Do you ever feel like doing something NOW may cost you more than doing nothing at all? Here’s an example: I was having a conversation with a friend the other day whose refrigerator was making a funny sound.  I suggested she get it repaired before it turns into a bigger issue. She decided to ignore the problem since waiting cost nothing and there was a chance the problem might just go away. Two days later the problem got worse. Her refrigerator stopped working and leaked water all over her wood floors. Her decision to do nothing ended up costing her much more than fixing the immediate issue. 

That’s a lot like the cost of doing nothing when it comes to addressing payroll-related challenges. Today, payroll professionals face many challenges with managing complex compliance rules, delivering accurate payrolls, and getting insight into important information to make business decisions. If these issues are not addressed, they can become very costly and create bigger problems down the road. Let’s take a look.

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The cost of noncompliance

Due to ever-changing wage and hour regulations, payroll professionals are challenged with the complexity of managing compliance. According to a survey from the Workforce Institute at UKG and the Future Workplace, companies are finding it more difficult than ever to keep up with compliance changes. In fact, over 58% of respondents reported witnessing colleagues cutting compliance related concerns.

Payroll is responsible for correctly tracking, interpreting, and applying compliance related to state, federal, local, union, and other rules. If these aren’t handled right they can put the company at risk. On top of this, despite their best efforts 56% of the respondents in the survey mentioned above feel their HR/payroll systems are too outdated to manage compliance effectively. These risks can negatively impact your organization, costing valuable time, money, and productivity as you seek to manage multiple jurisdictions, pay rules, pay rates, and other rules. Noncompliance in any of these areas can result in costly fines, damage the company’s credit rating and brand, and in extreme cases can even lead to incarceration.

The impact on payroll

Payroll professionals are challenged with producing the perfect payslip accurately, on time, every time and are increasingly challenged with the employer/employee relationship. Getting payroll right is critical to building trust between the employer and employee. In fact, another recent Workforce Institute survey found that 49% of American workers would look for other employment after just 2 errors on their payslip. It’s critical for employees to be able to understand the impact of taxes and deductions on their overall earnings to maximize their take home pay.

Managing paper-based or multiple electronic systems to access HR, time and attendance, and payroll makes for longer processing time and creates additional work for payroll to manage time entry, new hires, terminations, deduction changes, hours, and regulatory updates, to name a few typical focus areas. Inefficient processes and systems contribute to errors and costs related to incorrect paychecks, unaccounted overtime, and non-reported PTO. Payroll errors due to the lack of effective tools and the time it takes to filter questions and make corrections can cost the organization valuable time and money and impacts employee morale.

The impact on data

Because labour costs are generally the largest expense for every organization, payroll needs accurate data to provide executives with insight around labor costs, total hours, headcount, etc. Pulling data from paper-based, siloed, or outdated systems makes it difficult to understand the overall health of the organization to see how it is trending and identify opportunities for savings or areas for quality improvement. To complicate this further, inefficient or manual payroll processes delay access to critical information for executives to drive the business forward. 

Kronos and the American Payroll Association recently found that over half of payroll teams both do not track KPIs and don’t know their true cost of doing payroll. Understanding the cost of payroll, including the cost of administrative time spent, gives organizations visibility into the efficiency of their payroll process, areas of concern, or opportunities for improvement. Information fed from disparate systems, a lack of KPIs (Key Performance Indicators), or data that is inaccurate makes it difficult to get a complete picture of the organization to manage budgets and control labour cost, resulting in a negative impact on the bottom line. 

The hidden costs of doing nothing

While improper management of compliance, inaccurate payroll delivery, and the lack of effective data can have a more obvious impact on your organization, there are also hidden costs that should be considered when calculating the cost of doing nothing to enhance your existing payroll processes. Some hidden costs to consider are system costs, updates and upgrades, maintenance fees, charges for IT or outside vendors support, integration costs, indirect labour, and direct and non-direct labour. Here are 8 questions you can ask to help you better identify these costs:

  1. How much work is required to apply the time rules in our HCM platform to our organization’s payroll processes in order to ensure accuracy?
  2. Is our HCM platform able to catch payroll discrepancies before they occur without a lot of manual intervention?
  3. At what points in the pay cycle can we view payroll data, and how soon after changes are made do they become available?
  4. How simply can garnishments be calculated?
  5. At what point do compliance standards integrate with the payroll process, and how much effort does it take to maintain these standards?
  6. How does the platform make sure that every step in the payroll preparation process gets carried out correctly?
  7. How can the platform manage post-payroll processing? 
  8. What kinds of options are available for implementing services for areas we don’t have the staff or time to handle?

All of these areas can potentially put a strain on payroll and impact the employee experience, dilute the company brand, and further expose the company to risk if they’re overly complex or rely on out-of-date technology.

The benefits of change outweigh the risks

While many companies may be hesitant to make a change when it comes to payroll, not addressing these challenges can have a significant impact to the company. Taking a practical approach to find areas for improvement can make a real difference. A great first step to modernizing your payroll is to regularly evaluate your payroll and timekeeping processes and systems to ensure payroll is compliant, accurate, and efficient.

Doing nothing now can have costly consequences down the road, but there is good news! A unified HCM solution empowers organizations to gain greater control of their business and positions payroll as a strategic contributor.

Don’t delay, invest in the right HCM solution now and get ahead of payroll challenges, instead of exposing the company to the high cost of doing nothing.

Published: Tuesday, 21 July 2020