This is an excerpt from Payroll HQ’s Efficiency, Compliance and Accuracy Whitepaper
Employers often consider their payroll function a necessary interference that happens as part of being in business. Assuming it is a fixed cost that can’t be changed, and a hopeful naivety that those doing the actual processing have the skills and expertise to keep everyone away from the blowtorch of regulators.
This couldn’t be further from the truth.
But how might an organisation actually profit from becoming more proactive in relation to the payroll function? It sounds counter-intuitive, but experience and best practices show that the right payroll delivery strategy can have a tangible impact on the bottom line and provide certainty around compliance and risk.
There are many ways that organisations can profit from what has traditionally been thought of as a fixed cost clerical function. The payroll function is highly regulated, scrutinised by authorities, complex, time-consuming, constantly changing, confusing and risky, so ensuring it’s in qualified hands is imperative for both managers, employees and company directors.
Over the years, I’ve seen examples of organisations that have been underpaying staff and therefore putting their business at risk of monetary fines and charges.
We regularly work with employers who, following a compliance audit, realise that they have been unknowingly underpaying or overpaying staff for years, often by millions of dollars.
Over time (often years) and a large employee population, correcting underpayments can be material and many of these brands find their way into mainstream media. Likewise, overpayments can add up to significant amounts that have a huge impact on organisations, both by way of loss of profit, but also by causing a difficult conversation with staff who will need to be told that they will be paid less than they have been used to in the past. Remediating an underpayment and completing a backpay can often run into the millions of dollars, even if the underpayment doesn’t seem significant at first.
Under and overpayments are the most obvious issues with payroll, however, inefficiencies in the process can also provide surprises for executives as to the actual cost of the payroll function.
The most expensive and high-risk payroll operations have the most manual components to them. This is because payroll staff are the most expensive part of delivering
a payroll function and the processes they undertake manually are also the most at risk of error.
No matter what the issues are in your payroll department, whether they be under or over payments, governance risk, errors which put the company at risk of regulatory fines, mistakes which cause morale problems in the employee population, high costs of delivery, or poor communication with stakeholders, it is certain they can be caused by one or a combination of three things. Namely, your payroll people, processes and platforms.
The best payroll professionals are qualified, preferably with a Certificate IV in Payroll Administration or Diploma of Payroll Management, have great attention to detail, see customer service as a critical part of doing their job well, accept accountability, understand well the need for discretion, are process-driven and are always thinking about continuous improvement.
They are also typically being actively retained by their employers. The best payroll professionals can command higher salaries than their colleagues in finance or HR and are hard to find when you have a vacancy.
Ideally, your payroll team will have been assessed to have a high level of payroll knowledge and be up to date with regularly changing payroll legislation. The challenge is understanding the level of knowledge in your payroll office before you have a problem, not after, so we recommend that employers regularly check to see if any knowledge gaps exist using an online payroll knowledge assessment tool.
Other issues to consider are what tasks payroll are responsible for and which they are not. Payroll responsibilities can vary within organisations, and some of those responsibilities are shown in the illustration below.
The most valuable and sought after skill for payroll professionals now and in the future is a solid sense of customer service and the ability to use data analytics to provide insights to their employer.
Payroll is often very confusing for employees who do not have industry-specific knowledge, and to have a payroll professional that can break down difficult concepts and explain them simply is invaluable.
Some payroll professionals are very competent at a technical level, but without the ability to communicate knowledge unable widely in the business.
You might have a People problem if:
- Your staff turnover is higher than 15% per annum
- You have had no turnover in payroll for longer than seven years
- Your payroll team members haven’t completed formal payroll training or payroll updates for two or more years
- Your payroll team work more than nine hours days
- Payroll staff are logging into systems after hours
- Your payroll team doesn’t seek opinions on payroll legislation or answers to their technical payroll questions from specialist external sources
- Employees or line managers complain about having to deal with the payroll department
Types of Platform (or Payroll Systems)
When I first started working in the payroll industry in the mid 90’s, the most technologically advanced employers were using bundy clocks and cards. These were being manually ‘extended’ in the pay office and keyed into payroll systems. Best practices for payroll now include cloud systems, mobile connectivity for employees and electronic means of capturing attendance and interpreting awards to optimise the payroll function.
Payroll technology is being developed and updated at a rate unlike any period before. In fact, I’ve seen more advances in payroll technology in the past 24 months than I’ve seen in the preceding 24 years! There is now payroll technology that uses wireless internet services and geofencing, as well as technology being delivered to employees and managers on handheld devices and smartphones. Your employees can log their attendance just by entering a workplace and having their mobile phone recognised through the connection to WiFi. No need for timesheets, bundy cards or even biometric finger readers or facial recognition software.
The important thing is to ensure the employer is using the technology most suited to their workplace, staff and industry and that it is monitored regularly and updated as payroll rules change.
You might have a Platform problem if:
- It is difficult to make changes in your system
- You can’t get meaningful reports from your system
- Your payroll team regularly uses a calculator during the payroll process
- You have outstanding questions for your payroll supplier helpdesk for more than two working days
- You can’t get the reports you want on a timely basis
- You are rekeying data in multiple systems
- Your team are locked out of the payroll at certain steps in the process
Contrary to popular opinion, the job of a payroll office is much more than merely ‘handling payment’. A well designed payroll process should carefully consider risk, efficiency, governance and controls. It should be well documented with checklists, process maps and procedural steps. If an employer’s processes aren’t carefully planned and structured, the best payroll people and technology won’t provide you with the low risk, high value payroll outcomes you are looking for.
There are many considerations outside of the actual payment of staff to consider when designing and reviewing a payroll process. Some of them are listed in the following graphic.
All these things have an effect on compliance and efficiency of your payroll operation and many of them are the difference between a well-delivered payroll function and a poor one.
You might have a Process problem if:
- Data is being processed more than once
- Spreadsheets (or sticky note pads) are used throughout the payroll process
- There are piles of paper in your pay office
- One person can complete a payroll from end to end with no need for sign-off or checking
- You don’t have payroll checklists or they are out of date
- Your payroll delivery costs are high for your payroll size and complexity
- You don’t have a payroll procedures manual or it is out of date
- Your payroll benchmarks are poor for your size and industry
Payroll Best Practice
It can be that organisations have issues with People, Platforms and Processes, but it’s just as likely to be a combination of two factors or perhaps only one. You can have the best payroll team in the world, but if your platform doesn’t support the way you need to run your payroll, you’ll have problems. You can have the best platform in the world, but if your processes are poor you won’t get the low risk and governance you expect. You can have the best processes in the world, but if you have a poorly trained or incapable payroll team, you’ll expose the organisation to significant risk.
People, processes and platform are always the three areas that cause an employer’s ‘payroll pain’ and where the opportunity exists to improve efficiency, compliance and governance, and therefore profit from payroll. Maximising productivity and good governance from all three leads to significant improvements in payroll delivery, an optimised payroll operation and tangible effects to the bottom line.
Author: Tracy Angwin // CEO, Australian Payroll Association
Want to know more?
Download the full whitepaper here. This whitepaper is the go-to document for Business Owners, Executives and Directors to examine their payroll processes and put a plan in place for future changes to the workplace environment.Download Whitepaper