This guide was written by James Proctor, Chief Operating Officer at Phase 3, a digital transformation partner across HR, Payroll and Finance providing high calibre Professional and Managed Services, acting as an extension to your own team.
Payroll and pay is an emotive subject, if payroll processes are not 100% accurate employees suffer – either due to over or under payments. In the world of real time information, universal credits and those expecting pay on demand payroll extends beyond the payment made to employees. This guide covers a number of ways payroll departments can ensure they are at the leading edge of payroll accuracy, with a strategic focus with a people centric approach.
Payroll by its very nature is a transactional process involving lots of entries and human input. Whether this be in an organisation with heavy use of self service for employees and managers, where they take some of the strain or if processes are a little more manual with payroll and centralised HR teams processing transactional input the level of activity in a payroll team is usually very high.
When discussing Payroll processes with many payroll teams there is a slight reluctance to review processes – they know what works and what doesn’t, what saves them time and what costs them time. But – are those who are heavily involved in their own processes the best people to review them? How do you turn a critical eye onto your own department without triggering feelings of defensiveness. Coupled with the fact that not many people other than the payroll team in an organisation have the knowledge to challenge those practices.
A payroll partner provides opportunities to not only review the compliance of the payroll team but also consider:
A payroll partner can be a huge asset during people projects which have an impact on pay, or for supporting organisations with pay and reward strategies – with an independent and people centric approach to reviews. Payroll partners can also offer challenge to the internal teams, unike an auditor whose sole focus is on compliance a payroll partner can review the approach to payroll processes, such as overpayments or underpayments.
It is surprising when scratching the surface how many payroll departments do not fully understand or utilise the features of the products they have purchased. A key question to delve into is – how well do you know your payroll technology?
A simple strategy to find out more about your chosen product is to review the product as if you were buying it again. Visit the website and request a demo, review the system specification and features matrix and speak to the sales team about the best features of their product. This might seem like a strange approach, yet it will allow you to see the flagship functionality the solution offers – and, if you aren't seeing that functionality or the associated efficiencies and advantages then a review may be required.
Reviewing the utilisation of your payroll product should not be a complex process, but here I recommend some of the key areas of focus on a review:
This is a great way to see full lists of pages/ features within the product and determine what your team don’t have access to
Take a look at the system workflows, which ones are enables and in use? Which ones have been partially configured but not completes. What would you add to a wish list?
Follow a transaction from start to end and determine how many system touch points, communications which occur outside of the system e.g. by email or form, and determine if there is functionality available to replace that manual communication
What does your product do automatically and have you enabled it?
Many solutions that have a ‘payroll engine’ can have the payroll processed automatically, for example overnight. But, take this a step further – what else can it do automatically? With some products offering more complex workflow I know with the click of a button I can set the payroll to process overnight and then all of the checking reports are run and delivered to my inbox ready for review. I can also send a pre-payroll approval report to all budget holders in the organisation – all value adding activities and capacity creating.
If you don’t have the expertise in house to conduct this review, or your payroll partners are not experts in the payroll technology there are other alternatives – independent consultants or your software supplier may offer a review service which can be focused on creating improvements. The end result of any review should be a better service for the payroll customer – the organisation’s employees.
Reporting is crucial in payroll not only for checking and balancing the payroll, but also from a financial perspective being able to analyse the ‘spend’ in the business helps HR and payroll teams to review resourcing requirements. For example, if I know I have 2000 fte in my business, but there are 450 hours of overtime being conducted regularly my effective fte is actually 2012 fte. Instead of paying overtime rates the business might utilise new hires more effectively.
Payroll checking is often a contentious issue – how do you actually check the accuracy of the payroll? One of the key considerations is how your workforce operates. For example, many businesses do net on net comparisons between 2 payroll months, but if you have a gig economy style workforce, or a large pool of casual staff comparing net pay between 2 months would be of limited value.
Payroll solutions often have inbuilt checking reports or error logs to try and focus the user on where they may be problems. Payroll checking reports should in the least analyse:
The key to successful payroll checking reports is to identify a delta to previous payroll periods and reconcile what actions have taken place. For example, what changes have taken place and are they authorised and expected changes. This can be managed through authorisation process or workflows – which can be compared with changes to gross pay for example to determine if the changes have been expected. Additionally, ensuring that the payroll is configured correctly is important – when checking gross pay and pensions as an example, are all of the relevant pay items including in pensionable pay?
Payroll reporting should also extend into the wider business – the old cliché that the people are the largest cost to the business is often actually the case and so ensuring that spend is correct is critical. There are of course horror stories of people being overpaid hundreds of thousands of pounds – something which clearly should never happen, yet unsurprisingly when relying on a small group of people in the organisation to spot those changes or errors they can happen.
Consider how you might share the burden of checking with those in the organisation through payroll reporting prior to the final payroll run. Allowing managers to review their employees gross payments, or even employees themselves having the opportunity to review their pay data ahead of the final run will allow for open communications and a change to identify any errors prior to the final run. A strong recommendation I make is to diagnose the issue when it is found and see if it affects any other people.
Payroll is an ever changing landscape – and over the past 10 years has seen significant changes, in particular with technology and with the introduction of real time information, pensions auto enrolment and stricter enforcement of National Minimum and Living wage, not to mention the challenges of average overtime payments for holidays and 52 week holiday calculations. How do you ensure your team are up to date with recent legislative changes?
The Chartered Institute of Payroll Professionals (CIPP) run regular updates for members, law firms offer free webinars and sessions and organisations like the Global Payroll Association run annual events for payrollers to stay up to date. Ensuring your team have enough time to learn about the changes is clearly very important, and making sure that your team engage with regular learning is on the critical path to success.
How do you enforce your team taking development time? Particularly when many changes take place at year end, just when the teams are at their busiest! Having regularly scheduled learning sessions for your team will ensure they can stay up to date on emerging changes, follow stories and share knowledge with each other.
With the volume of transactions, particularly with Covid 19 and the Coronavirus Job Retention Scheme payroll has been extremely challenging for most payroll professionals with many working additional hours over and above the usual to ensure payrolls have been processed accurately on time, many whilst working in unusual situations (from home) with new processes and perhaps new systems. Ensuring a work life balance for your payroll teams is particularly important, especially to protect mental health and overall employee wellbeing.
There are a number of potential integrations with payroll systems, and many of them offer fantastic benefits to employees and also savings to employers. Examples include:
(Including salary sacrifice), can be integrated into payroll solutions to automatically update values
Many providers now offer an integration with payroll to provide ‘pay on demand’ to employees, meaning they can draw down on their salary at certain points in the month – with the provider offering the funds immediately with an admin fee for the employee
With general ledger API’s to link payroll data to the financial system automatically and in real time
Allowing businesses to pass data to pension providers, conduct auto enrolment journey reporting and ensuring that pensions contributions are automatically uploaded to the provider to allow them to collect payments.
Integration with HR is clearly critical too, and if the chosen solution isn’t fully integrated with HR it is essential to ensure data is flowing between HR and Payroll. Integrating HR into payroll is hugely beneficial as the reduction in manual entry reduces the amount of transactional burden and allows the team to take much needed time to focus on other areas of payroll development.
In particular there are key reports such as Gender Pay Gap reporting that relies on the data from both HR and Payroll.
There are a number of possible suggestions in this document as to how to improve your payroll processes, consider outsourcing, develop your team and focus on their health and wellbeing. If you need support with your payroll processes, would like to discuss payroll partnering or are considering outsourcing your payroll service then please get in touch for an initial conversation to see where we can add value to your payroll processes.
