Many organizations are of the opinion that if they pay their employees on time then they have an efficient payroll process in place. However, payroll processing is probably the most complicated task for any organization. Complications with respect to tax regulations, compliance, and employee benefits can ruin the accuracy and timing of your payroll system. In the 2014 Payroll Operations Survey by Deloitte Consulting, it was revealed that the top challenges companies face in payroll processing include:
1) Manual processes (23%)
2) Accuracy and timing of inputs (21%)
3) Non-standard or complex processes (17%)
In the long run, these factors could affect your organization as well. Therefore, it is imperative that you continually improve your payroll process. Below are some steps that might help.
7 Ways to Improve your Payroll Process
Table of Contents
Understanding Tax Policies:
Each miscalculated payroll can result in penalties. Failure to comply with IRS payroll regulations is usually high and companies would have to fix their errors while remitting any payments due to the IRS along with the penalties. If you want to avoid penalties, it is critical that you understand the state and federal tax laws and incorporate these in your payroll process. Keep verifying your payroll to ensure that it is compliant with the most recent tax laws. Ideally, this should be done every pay cycle. If your payroll staff is not thoroughly trained on the subject of tax laws, they may end up failing to comply with IRS requirements while processing the payroll. Employees need to be trained on a regular basis to keep themselves up to date on the various laws. Employees may have the right to file a lawsuit against an employer if payroll errors put them at a disadvantage. For example, employees who are incorrectly paid over a long period of time may not notice the error until they are owed hundreds of dollars. This situation puts both the employees and the company in a bind.
Perform Ongoing Audits:
If your employees are saying that their payroll is delayed or inaccurate, you need to conduct regular, ongoing audits. Start with a workflow analysis where each step is analyzed from start to end. It is a misconception that errors can happen only if a firm uses a manual timecard system. Mistakes are common in the case of automated payroll systems too. These include incorrectly classifying employee type, which could result in wrong tax status, withholding taxes, or forgetting to factor in pay raise after it has been granted to employees. Audit measures could include: checking each and every step in the payroll process for accuracy, testing add-ons to make sure that the payroll software is integrated with your clock and attendance system, implementing an automated attendance system through swipe cards, and conducting training programs for your payroll staff as new regulations come up.
Make Your Payroll Policy Simple and Transparent:
Errors and mistakes in payroll often occur due to misunderstandings of payroll by employees. Ensure your payroll policy is simple to understand and is known by all employees. It is important to provide clear and brief policies for issues such as attendance, leave of absence, and expense reimbursement. Transparency will help plug loopholes in your policy before they become [email protected] payroll problems, such as underpaid taxes and employee misclassifications, can be avoided by implementing a transparent payroll policy. Your payroll policy should include information that includes how the payroll process works, how employees are classified, how salaries are determined, how payroll mistakes would be corrected, and how promotions and overtime wages are calculated. Make this information available to all employees by putting it in writing and displaying it at the workplace. This way, you would encourage employees to consult your company’s written policies before making any inquiries.
Involve Your Employees:
Even if your policy is transparent, there might still be employees who do not fully understand payroll processing. Frequent communication with employees can help identify confusion and misunderstanding regarding payroll. Ask your employees which payroll processes work for them and whether there are any areas that need improvement. If your senior management has payroll issues, hold a separate meeting for them so that their problems are rectified quickly and they are able to concentrate on other critical issues. Or, if you feel a meeting would take up productive time, consider a company-wide survey of all employees to determine their level of satisfaction with the current payroll policy. You could invite suggestions on improvement. Additionally, you could ask employees to record their attendance hours, verify expenses, sign off on paid leaves of absence and perform other tasks that would not only reduce the burden of your payroll staff but also involve your employees in the whole process.
Give Online Access:
Consider providing online access to your employees’ current and past payment information. This can significantly reduce the amount of time spent by payroll staff in dealing with payroll inquiries. You should not stop at acquiring an online payroll system; it is critical that you integrate it with your accounting system. This way you could maximize your investment in the system while creating accurate payroll results. Once you merge the systems, make sure to review reports on the preliminary payroll register, paid wages list, and payroll expense trends. This would help reduce data entry errors and possible fraud.
Minimize Pay Cycles:
By minimizing pay cycles you could minimize errors in your payroll processing. Generally, companies follow the practice of paying on roll employees on a monthly basis while part-time employees are paid on a weekly or fortnightly basis. When you have different pay schedules for employees on the payroll and part-time employees, duplications may occur. To avoid this, implement the policy of a single pay schedule for all employees. The twin benefits of consolidation are minimal errors and lesser costs. When a company migrates from fortnightly to monthly pay periods, overall savings could be as high as 30 to 50%. If the organization is big, it could look at a consolidated model for certain functions of payroll. For example, a company could adopt the shared-services model, where activities such as payroll, HR, and travel and entertainment are consolidated into a specialized department. However, regardless of the system, payroll reporting should be centralized. Without centralized reporting, an organization would lose visibility regarding costs and other [email protected] you feel that payroll processing is highly time-consuming and complex, you could consider outsourcing the whole process to experts.
Outsourcing Your Payroll:
Today, businesses of all sizes are outsourcing all or part of their payroll functions. The most commonly outsourced functions include year-end tax form printing, payroll tax preparation, and filing, year-end tax form distribution, check to print, and garnishment administration.
Outsourcing enables you to leverage the expertise of a payroll specialist who has in-depth knowledge of bookkeeping, accounting, and payroll processes. It also reduces costs by allowing you to recruit only the required payroll staff and taking away the hassles of checking your payroll system for upgrades. Outsourcing also allows companies to improve delivery and service. There is no need to pore over tax forms or track regulatory changes. Everything is taken care of so that you and your employees can concentrate on other important tasks. Ensure that the outsourcing provider you choose can tailor a payroll service or solution to specifically suit the needs of your organization.