Managing The Complexities Of Payroll Processing
29 Jul 2021
Payroll processing is a daunting, time-consuming yet necessary business process. It is a critical and demanding function, compounded with the various number of steps involved in executing it on a monthly basis. With the ongoing changes in labour laws and tax regulations, it is imperative that the payroll team stay abreast of any changes to ensure compliance. Given that payroll is highly-sensitive, the payroll team has to ensure that payroll is accurate and compliant with the necessary labour laws and regulations. As the organisation expands and employee headcount increases, this can add on to the difficulty in managing payroll effectively.
While each organisation has their own set of payroll hurdles, there are some common challenges that most organisations tend to face. Based on an article published by Invensis on the most common challenges of payroll processing, some of the underlying challenges faced by organisations during payroll processing are: understanding payroll elements, payroll accuracy and deadlines, employee data management, and payroll security. Similarly, the common theme that underpins the solution to each of these challenges is to start with a thorough analysis of your organisation’s internal payroll operations.
Challenge one: Understanding payroll elements
Employee compensation typically comprises various salary elements. Besides basic wages, this may include allowances, variable bonuses, and long-term incentives. The challenge in understanding payroll elements is that the terminology may vary from country to country. Between countries, the type of allowances provided to employees, tax regulations and statutory contributions may differ as well.
In order to ensure accurate payroll processing, the first step is to thoroughly understand the various components of compensation. This also means ensuring employees are correctly classified, being aware of the compensation elements that are taxable, and understanding the amount of the statutory contributions for respective employees. HR and payroll professionals need to constantly stay on top of ongoing changes in payroll legislations, particularly if they are managing a regional or global portfolio. Signing up for email alerts with the government agencies or respective country labour bureau can help to ensure that the payroll team does not miss out on any critical announcements on payroll legislative changes.
Challenge two: Ensuring payroll accuracy and meeting deadlines
In the absence of payroll software, organisations may resort to using excel spreadsheets for payroll calculations. However, this often results in numerous inaccuracies and wrong calculations when handled inexpertly. A small error or one-off wrong salary calculation can bring down the trust and morale of employees significantly.
Besides ensuring payroll accuracy, adhering to payroll deadlines is of utmost importance. No employee wants to have their salary payments delayed. However, with the multiple payroll dates and tax reporting deadlines to meet, it can be overwhelming at times for the most seasoned payroll professional.
Leverage on a robust and effective payroll system. The fancy thing about payroll software is that it not only ensures accurate payroll calculations even month, it is also programmed to keep track of ongoing changes in statutory contribution rates or any other legislative changes.
Payroll is a monthly batch update process. While most payroll software allows organisations to do a batch upload of the monthly payroll information for processing, the critical factor is knowing when the cut-off date is. Timely salary disbursements to employees start with having a payroll calendar in place. By marking out dates where salaries need to be made available to employees, this allows the payroll team to plan ahead. Organisations can also capitalise on their existing payroll software to effectively manage important payroll deadlines. Most payroll software comes with features which allows staff to set alerts or reminders of important dates such as tax reporting, payroll cut-off, or work visa renewals. Staying on top of these important deadlines and payment obligations helps the organisation to avoid penalties.
Challenge three: Managing employee data
Data management has traditionally been a huge challenge for most organisations. The flow between human resources and payroll has to be seamless in order to ensure accurate payroll calculations. However, this is often riddled with gaps given that data between both functions tend to be out of sync. Delays in updating key employee and salary information such as changes in employee details, promotions, terminations and bonuses lead to data discrepancies which may result in multiple payroll reruns.
When it comes to effective employee and payroll data management, the first key step is to centralise and standardise the data. This could mean unifying HR and payroll data into a single platform, whereby all the relevant employee and payroll data is maintained in a central location. With a unified payroll and HR system, this ensures continuous quality of data as any changes to employee or payroll data are immediately updated within the system. Concurrently, reports can easily be pulled from a single source as opposed to disparate systems, facilitating quick strategic decision-making.
Challenge four: Payroll security
Breaches in payroll can have adverse effects on an organisation, which is why it is crucial that payroll data is protected from any possible data leaks. However, more often than not, organisations do not know where to start or how to implement internal controls to ensure effective and secure storage of payroll records. Coupled with the amount of historical payroll records that organisations may possess, either hardcopies or softcopies, this becomes a persistent headache for the HR and payroll teams.
A clear data security roadmap is required to break down this daunting challenge into mini manageable projects and rolled out in stages in tandem with payroll security tools. The first step is to identify existing loopholes and areas where data security may be compromised. Thereafter, the roadmap should be developed in line with new data security protocols, ensuring long-term continuity and sustainability. Organisations should also work with their payroll software vendor to understand what are the current data security protocols and controls in place. This then allows organisations to supplement areas where there may be potential data breaches.
Payroll processing is a considerable expense for any organisation and it does come with its own set of challenges. However, having a well-trained team and the right set of payroll tools ensures that the organisation’s payroll workflows will always be well-taken care of in a timely manner.
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