Payroll is often one of the biggest expenses for any organisation. Hence, it is crucial for organisations to ensure that it is accurate and disbursed to employees on time – or risk unhappy employees.
There is no denying that payroll is a complicated business. The complexities of processing payroll are further amplified by various factors including respective country’s labour laws, number of employees, type of salary items, and even pay frequency. Failure to adhere to respective labour laws or statutory requirements can result in hefty penalties, in which some organisations simply cannot afford to do so. Here are some do’s and don’ts to help organisations navigate the complexities of payroll processing and to drive an efficient payroll management process.
Do ensure employees are classified correctly
Incorrect classification of employees can result in inaccurate payroll calculations or statutory contributions. It is crucial to review your employees’ classifications on a periodic basis, whether they are full-time employees, contractors, part-timers or interns. These employee classifications will help to determine the pay frequency, amount of statutory contributions or applicable benefits and allowances. Wrongly classified employees can result in incorrect statutory contributions or deductions, in which the payroll team will need to spend additional time and effort to rectify the payroll errors.
Do implement a proper payroll process
A poorly documented payroll process is one of the major contributions to payroll mistakes and delays. Without a proper payroll process, staff may miss out on crucial payroll processing steps, resulting in inaccuracies in payroll calculations. A typical payroll process can be drafted out as follows:
- Consolidate payroll instructions and employee records, such as new hires, resignees, promotions, and salary increases
- Compute payroll calculations
- Review payroll results
- Salary disbursement and payslip issuance to employees
- Submission of statutory contributions
Ensure that payroll policies and steps are clearly documented so that staff are aware of each step. It is also advisable to review payroll policies from time to time to identify bottleneck areas and streamline inefficiencies.
Do establish a payroll processing timeline
Payroll is time-sensitive, which means that any delays cannot be accommodated. After all, employees certainly do not want to receive their salaries late. When establishing a payroll timeline, do consider the frequency of payouts and factor in additional time for payroll processing and checks. It may be helpful to set up monthly payroll cut-off dates to prevent any last minute changes to payroll calculations. Once the payroll schedule is finalised, ensure that every payroll staff is aware of the timelines and adhere to the dates strictly.
Do backup your records
While payroll records are usually automatically stored on the payroll software, it is important to back up payroll records on reliable media or on the cloud from time to time. After all, you never know when payroll records may accidentally be deleted by a disgruntled employee or hijacked by malware. Concurrently, do implement robust data security protocols to ensure secure storage of your payroll records.
Do not assume that payroll calculations are always correct
Most companies would be utilising some form of payroll software for their payroll processing. As such, it is easy to assume that payroll calculations are always correct given that they are computed by a software instead of manual excel calculations. However, a small incorrect data entry can result in incorrect payroll records for the month. Moreover, most payroll software are unable to handle international payroll processing, which just increases the risk of payroll miscalculations. Consider incorporating a doer-reviewer process as part of the payroll procedure. This helps to ensure that payroll calculations are thoroughly reviewed and checked for any potential errors before disbursement to employees.
Do not underestimate the importance of payroll training
Even with the most updated payroll software or robust payroll policies, all will be in vain if payroll staff are ill-equipped to execute the payroll functions. Periodic payroll training for employees helps to drive internalisation of existing processes and provide a platform for employees to clarify any queries or raise areas for improvement. Given that payroll legislations and employment law are constantly evolving, regular training ensures that employees stay abreast with ongoing legislative changes. This helps to facilitate employees in executing compliant payroll processes.
There are no golden rules when it comes to payroll management. However, smart payroll management first starts with understanding improvement areas within the payroll team and taking steps to mitigate them. By implementing the fundamental steps to address inefficiencies within the payroll team, this will certainly help to boost the payroll department to manage the complexities of payroll more efficiently.