Getting to grips with top payroll challenges

July 31, 2009 • Enterprise

Payroll is often regarded as a cog within the wheel of business. However, it’s rarely a glitch-free system. It is complex, fraught with challenges and, although it does not contribute directly to the bottom line, indispensable. Understanding the key challenges and ensuring your
organisation is properly geared to deal with them – whether you make use of an in-house or outsourced payroll solution – is vital.

The top payroll challenges include:

1. Ensuring compliance

It is vital that an organisation’s payroll system comply with legal frameworks as well as other industry-specific requirements.

There has been increased pressure on companies to adhere to ‘good corporate governance’ and there is a high price to pay for non-compliance. Whether you choose to buy payroll software and operate in-house, or outsource your payroll system, it is important to ensure your payroll is compliant. Payroll
providers need to monitor changes in legislation on all levels continuously to ensure adjustments are made as and when required. Payroll systems should assist with compliance to an industry’s unique requirements – from generating employment equity reports to industrial council reports at the
touch of a button. Having as many functions as possible automated on your payroll system reduces time spent creating reports, prevents errors and, ultimately, provides peace of mind.

2. Getting accurate, real-time reporting

Accuracy is crucial to payroll. Although payroll is a batch process updated weekly or monthly, the system should also offer historical information and be forward-looking, providing an accurate representation of future scenarios. This benefits both the employee and the employer, allowing them
to act out ‘what if’ scenarios.

3. Keeping technology acquisition and maintenance costs down

Aside from the upfront costs for system acquisition and implementation of an in-house payroll system, payroll providers should assist companies in keeping technology acquisition and long-term maintenance costs down where possible. Payroll providers should also be upfront about anticipated costs,
rather than letting their clients find out about these down the line. Many organisations choose to cut these factors out of the equation completely by outsourcing their payroll service, making it an operating expense rather than capital outlay. While cost alone should never be the only factor to
consider with outsourcing, it is a major advantage, particularly in times of economic turmoil when companies have to review their spend. Outsourcing also ensures that the payroll system is in the hands of experts – cutting out the risk of errors and subsequent ‘down time’ and troubleshooting.

4. Ensuring confidentiality

It is crucial that payroll data is well protected. Payroll confidentiality breaches can have disastrous effects on any business, and it is important that strict internal controls are put in place to prevent them. One of the big draw cards of outsourcing payroll is that the information resides
outside the company and is thus less likely to be hacked. When choosing an outsourced payroll provider, data security issues should be a priority. The use of portals to receive and view payroll information eliminates the possibility of emails that can be intercepted or sent to the wrong person.
If a company chooses to email payslips, the emails should be password protected. All information on computer hard drives should be encrypted, including backups. The move away from paper-based payroll systems has been influenced by the convenience and tighter security offered by paperless
solutions, as well as the pressure on organisations to become ‘greener’ by moving towards the ‘paperless environment’ ideal.

5. Integration

It is prudent to ensure that your payroll software is based on an ‘open architecture’ creating ease of integration with other applications such Time & Attendance (T&A), accounting packages and HR systems. In addition, companies that have deployed Enterprise Resource Planning (ERP) solutions
may find that third-party payroll software is more suitable for their needs – for this reason it is advisable that the payroll solution has integration capabilities.

6. Tax accuracy

One would think that a payroll includes accurate tax calculations. However, this is not always the case. Tax is dynamic and changes and thus requires regular updates to ensure employees are taxed correctly. Incorrect tax calculations can result in penalties, additional work and inconvenience. It
is therefore important that your payroll provider delivers timely tax updates and implements regular ‘belt and braces’ exercises (if outsourced) to check that the payroll tax is correct.

7. Flexibility

It is advisable to look for a payroll solution that is rules-based and provides flexibility, allowing the creation of as many scenarios and permutations as required. This ensures that the company is not limited to a certain number of fixed “codes”.

8. Resources

Resources are often scarce in a company’s payroll department and many smaller companies work payroll administration into the job description of employees in the HR or accounts departments instead of having a dedicated payroll administrator. Payroll administrators need to be up to date with
current legislation and have a comprehensive understanding of what their role entails. Automated payroll systems and Employee Self Service (ESS) portals help to ease the workload and assist employees with ad hoc requests and basic functions such as updating their details. Outsourcing the payroll function is also a solution for companies struggling with resources, and ensures that the payroll process is managed by specialists.

Sharon Tayfield
Operations Director
Praxima Payroll Africa Systems

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