Do you know the importance of payroll management? Payroll is often one of the biggest expenses for any organisation. Hence, it is crucial for organisations to ensure that it is accurate and disbursed to employees on time – or risk unhappy employees.
There is no denying that payroll is a complicated business. The complexities of processing payroll are further amplified by various factors including respective country’s labour laws, number of employees, type of salary items, and even pay frequency. Failure to adhere to respective labour laws or statutory requirements can result in hefty penalties, in which some organisations simply cannot afford to do so. Here are some do’s and don’ts to help organisations navigate the complexities of payroll processing and to drive an efficient payroll management process.
Do ensure employees are classified correctly
Incorrect classification of employees can result in inaccurate payroll calculations or statutory contributions. It is crucial to review your employees’ classifications on a periodic basis, whether they are full-time employees, contractors, part-timers or interns. These employee classifications will help to determine the pay frequency, amount of statutory contributions or applicable benefits and allowances. Wrongly classified employees can result in incorrect statutory contributions or deductions, in which the payroll team will need to spend additional time and effort to rectify the payroll errors.
Do implement a proper payroll process
A poorly documented payroll process is one of the major contributions to payroll mistakes and delays. Without a proper payroll process, staff may miss out on crucial payroll processing steps, resulting in inaccuracies in payroll calculations. A typical payroll process can be drafted out as follows:
- Consolidate payroll instructions and employee records, such as new hires, resignees, promotions, and salary increases
- Compute payroll calculations
- Review payroll results
- Salary disbursement and payslip issuance to employees
- Submission of statutory contributions
Ensure that payroll policies and steps are clearly documented so that staff are aware of each step. It is also advisable to review payroll policies from time to time to identify bottleneck areas and streamline inefficiencies.
Do establish a payroll processing timeline
Payroll is time-sensitive, which means that any delays cannot be accommodated. After all, employees certainly do not want to receive their salaries late. When establishing a payroll timeline, do consider the frequency of payouts and factor in additional time for payroll processing and checks. It may be helpful to set up monthly payroll cut-off dates to prevent any last minute changes to payroll calculations. Once the payroll schedule is finalised, ensure that every payroll staff is aware of the timelines and adhere to the dates strictly.
Do backup your records
While payroll records are usually automatically stored on the payroll software. It is important to back up payroll records on reliable media or on the cloud from time to time. After all, you never know when payroll records may accidentally be deleted by a disgruntled employee or hijacked by malware. Concurrently, do implement robust data security protocols to ensure secure storage of your payroll records.
Do not assume that payroll calculations are always correct
Most companies would be utilising some form of payroll software for their payroll processing. As such, it is easy to assume that payroll calculations are always correct. Given that they are computed by a software instead of manual excel calculations. However, a small incorrect data entry can result in incorrect payroll records for the month. Moreover, most payroll software are unable to handle international payroll processing, which just increases the risk of payroll miscalculations. Consider incorporating a doer-reviewer process as part of the payroll procedure. This helps to ensure that payroll calculations are thoroughly reviewed and checked for any potential errors before disbursement to employees.
Do not underestimate the importance of payroll training
Even with the most updated payroll software or robust payroll policies, all will be in vain if payroll staff are ill-equipped to execute the payroll functions. Periodic payroll training for employees helps to drive internalisation of existing processes and provide a platform for employees to clarify any queries or raise areas for improvement. Payroll legislations and employment law are constantly evolving. Regular training ensures that employees stay abreast with ongoing legislative changes. This helps to facilitate employees in executing compliant payroll processes.
There are no golden rules when it comes to payroll management. However, smart payroll management first starts with understanding improvement areas within the payroll team and taking steps to mitigate them. By implementing the fundamental steps to address inefficiencies within the payroll team, this will certainly help to boost the payroll department to manage the complexities of payroll more efficiently.
Managing payroll is a highly meticulous task. Even the most seasoned payroll professionals may make mistakes from time to time. This is due to the ever-changing payroll legislations and large volumes of employee data. It is imperative to ensure that payroll is done precisely and accurately. The most minor error could potentially result in expensive damages for the organisation.
Some organisations believe that the best way to manage payroll effectively is to run payroll in-house. This allows them to be in complete control of payroll processes. However, payroll processing is often not as basic as it seems especially when handling large volume across different regions.
Here are some of the top 3 challenges that most payroll professionals face on a daily basis. Here is how to effectively address them:
Adhering to ever-changing payroll legislations across the region
Payroll legislations across all countries are constantly changing, adding on to the complexity in processing payroll. According to research from TMF Group’s 2020 Global Business Complexity Index (GBCI), legislative complexity associated with HR and payroll varies considerably between different jurisdictions. It then falls upon HR to ensure that they constantly keep abreast of the changes in payroll legislations across the region to ensure compliance with the respective laws and regulations. Majority of the time, non-compliance can result in hefty fines imposed on the organisation.
Given the challenge in having to stay up-to-date with legislations that are constantly evolving, the common solution that most payroll professionals turn to is outsourcing their payroll function. By engaging a third-party payroll vendor, it eliminates the need to constantly monitor the individual country’s payroll landscape for any legislative changes. Most payroll vendors are able to stay on top of any major or minor payroll changes and incorporate any changes into their payroll software. This helps to ensure that organisations who utilise their payroll software comply with the ongoing changes in payroll or tax legislations.
Processing payroll for high volumes of employees
Processing payroll consumes a large chunk of time. This is because there is pre-work such as timesheets and data changes consolidation that has to be done before the payroll run. It becomes even more time-consuming if there is a need to process payroll for a large group of employees. The time spent on reviewing the accuracy of payroll records, employee timesheets to salary calculations and deduction, and compliance with statutory laws and legislations. All these hours can be used to help support the business in terms of growth and expansion.
By engaging an outsourced payroll vendor, these administrative tasks can be passed on the vendor. The payroll vendor will be responsible in ensuring accuracy and compliance. Companies who use Human Capital Management (HCM) software may face the challenge of synchronizing their employee data on the global HCM system with the payroll data in the local payroll systems. Maintaining accurate employee data across multiple systems, often manual re-entering. Some may upload the same employee data from one system to the other. It can result in the loss of several days of HR productivity each month as well as manual mistakes. Some companies outsource this process to payroll vendors.This helps ensure that the right employee and payroll data is fed into internal systems. Through state-of-the-art data integration technology, some payroll vendors may have their payroll system integrated with the HCM system. This enables easy transfer of data between the platforms.