Don’t Let Payroll Processing Be Your Achilles Heel

Even for a business with a single location, payroll can be complex. Mistakes can damage your company’s business operations, reputation, and financial standing.

The risks increase when you expand across state lines or international boundaries. If your payroll operation is not prepared to manage your expansion, it becomes a chokepoint that limits your company’s growth.

• The need to comply with regulations at many levels increases costs and exposure to regulatory risk. Local, regional, and national taxing authorities often operate independent of one another, and their requirements may be in conflict. Failure to comply can expose your company to substantial fines.
• Employment laws like sick leave, benefits, and overtime rules can differ from one location to another, even in the same country.
• A hodge-podge of local payroll providers can significantly increase processing costs.
• Lack of centralized reporting creates an “information blind spot” in managing your company’s largest expense.

A smooth, error-free payroll operation is the foundation of your organization’s relationship with its employees. If the process operates well, it is invisible. If it doesn’t, it can affect productivity, turnover, and your recruiting brand.

The foundation for a smooth, error-free payroll operation is discipline and accountability, at every level and every step of the process.

Build a Culture of Accountability

Instilling accountability begins with transparency. Building trust where people feel comfortable holding each other accountable requires open communications.

Over the past five decades, we have seen everything from efficient, effective operations to dismal disasters. We want to share some of the practices that make the stellar operators stand out.

• Compensation philosophy, policies, and procedures are well documented. Anyone can find information about how the organization determines every compensation element and how it is calculated.
• The HR team includes Payroll in working sessions for compensation planning, including benefits and perks. Payroll can test changes and set up auditing procedures well before deployment.
• A disaster recovery plan is in place, and the team reviews it frequently. The business continuity plan includes contingency and succession planning for the loss of key personnel.
• Payroll policies and processes are clearly communicated and well understood throughout the organization. Policies regarding off-cycle checks are finely balanced between costs and employee welfare.
• Payroll is digital, from time entry to direct deposit. Organizations overcame resistance to direct deposit with well-timed communications. For employees who could not qualify for a bank account, companies work with their banks to provide debit cards at no cost to the employee. The cost savings per transaction are significant, and when you consider reduction in fraud risk and stolen or lost checks, it is even more.
• Digital transformation includes automation and integration. Your payroll system must be able to receive employee changes from your HR platform and deliver the right data to Finance systems. Automated tax reporting, benefits payments, court-ordered payments and any other interface with other business or government entities eliminates human error.
• For companies that use time clocks, biometrics eliminate the opportunity and temptation for fraud. Solutions are now widely available and budget friendly. Removing the opportunity for “buddy punching” alone can return the investment in a short time.
• Reporting and analytics are a priority, including real-time audits of time capture, approval processes, payroll runs, and tax reporting while they are in progress.
• Wherever possible, top-performing payroll operations consolidate and align payroll runs to reduce costs and improve performance.

Should You Outsource Payroll?

Outsourcing routine HR and Payroll functions can reduce costs and free management and professional staff for more strategic activities. Outsourcing can include strategies from consolidating functions in a shared services center to offloading all HR and Payroll activities, but most large global companies maintain 24-hour service centers in North America.^[1]

Software-as-a-Service outsources the technology, but not the business processes. A vendor or service provider hosts software applications on a subscription basis. This model provides predictable costs and frequent software updates. It frees up IT resources so they can focus on more strategic activities.

Business process outsourcing entails contracting with a third-party service provider who provides both the software and services. This arrangement offloads the administrative burden to specialists so you can focus on your core business. It can also give you access to specialized knowledge, which can be essential in global operations where you are dealing with dozens or hundreds of regulatory and taxation authorities.

Developing your outsourcing strategy requires planning and careful timing. You will save costs, but the outsourcing process itself incurs substantial expense. Work with your CFO to develop your business case. Consider whether you can manage the change without disrupting the current operation and whether you have experienced resources on your staff. Managing vendor relationships can be complicated.^[2]

Your payroll activity may seem automatic and times. Keeping it that way requires discipline and accountability. Make sure your payroll service protects your company and its people.

References: 

1. “Payroll Operations Survey summary of results.” Deloitte. January 7, 2015. 

2. “Outsourcing the HR Function.” SHRM.org. November 6, 2015.  

PhenomeCloud is a comprehensive technology solutions provider committed to empowering businesses to overcome challenges, enhance their workforce capabilities, and achieve superior outcomes.