If there was ever a thankless job in the HR world, it’s payroll management. Wherever there are employees, payroll has to be run every month, sometimes multiple times, with a tremendous amount of work involved and little reward. No surprise, it functions in many organizations as a sunk cost and resource consumer that businesses dread for a variety of reasons. Much of the problem has to do with payroll’s pain points when managed internally.
Using Manual Processes
Everyone who has employees has to direct resources to payroll for the purposes of compensation, retention, accounting and, most important, tax withholding. Each employee represents a set of transactions that all have to be calculated off of timesheets, checked for errors, processed, charged, and collected against. A single error can result in hundreds of dollars being misallocated, and that can snowball into more related errors as most everything works off of percentages off the main pay calculation. In short, manual processing is ripe for mistakes, and they happen a lot due to human errors and multiple input points. HR usually gets blamed for the mistake because if the employee did everything correctly on the timesheet, HR is in control of the rest. It’s a losing position every month.
Monthly Salary Calculations Don’t Stay the Same
Even with standardized positions, there is a wide range of variation that can occur from one employee to the next. One goes on vacation, and the other has sick days. A third gets a promotion, and a fourth is temporarily redirected to another task with momentary higher pay or a bonus. In a single company, there could be dozens of salary and wage variations in a month for the same type of employee, and HR has to keep track of it, which can be a nightmare when done manually. That’s in addition to all the regular calculations for retirement, social security, tax withholding, Medicare, voluntary retirement, medical benefits, fringe benefits, and any leave balance updating as well.
Compliance
The government doesn’t rest when it comes to making changes business payroll has to comply with. Every year, new changes come down the pike that HR offices have to stay on top of, including some that require significant system changes to internal payroll services. Worse, some changes don’t provide for a lot of lead time either. HR offices are regularly under the burden to monitor for new legal requirements as well as make necessary adjustments when they are enacted, and those changes can come from multiple levels of government, sometimes simultaneously. Most tend to be tax-related, which in turn triggers changes to calculation processes, creating more workload exponentially as well.
Record-Keeping
Whether it’s small business payroll or large corporations, everyone managing employees has to maintain a standardized recording-keeping process and repository for payroll transactions. Tax agencies want to make sure payroll taxes are charged and withheld correctly. Auditors focus on payroll since it usually represents one of the biggest cost areas in a company. Internal management wants to be able to access an employee’s records at will for retention, promotion, planning or even discipline. That in turn creates a tremendous number of records that grow fast. One individual after five years typically has an inch-thick folder of paperwork associated with his or her employment. Sloppy record-keeping in HR quickly leads to internal tracking problems as well as compliance issues, and both can be painful to repair.
Top Ten Best Picks for Payroll Services
Absenteeism Tracking
There is already a huge amount of work that goes into managing personnel data when people are present, but HR payroll also has to track when people are absent to be sure they are not overpaid. Ideally, the best payroll service is tracking this data through timesheets and proactive form tracking, forcing employees to report missing days timely, but no form is perfect, and human error creeps in regularly. Without automation, timekeeping is at best spotty, and manual tracking requires dedicated personnel for the task.
Patchwork Software Tools
Many organizations, whether small or large, don’t approach online payroll services and related software tools holistically. They tend to be a patchwork of different tools cobbled together with bridging script, tying one database to another with customer SQL commands and similar. That leaves room for a lot of mistakes, instability, and data transfer errors. In a perfect world, the best payroll software is usually one comprehensive system covering everything needed in payroll, but companies tend to cobble their systems together over time. One tool handles travel claims, another pay transaction processing, a third leave balances and a fourth could even be a stand-alone spreadsheet. Incompatible or patchwork software tools often lead to chronic challenges as well as high-risk data loss failures when one or two tools fail or become obsolete.
Timely Processing
To add more kerosene to the fire, many payroll transactions are time-sensitive. Various local, state and federal laws require companies and agencies with employees to make certain payroll transactions within a certain number of days after an event has occurred or concluded. The most common is the “timely payment of wages,” requiring employers to compensate wage employees within a few days of the pay period ending. Similar requirements are in place for workers compensation, separation of an employee from an organization and so on. All of these deadlines ramp up pressure on HR offices to stay on top of their workload and prioritize transactions, causing others to wait. Done manually, the situation gets even more challenging.
In short, payroll and related labor accounting is an ongoing and chronic challenge, chock full of mistake risks made even more likely when manual processing is applied, a common scenario for small businesses and companies on tight budgets. Companies that take advantage of external payroll services for small business or business online payroll by contract end up doing much better because 1) the expertise is focused on a highly skilled contractor in payroll management, and 2) the company can focus its people on its core revenue generation skills versus trying to learn payroll management from scratch. There are lots of payroll companies and payroll providers, but at the end of the day the choice should be one with experience and depth in working with a particular industry and company size, as well as a strong track record in performance and compliance. Doing less or trying to manage payroll internally via a learn-as-you-go approach is simply asking for a lot of headaches, big costs and sunk resources that could be used elsewhere in a company with better results.
