Business Resources

How An Outdated Payroll System Can Hurt Your Business

Payroll is one of those key business functions that organisations need to invest heavily in. After all, employees’ livelihood depends on timely and accurate disbursement of their paychecks. Simple as it may sound, the backend work in processing payroll is a myriad of complex calculations.

Before the era of cloud computing, payroll calculations were done manually on excel spreadsheets and overtime, allowances or deductions were individually entered into the system based on physical copies of timesheets. It is obvious that the likelihood of payroll calculation errors is bound to be high. Business leaders today recognise the need to leverage payroll software to automate administrative payroll tasks and ensure high accuracy in payroll calculations. However, many business leaders fail to realise the importance of continued investment in upgrading and ensuring the relevancy of their payroll software with the business’ needs.

Based on the 2019 Payroll Benchmark Report released by the Australian Payroll Association, it found that a staggering 83% of close to 1,900 employers surveyed confessed to not having updated their payroll software in the last two decades. Of the remaining 17% of employers who had updated their payroll software since 2000, close to three-quarters indicated that they are using payroll software designed specifically for small businesses, despite half of them having a headcount of more than 100 employees. These statistics are concerning as it reflects the possibility that an organisation’s payroll software is not aligned with existing payroll legislations, which in turn could result in underpayment for employees whose payroll is on the legacy system.

The solution to the problem is fairly simple – why not just upgrade the legacy payroll software to ensure that it is configured based on current legislative requirements? For the majority of businesses however, it is a time-consuming and complex process. Businesses will need to backup their historical records in the event that the software upgrade crashes. There is also a lot of software testing involved to ensure that payroll calculations are accurate and in line with updated payroll legislations before going live. These multiple workflows culminate in the fear to change. However, lack of period payroll upgrades can have a detrimental and costly impact to the business in the long-term.

Risk of non-compliance

Using an outdated payroll software may risk non-compliance with statutory payroll regulations. Given that labour laws and payroll regulations change from time to time, it is crucial to stay on top of these changes to ensure accurate salary calculations, and statutory contributions and deductions. This is especially crucial for businesses that manage payroll for multiple countries. Most of the time, non-compliance with payroll regulations may result in costly fines from the respective statutory boards.

Reduced productivity and efficiency

Manual payroll processes are the culprit behind long hours spent on processing payroll. Using an outdated payroll software usually means that the features are not equipped to support the latest payroll legislations. This results in double work as payroll staff will still have to manually perform and verify payroll calculations to ensure compliance. Similarly, this increases the chance of data entry errors and inaccurate calculations.

Limits business expansion

Outdated payroll software, or any business systems for that matter, typically mean that more resources have to be allocated to handle the tasks. Such a business model is usually not sustainable in the long run as employees spend more time trying to resolve administrative matters instead of executing the business’ strategic goals. These operational limitations can ultimately hinder the business from expanding.

Keeping payroll software updated is imperative in ensuring accurate salaries for employees while complying with statutory requirements. However, if it becomes a struggle to keep up with ongoing software updates, an alternative option is to consider outsourcing the payroll function to a third-party software provider. Having an external payroll provider takes the complexities of payroll processing from the business, freeing up valuable time for employees to focus on strategic business priorities and growing the business.

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