“Payroll is just a click of a button” is a comment that is really likely to rankle with payroll consultants and yet one that many a cavalier colleague so often thinks is fit to contribute. The HR system vendor is keen to add to the argument – try searching as I did on “payroll…click of a button” to prove the point.
Payroll isn’t just a click of a button, however, and here are eight reasons why I’m not pressing that magic button to replace our Payroll Pro – not least because I haven’t found it yet.
1. Let’s start with HMRC
Tax rules are tricky. National Insurance (NI) rules have a nasty habit of being slightly different. Both change at least every tax year and budget day can interfere in the interim.
Getting tax rules right is not something we can leave yet to the HR system. For sure, the correct configuration allows most tax treatment of pay elements to be managed without intervention on every payment, but no system is capable of making all the right decisions. And tax is an area where typically there is a right answer.
We appreciate payroll for knowing which types of payment should be taxable and NIC-able. Tax code treatment we get too. But what about court orders, student loans (do you know yet how to deal with plan 2 loans?) and when BIK’s are BIK’s? In May’s “Pay and Benefits” magazine, find a great example of tax terminology trouble. Learn that tax “relief at source”, for pension contributions, appears to refer to exactly not that and the “net pay arrangement” is all about gross pay.
I deliberately tried to drive you to distraction with that paragraph and I trust therefore to have made a point.
HMRC is not about to go away either. RTI has shifted the balance of payroll burden away from year-end and to an increased focus on monthly submissions, but the best of HR system automation of the FPS and EPS does not tell you how and when, for example, error correction or late information is to be handled.
The cost of a poor HMRC audit can be high. Of course, underpayments will have to be made good and penalties will be added for late filing or lack of records. As a larger organisation, your greater cost may not be the unexpected bill, but the time factor – PAYE inspections are time-consuming and if errors are found, expect the next one to come around again sooner. Yet another reason to work with HR technology consultants and payroll professionals.
2. Moving swiftly on to retirement
Most understand that pensions are impossible to understand. Auto Enrolment (AE) has been added for the payroll world, but it is a great way to get pensions wrong on process alone. AE-compliant software achieves automation, sufficient that it’s no excuse for eating up a good deal of the working week, but this assumes we know what to do with it.
So, if your software is AE-compliant, why not use the click of the button?
Firstly, someone has to know when to click which buttons, which reports to run, and which checkboxes to tick in its configuration. Secondly, someone has to spot when the rules change and when new deadlines loom. For many right now, it’s about an “Uh-oh, we’re 3 years on”. This is the basics. Thirdly, when is an AE scheme not an AE scheme? What to do with eligible job-holder calculations when pay is adjusted for statutory reasons or when that pay comprises multiple jobs?
The public sector, in particular, faces year-on-year attempts to make good schemes in crisis, hitting employers with complex changes to master with tightly prescriptive return requirements. HR systems experts feel like ducking out.
Pensions processing is not something to do as an amateur.
3. Doing the sums
The regulators are the ones doing the big sums but down on the ground, it’s a bit back-to-school with some very tricky maths.
Again, it is fair to say that the optimum payroll solution will deliver automation in many a case. But this assumes again that a professional has understood the right configuration, carried out the right testing and maintains an awareness of the build, such as when to step in with the right edits. Who is that professional? The chances are payroll is involved.
Let’s take the example of part-month calculations and new starters:
If someone starts on a salary mid-month, we need to know whether to pay them a pro rata amount based on calendar days or working days. And are those calendar days or working days in the period or by the day worked based on 365 days in the year or 260 days due to be worked? Using one or the other in different circumstance can lead to results that are wildly different – even to an employee receiving less than a full month’s pay despite a full month of work. Typical complaints arise when different rules are used for different types of pro ratio – because similar sums apply for mid-month hours or pay changes.
Note that manual adjustments and corrections – where a system cannot cope adequately with retrospective change – really do call for the calculator and it’s a sticking plaster until the day when the same sum must be done for someone else, or the rule is changed, or a new change overlaid.
I respect the detail of the brain that can handle term-time only working and the associated annual leave sums when it comes to public holidays. It’s for this reason alone, I support every professional wishing for this to be done once and once only, in configuring a system scheme parameter.
Do not forgive your payroll department manually re-checking a payroll system that is correctly configured and that has proven to deliver consistent results. But do forgive them taking pains (and pain!) to stress that there really is detail here.
4. Guardian of the process
For a moment, flip the argument on its head. If payroll can simply be a button that is clicked, then who designs the process behind the button-clicking? HR technology may offer the toolbox, but that’s half the story when it comes to payroll. “Best practice” is a phrase that personally leaves me a bit cold. But in working with a range of organisational cultures, I come to appreciate that there is certainly such a thing as “best practice for you”:
Best practice payroll means taking compliance rules and applying that know-how to an understanding of the software tools available, organisational resourcing, culture and appetite for risk and change. When is a variance tolerable? Which are the high-value checks for us? Who has got the skills? It is also about putting a black hat on and spotting the “what could go wrong” detail. That’s how to arrive at a payroll process that achieves not only accuracy and compliance but the right feel for those around you.
Questions such as the right team roles, levels of checking and models of service, are rather more sophisticated than a one-size-fits-all approach.
5. Technology can be wayward
The technology is there to serve you, not to lead you. I’m in the profession and I am of course a firm advocate of investment in the best that technology brings both to HR and to payroll. That said, a healthy respect for its power is wise. The implication is that today’s Payroll Pro has a new skill-set to grasp on our behalf so that when payroll software appears not to play ball, we (a) spot it, (b) communicate it clearly, and (c) deal with it appropriately.
These are not examples of what I mean: calculations that sometimes do different things, automatic processes that deliver different results, or data that goes missing or gets duplicated in report design. Technology may appear to do these things, but it is a perception about symptoms rather than cause… In these cases, I’d be looking to examine configuration and process or report design for solutions.
These are examples: dealing with downtime and how to restore availability, reporting bugs and the known fault list, understanding the impact of timely upgrade and patch testing, and the length of time and system load of payroll process runs. It’s a new language between payroll and IT.
6. People can also be wayward!
With this, HR technology consultants will identify. Payroll is seeking to create order and accuracy out of complexity and chaos. Let’s remember that the job is about paying people. Those people have their input too and people are not desperately good at performing consistently.
They might well tell you stuff late. Or forget altogether. Or tell you something rather wrong or in the wrong way. They might even get really quite cross when you fail to translate that into the correct interpretation of their pension’s contribution choice, their leave plans, their decision made to adjust FTE or whether last Friday was the final day of employment or the final day at work. Payroll are interpreters and, at times, advisors (and I will argue next time that they are not arbiters).
So those in receipt of the payslips are another reason why clicks of buttons don’t tell a full story. Over-payments aggravate and cost; under-payments hurt hard and horribly.
7. Time is everything
On late submissions see above. But sceptics, please ponder again on how this impacts people. This is not a discipline in which a “Hey ho, we’ve got a bit behind” mentality is an option. The organisation’s payroll may be big, but the financial transaction and banking systems are bigger and there really are deadlines. Shifting BACS deadlines or faster payment options help, but you can’t cut steps out of a payroll process and you can’t ask the banks and the technologies to go any faster if you had too much in the inbox today.
There is a point in the payroll cycle where the files are sent. Gone. Done. If this is not achieved, then no-one is paid, or a subset of people are paid or paid inaccurately. If I were to debate here the difference between positive and negative payrolls, then I might prove the point that there is such a thing as expertise in payroll process, but I may also go too far.
Of course, most likely it’s acceptable to run with a few after-thoughts – supplementary runs, manual adjustments next month, and apologies – but it is clear that in payroll, timing is everything.
8. Payroll is a big-hitter
Payroll is a big-ticket item. Most likely the cost of wages is the organisation’s biggest cost. For sure it will approach the 50% mark and service industries might well see labour costs at 70% of operating expenditure. This alone has got to be one reason for an honouring of those whose chosen profession is to safeguard this outgoing – to mitigate its risk, to ensure its accuracy and to just make sure it happens.
Here is a moralistic tale:
In 2012, a new payroll system, Novopay, was implemented for nearly 2,500 schools in New Zealand. Within a few months, 90% of those schools were affected with serious failures to pay teachers accurately or, in some cases, at all. In the “Novopay debacle” at least one Education Ministry head rolled and investigation resulted in the removal from the provider the responsibility for the service, which was taken on by the government itself. Things got better. Deloitte was asked to investigate. The Deloitte verdict included a comment that the payroll error rate should be “consistently below 1%”.
To conclude, I leave everyone to work out the difference between an error rate of 2% and 1%, or 1.5% and 0.5% on your organisational cost.