Payroll – getting it right

Payroll is a key function in every organisation. With half of workers saying they’d look for another job if their employer repeatedly made mistakes with their pay, getting it right is essential.

For many businesses, payroll is their largest expense – in some cases up to 80% of expenditure. Getting paid is why most people go to work – it’s the single biggest benefit they get. Gym memberships, discounts on IT purchases and flexitime are all attractive, but they don’t come close to simply getting paid for what you do. Getting payroll right can’t be overestimated. Getting it wrong can lead to a catalogue of problems.

Paying people correctly isn’t just a legal or contractual obligation, it’s essential to keeping employees happy. Not only that, but the cost to replace disgruntled employees who have moved on is significant – depending on time frames and roles it can be in the £30k region.

So what can go wrong?

Well, quite a lot actually – when you consider that 70% of organisations use manual payroll processes to some degree. Inaccurate collection of data, manual input errors, a lack of effective data protection, mistakes as a result of not being up-to-date with legislation (and having to fix those mistakes) are just some of the potential pitfalls. A poor payroll run – inaccurate and/or late – can turn into a minefield of issues with potentially ongoing, longer term fall-out.

Our recent survey found 61% of employees had been paid incorrectly at least once in a twelve-month period across 2020 and 2021.

Additionally, when the payroll team is small any unexpected absence adds pressure and can cause delays and mistakes. Finding qualified, experienced payroll employees is also a challenge. Both scenarios leave an organisation exposed.

A changing landscape

The pandemic impacted all aspects of working life, payroll management included. Alongside other operational factors, organisations are reviewing how they manage payroll. Debate largely centres around whether to keep it in-house, outsource it or meet somewhere in the middle.

To outsource, or not to outsource…

A perennial debate. Outsourcing, to some, suggests a relinquishing of control, a loss of accountability and the personal knowledge the payroll team has (“Sandra always books leave after Easter. It’s not showing up here, I’d better check…”) Other concerns include not having instant access and losing the ability to make last-minute changes.

But there are significant advantages to outsourcing – increased accuracy in payroll processing topping the list. The reduction in risk and single points of possible failure is also a major consideration – particularly when an in-house team is small. Freeing up time for key personnel to focus on other areas of the business is a factor, as is the potential to identify possible fraud or financial misconduct more easily. There are also cost savings in outsourcing: reduced head counts and not having to train, re-train or hire in-house payroll personnel will impact the bottom line directly. Additionally, an external payroll company will keep their team up-to-date on legislative changes. Different levels of service are available from providers, so organisations can retain the control but outsource the admin components should they choose.

Many external payroll providers also offer data reporting options that can be used for analysis, planning and budgeting. Data can be examined on an individual, departmental or organisation-wide basis. Localised and finite trends can be picked up. However, if something goes wrong it is still the company’s responsibility, not the payroll provider. Additionally, your organisation may have to adapt to some of the outsourcing company’s processes and systems. And remember to research your potential provider; are they a good fit? Do they work with other companies in your industry?

There isn’t a right or wrong answer on whether to outsource payroll. It’s about what works for your organisation. Circumstances can change – so it’s worth keeping an open mind as to the options.

Getting it right

Whichever approach you take, or whatever new systems or philosophies you adopt, one key fundamental remains in place: payroll needs to be right because your workforce depends on it.