Payroll really is one of the most critical functions in your organisation. Yet it has often been an area that gets little love, focus or attention from top management. Its objective always has been to pay people correctly and on-time — and because it’s typically been so effective at doing that, it’s maintained a low profile in the organisation. For the people that depend on your payroll department every week or month, it’s as if a team of ‘payroll fairies’ have magically ensured that the money dropped into their bank account. Sounds lovely? Senior management have often thought of payroll as being a low-risk area in the organisation. For that reason, it’s a business unit that has probably been starved of a continuous improvement mindset.
The unintended consequences of this are inefficient payroll departments that are:
- Using outdated technology that might not meet their needs — with a reliance on admin-heavy workarounds
- Payroll processes that are shared amongst multiple departments, leading to potential errors and mistakes
- Payroll being reliant on the knowledge of a handful of people and that knowledge not being properly documented
- An under-investment in the right training and development for the people in payroll
Most payroll operations are doing things today the way they did things decades ago which really is at odds with the rapid change and digitalisation that has been felt in other departments. Even where new technology has been brought in, it might be replicating existing in-efficient processes, rather than ushering a bright new way of doing things. When managers finally get round to benchmarking their payroll departments, they often realise it costs a lot more than they thought and has more compliance and regulatory needs than ever.
So, before we start to talk about how to increase payroll efficiency (in Australia), we need to define what that actually means in practical terms. Improving efficiency is essentially achieving greater productive output with the same level of resources (or maintaining the level of output using fewer resources). Efficiency also needs to take into account the impact of errors which can be costly. A report from PwC estimates that Australia’s top employers make mistakes to the tune of $4.4 million each.
Then there’s the consequences of making those mistakes that can be far-reaching. You’ll appreciate the challenges of interpreting Australia’s pay awards system with its 100+ variants. In 2018, cosmetics brand LUSH reported itself to the Fair Work Ombudsman after realising that it had underpaid 3,130 employees from 2010 to 2018, breaching three different pay awards in the process. This resulted in them having to pay back $4.4m in pay and make a $60,000 contribution award. Whilst this probably hasn’t removed Australian enthusiasm for LUSH’s products, it did bring the company hefty legal bills and a dose of negative publicity. Not all organisations are in a position to find $millions for back-pay.
The first thing you need to do is keep on top of legislative changes on a regular basis. For example, you can check with the Australia Taxation Office. Many cloud-based payroll software platforms automatically get updated to reflect the latest rules and pay awards, but it’s also worth diarising an internal audit, at least every few months. Depending on the size of your company you may choose to outsource some of your payroll processes — and a fully managed payroll service may be able to achieve the same level of service and output at a lower cost.
One thing that seriously dented payroll efficiency during COVID was the lack of business continuity planning that was in place. Many companies found themselves locked out of on-premises payroll software, when the pressure was on to get people paid. Often payroll knowledge sits in the minds of a very small number of people and tends to be undocumented. When something goes wrong or that person is off-sick, trouble is ahead.
If COVID taught us anything, it’s that you don’t truly know what is coming next. Therefore, now’s the time for you to finally document payroll processes in SOPs (standard operating procedures) that allow anyone to get up to speed fast. They need to know exactly what needs to be done and when. When your payroll process is standardised and process-driven, people can pick-up where others left off.
With today’s remote and hybrid-based workforce, self-service is a must have. There’s little argument these days for having the need to manually print and distribute any kind of paperwork. With the Australian privacy regulations (and it’s GDPR equivalent in the EU), self-service portals make it much easier to be data-compliant and avoid sensitive and confidential payroll data being printed and seen by those who shouldn’t.
Employees love the ability to self-service — and it’s helpful when they can access their pay history in a matter of clicks.
Next stop on your payroll efficiency drive is the importance of entering payroll data at source. This means automating the collection of data wherever possible to avoid the payroll department duplicating any kind of effort. For example, use the API from your time and attendance system. If hours do need to be entered, have line-managers do this once and pull this data directly into your payroll system. Every time data needs to be re-keyed, not only is it adding extra cost to the process, but it’s also providing another opportunity for error to creep in. Time theft and payroll fraud is also more likely to occur when there are opportunities for data to be altered at some point in the process.
Upgrade your online payroll software regularly. If you’ve been using the same payroll software for years, there’s a good chance it doesn’t reflect the latest pay award rules and local legislation. Reliance on this older software could also mean you’re using spreadsheets to make loads of manual calculations — where errors and mistakes can rapidly breed. Modern day cloud-based payroll systems most likely come with automated updates, so they reflect the latest rules and regs.
When it comes to errors and sinister activities like payroll fraud, ensure there is a separation of duties. A single person should not be able to input, process and output - there needs to be validation steps to ensure accuracy and approval.
Business owners can sometimes neglect the need to upgrade their payroll. Think about it like this. You probably change your mobile network every year or two. After all, better prices become available. Those who mindlessly stick with the same supplier for years become detached from the improved services and prices that are on offer. Treat your business the same way — scan the market regularly to make sure you’re using the best and not overpaying for something that no longer meets your needs.
Don’t neglect your payroll teams themselves. Just because Julie has been processing your payroll for over 30 years doesn’t mean she’s in touch with all the latest trends, processes and payroll laws. There’s a good chance she’s processing payroll based on practices that were prevalent 30 years ago. Keep your payroll team on its toes — give them time for training and development. If you can automate part of the payroll journey, you’ll give these people more time to focus on value-add like reporting and insight.
For all you know, your payroll team might waste a lot of time manually chasing different managers for their timesheets and other information (and onboarding data about new starters). By building in automated chasers and notifications, it will speed up the process and avoid those late inputs that really risk the chances of a late payroll.
Your onboarding process needs to support the payroll team. In the absence of a thorough onboarding process, employee information, tax and bank details can arrive late. So, build this into the process for new-starters so everything is submitted with plenty of time to get them their very first pay-check. Date-effective payroll processing means that the correct pay is automatically calculated for people who join you in between pay periods, saving you some very frustrating and time-wasting manual calculations.
Could it be that your company has multiple pay periods and pay dates — perhaps as a result of mergers or acquisitions? This can seriously add to the cost of running payroll. Could you streamline and harmonise these? That would be a real efficiency booster in itself.
What about Payroll API integration and payroll integration with ERP? APIs these days make it so easy to bring different and disparate systems together. By integrating your payroll software with other systems (like HR software, time and attendance and even benefits platforms) it saves so much time and avoids the errors and frustration that occur when exporting from one system, double-keying and importing to another.
No matter which way you look at it, payroll has evolved and it’s time for this crucial business function to get the recognition it deserves. Without realising it, there’s cost and time reduction opportunities just crying out to be implemented. By putting technology and training to good use it’s time to put your payroll department on the map!