To run an efficient, successful business and keep your employees happy, you need to get the whole payroll process right. Mistakes in this crucial area of HR and finance can create serious risks, including non-compliance with tax and labor laws, dissatisfied employees and cash flow problems.
For many employers, these concerns became more pressing than ever after the COVID-19 outbreak. Three-quarters (75%) of businesses responding to ADP's Global Payroll Survey 2021 said they were unable to manage payroll 100% effectively amid the pressures of the pandemic.
As you set your sights on future success, there's no doubt you'll be in a stronger position to keep your workforce happy and maintain financial efficiency if you're prepared for the most common payroll challenges.
1. Complying with tax law
Payroll is a heavily regulated area, since governments and tax authorities want to be sure businesses and employees are paying their fair share of tax. As the employer, you need to take responsibility for ensuring your workers are contributing the right amount of tax and the correct deductions are being taken from their salaries.
The US Internal Revenue Service has made it clear that payroll taxation is one of its top priority areas, since taxes withheld by employers account for nearly three-quarters (72%) of all revenue collected by the agency.
If you want to stay on the right side of the authorities and regulators in the territories where you operate - and to minimize the risk of financial penalties and other legal action being taken against you - tax compliance should be a key focus of your payroll function.
2. Maintaining accurate records
Another compliance consideration is the accuracy of your payroll records, and the amount of time you keep information for.
This will partly depend on legislative requirements in the territories you do business. In the US, the Fair Labor Standards Act states that employers should retain records with basic information including employees' full names, social security numbers and addresses for at least three years.
If you operate within the EU, you should be familiar with the General Data Protection Regulation (GDPR) and what rules exist with regards to the retention of employee data.
3. Data security
Data security is arguably one of the biggest global payroll challenges facing many organizations today, with research suggesting that the average data breach costs approximately $3.68 million.
When you're in possession of individuals' most sensitive personal details and financial information, you need to take responsibility for keeping that data safe.
Again, this is a potentially serious compliance issue, with legislative frameworks like GDPR giving regulators the power to issue large fines and financial penalties to businesses that break the rules around the management of personal data, or fail to manage security breaches in the appropriate way.
As well as exposing you to serious financial and reputational risk, failing to maintain high security standards in payroll management can jeopardize your employee relationships. If a worker discovers their data has been compromised because of your failings, their confidence in you could be irreversibly damaged.
4. The limitations of manual payroll processing
If you're still dependent on spreadsheets and manual data entry to keep your payroll records accurate and up to date, you could be putting yourself at a serious disadvantage.
There are clear risks and inefficiencies that arise when you rely on manual payroll processing, including:
- Human error
- The amount of time and labor intensity required
- Relying on the knowledge and expertise of your team to maintain regulatory compliance and data security
In the modern era of digital transformation and automation of business processes, payroll management should be one of the first functions to benefit from specialist tools and technologies.
5. Payment accuracy
There are many things your payroll process needs to get right, but one of the most basic and important is ensuring that people are paid the correct amount.
Underpaying your staff will lead to an unhappy workforce and a barrage of complaints and queries the HR department will have to deal with. Overpaying can prove just as problematic, giving your team the difficult job of having to ask people to return amounts they were paid in error.
Furthermore, inaccurate payments that aren't spotted at the time can lead to difficulties and discrepancies in year-end accounting.
When these issues do occur, it's crucial to deal with them promptly and professionally, and to take a tactful, sensitive approach when communicating with employees who’ve been affected by errors.
6. Finding the right tech provider
Specialist software and payroll management platforms can help you prevent and deal with the most common challenges in this area of business, but you need to take care to find the right provider.
Every company and every service is unique, so make sure you invest sufficient time and care in evaluating the options available to you. Ask questions such as:
- Does the vendor have experience in your industry?
- What specific features does the software offer to help you maintain regulatory compliance?
- How easily will the technology integrate with your existing tools and solutions?
- What security measures are in place?
Focusing on these and other priorities unique to the business will help you identify payroll software options that will raise your efficiency levels, reduce risk and keep your workforce happy.
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