability

- Support up to 50,000 employees per client
- Handle 100 concurrent payroll runs
- Process 1M+ transactions per day
- Auto-scaling infrastructure
                        

System Architecture

Architecture Overview

The Payroll Platform follows a microservices architecture with event-driven communication patterns. The system is designed for high availability, scalability, and maintainability.

Core Services

Employee Management Service
Payroll Calculation Engine
Tax Compliance Service
Payment Processing Service
Reporting & Analytics Service
Notification Service

Data Layer

PostgreSQL - Transactional data
Redis - Caching & sessions
MongoDB - Document storage
Apache Kafka - Event streaming
Elasticsearch - Search & analytics

External Integrations

Banking & Payment APIs
Tax Authority Systems
HRIS Platforms
Time & Attendance Systems
Accounting Software

Data Models

Employee Data Model

Employee {
    id: UUID (Primary Key)
    employee_number: String (Unique)
    personal_info: PersonalInfo
    employment_info: EmploymentInfo
    compensation: CompensationInfo
    benefits: BenefitsInfo
    tax_info: TaxInfo
    banking_info: BankingInfo
    status: EmployeeStatus
    created_at: DateTime
    updated_at: DateTime
}

PersonalInfo {
    first_name: String
    last_name: String
    middle_name: String
    ssn: String (Encrypted)
    date_of_birth: Date
    address: Address
    phone: String
    email: String
}

EmploymentInfo {
    hire_date: Date
    department: String
    position: String
    manager_id: UUID
    employment_type: EmploymentType
    work_location: String
    termination_date: Date (Optional)
}
                

Payroll Data Model

PayrollRun {
    id: UUID (Primary Key)
    company_id: UUID
    pay_period_start: Date
    pay_period_end: Date
    pay_date: Date
    status: PayrollStatus
    total_gross_pay: Decimal
    total_net_pay: Decimal
    total_taxes: Decimal
    total_deductions: Decimal
    processed_by: UUID
    processed_at: DateTime
}

PayrollEntry {
    id: UUID (Primary Key)
    payroll_run_id: UUID
    employee_id: UUID
    gross_pay: Decimal
    net_pay: Decimal
    taxes: TaxDetails[]
    deductions: DeductionDetails[]
    earnings: EarningsDetails[]
    hours_worked: Decimal
    overtime_hours: Decimal
}

TaxDetails {
    tax_type: TaxType
    tax_name: String
    taxable_amount: Decimal
    tax_rate: Decimal
    tax_amount: Decimal
    jurisdiction: String
}
                

Business Logic Specifications

Payroll Calculation Engine

The payroll calculation engine processes employee compensation based on predefined rules, tax tables, and benefit configurations.

Gross Pay Calculation

// Salary Employees
gross_pay = annual_salary / pay_periods_per_year

// Hourly Employees
regular_hours = min(hours_worked, 40)
overtime_hours = max(0, hours_worked - 40)
gross_pay = (regular_hours * hourly_rate) + 
           (overtime_hours * hourly_rate * overtime_multiplier)

// Commission Employees
gross_pay = base_salary + commission_earned
                        

Tax Calculation Logic

// Federal Income Tax
federal_tax = calculate_federal_withholding(
    gross_pay, filing_status, allowances
)

// State Income Tax
state_tax = calculate_state_withholding(
    gross_pay, state, filing_status
)

// FICA Taxes
social_security = min(gross_pay * 0.062, ss_wage_base)
medicare = gross_pay * 0.0145
additional_medicare = max(0, (ytd_wages - 200000) * 0.009)
                        

Benefits Deduction Logic

// Pre-tax Deductions
pretax_deductions = health_insurance + dental + 
                   retirement_401k + parking + transit

// Post-tax Deductions  
posttax_deductions = roth_401k + life_insurance + 
                    union_dues + garnishments

// Net Pay Calculation
net_pay = gross_pay - federal_tax - state_tax - 
         fica_taxes - pretax_deductions - posttax_deductions
                        

Workflow Specifications

Payroll Processing Workflow

1. Pay Period Initialization

Create new pay period record
Set pay period dates and pay date
Initialize employee list for processing
Validate company setup and tax tables

2. Data Collection

Import time and attendance data
Process timesheet approvals
Calculate hours worked and overtime
Handle manual adjustments and bonuses

3. Calculation Processing

Calculate gross pay for each employee
Apply tax withholdings and deductions
Process benefits and retirement contributions
Calculate net pay and generate pay stubs

4. Review and Approval

Generate payroll summary reports
Flag exceptions and discrepancies
Enable payroll administrator review
Require multi-level approval for large payrolls

5. Payment Processing

Generate ACH files for direct deposits
Create check printing files
Process payroll card payments
Handle payment confirmations and exceptions

6. Post-Processing

Update employee year-to-date totals
Generate accounting journal entries
Distribute pay stubs to employees
Archive payroll records for compliance

Integration Requirements

HRIS Integration

// Employee Data Sync API
POST /api/v1/employees/sync
{
    "source_system": "workday",
    "employees": [
        {
            "external_id": "EMP001",
            "employee_data": {...},
            "effective_date": "2025-01-01"
        }
    ]
}

// Response
{
    "status": "success",
    "processed": 1,
    "errors": []
}
                

Time & Attendance Integration

// Timesheet Import API
POST /api/v1/timesheets/import
{
    "pay_period_start": "2025-01-01",
    "pay_period_end": "2025-01-15",
    "timesheets": [
        {
            "employee_id": "uuid",
            "regular_hours": 80.0,
            "overtime_hours": 5.0,
            "pto_hours": 8.0,
            "approved": true,
            "approved_by": "manager_uuid"
        }
    ]
}
                

Banking Integration

// ACH File Generation
GET /api/v1/payroll/{payroll_id}/ach-file
{
    "file_format": "NACHA",
    "destination_bank": "routing_number",
    "effective_date": "2025-01-16",
    "entries": [
        {
            "employee_id": "uuid",
            "account_number": "encrypted",
            "routing_number": "123456789",
            "amount": 2500.00,
            "transaction_type": "credit"
        }
    ]
}
                

Security & Compliance Requirements

Data Security

AES-256 encryption for PII and financial data
TLS 1.3 for all data transmission
Field-level encryption for SSN and bank accounts
Secure key management with HSM
Regular security audits and penetration testing

Access Control

Role-based access control (RBAC)
Multi-factor authentication (MFA)
Single sign-on (SSO) integration
Session management and timeout
Audit logging for all user actions

Compliance Requirements

SOC 2 Type II compliance
PCI DSS compliance for payment processing
GDPR compliance for EU employee data
FLSA compliance for labor law requirements
State and federal tax compliance

Testing Requirements

Test Coverage Requirements

Test Type	Coverage Target	Frequency	Tools
Unit Tests	90% code coverage	Every commit	Jest, XUnit, PyTest
Integration Tests	All API endpoints	Daily builds	Postman, RestAssured
Performance Tests	Load & stress testing	Weekly	JMeter, LoadRunner
Security Tests	OWASP Top 10	Monthly	Burp Suite, SAST tools
End-to-End Tests	Critical user journeys	Release builds	Selenium, Cypress

Test Scenarios

Payroll Calculation Tests

Salary employee pay calculation
Hourly employee with overtime
Commission-based compensation
Multiple state tax scenarios
Benefits deduction calculations

Integration Tests

HRIS data synchronization
Time & attendance import
Banking file generation
Tax authority reporting
Accounting system integration

Error Handling Tests

Invalid employee data handling
Tax calculation errors
Payment processing failures
Network connectivity issues
Data corruption scenarios

Deployment & Operations

Deployment Architecture

Infrastructure

Kubernetes orchestration
Docker containerization
AWS/Azure cloud infrastructure
Auto-scaling groups
Load balancers and CDN

CI/CD Pipeline

GitLab CI/CD or GitHub Actions
Automated testing and quality gates
Security scanning and compliance checks
Blue-green deployment strategy
Rollback mechanisms

Monitoring & Observability

Application performance monitoring
Infrastructure monitoring
Centralized logging and alerting
Distributed tracing
Business metrics and KPIs

Support & Maintenance

Support Levels

Multi-tiered support structure for different types of issues

L1: Basic user support and troubleshooting
L2: Technical issues and system administration
L3: Complex technical problems and escalations
L4: Engineering support for critical issues

Maintenance Windows

Scheduled maintenance and update procedures

Regular maintenance: Monthly off-peak hours
Emergency patches: As needed with notification
Major updates: Quarterly with advance notice
Tax table updates: As required by authorities