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Businesses can’t always keep up with their Payroll needs without compromising important human resources considerations. Is your organization running at its optimal potential?
Identify any possible hindrances to success first, such as gaps or delays in payroll processing. And then you’ll be able to prioritize strategic HR activities, like customer management, KPIs, succession planning, training, attendance management, and appointment monitoring.
Let’s have a look and breakdown of Payroll Processing. It’s always good as a reminder of the seven steps.
So the first step is to collect the employee’s information, specifically information related to taxes, depending on the country, the state, the jurisdiction, or whether your social status, whether you’re married or not, you have kids, you’re an expat impact manager or not. So the way your salary is taxed will be slightly different.
The next step is to create a record management process. Typically it’s an Excel sheet for small companies, but it could be a software or Payroll platform. So in case you have a software, usually do the following:
And third, you need to determine the pay schedule. So this is about the length of your pay periods and how often your employees get paid so many countries’ jurisdictions, they have laws dictating the minimum pay frequency that employers must meet. So you may opt to pay your employees more frequently than the law requires, but not less.
Next is tracking the time and the attendance. So the most common way is through paper records or electronic records. So employee attendance tracking software can help employers manage staff schedules and ensure they are present at work. So this will ensure the employees are first working efficiently and also it would reduce the absentees.
The fifth one is the deduction calculation. So you basically determine the taxable income by deducting any pre-tax contribution. You withhold all taxes that are applicable, typically federal, state or local, depending on your country. You deduct any post tax contribution to benefits. If necessary, you garnish wages and then you have the net income as the result.
And the last two steps. You need to pay your employee and submit Payroll tax payment and do the filing with the authorities.
So employers are required to make Federal Payroll Tax payment to the government as well as file the proper reporting informational returns. Employers must also provide employees and contractors with, for people those who are based in the United States, the W-2 form and the 1099 report explaining the compensation paid and the withholding amounts. There may be state requirements as well. So the rules can be complex and there will be penalties for non compliance.
That’s why the administration of Payroll tax responsibilities is often outsourced by small businesses at least.
Incorrect paycheck can be frustrating for employees, especially if the error result is missed payment. So, miscalculation is a waste of time. You need to dedicate hours, sometimes days, to investigate and to fix the errors outside of the regular payroll cycle.
According to an American Productivity Quality Center study, organizations take between two and ten days to resolve such Payroll errors. So in the time it takes to fix those errors, employees can grow very frustrated and even have trouble paying their bills.
It can happen with salaried or hourly employees and usually the common miscalculation scenarios, they include overpaying or underpaying your employees making erroneous retroactive payments.
You can miss the first paycheck for new hires, for instance, or you deduct the wrong amount for benefits or other kinds of Payroll deductions. Or you pay your employees properly depending on their status, maybe disability or maternity, things like that. So we need to pay attention to this one.
The next error is not tracking the overtime. This will depend on companies, policies or countries. But incorrectly logged overtime hours can lead to improper overtime payment as well, which leads to corrections possibly spanning across multiple tax years. It can be incredibly unsettling for employees, whether they are underpaid or overpaid and have to return money to the company. So paying overtime is not just a matter of paying employees.
For instance, here in Vietnam, it will typically be 50% more outside working hours, or double if they work on weekends. So overtime payment errors can arise if you miss a payment in different scenarios. If your employees work during break times, need to render their time in the platform, or when they spend time traveling between work sites or business trips, or they need to participate in workshops, things like that, training or team building or whatever, it needs to be tracked properly.
Misclassifying employees can also result in incorrect pay, ultimately leading to overpayment or underpayment of wages.
One of the most common misclassification errors is making an incorrect determination about whether an employee should be exempt from overtime. Per the Fair Labor Standards Act (FLSA), all employees must receive overtime pay for any hours worked over 40 hours per week, unless they are classified as exempt. Classifying a non-exempt employee as exempt not only opens your organization to fines but can also cause an employee to miss out on overtime earnings.
Another common payroll error happens when an individual is classified as an independent contractor rather than an employee. A misclassification error often results in having to research historical payroll records and make retroactive payments or other adjustments to employee pay.
In 2019 alone, the US Wage and Hour Division of the Department of Labor recovered a record $322 million in back pay for misclassified employees. Misclassification not only creates trust issues with your employees, but it is also likely to cost your organization some money in the process.
Employee pay comprises more than salary, overtime, commissions, or bonuses. In addition to reporting the more traditional forms of employee pay, you also need to report other forms of taxable compensation to the IRS, such as:
A small gift or award to an employee may not seem like compensation, but the IRS may view it as part of your payroll. Not reporting these other forms of compensation can result in tax filing penalties for your organization and the affected employees.
An unorganized and inefficient Payroll process can be a recipe for disaster. Relying on paper processes, manual data entry, or a mass of Excel spreadsheets leads to errors that may take weeks or months to uncover. Disorganized records can also lead you to miss an employee payment or follow up on items needing urgent attention.
Also, having a manual system for managing payroll increases your reliance on one person to manage all payroll actions. Without an organized and automated payroll system, it’s harder for someone to fill in when the payroll manager is out of the office or leaves the company. It can also set you up for problems in the event of an audit or process review.
Employees expect timely and accurate pay each payroll cycle. By missing the close of a payroll cycle and making late payments, you can create more headaches for employees. And, if you miss tax filing deadlines, your organization can face late filing fees and possible regulatory penalties as well.
Form W-2 is an IRS document that reports the taxable income you earned from an employer. The form also includes taxes withheld from your pay, as well as Social Security and Medicare payments made on your behalf by both you and your employer.
My experience showed me that the first reason for Payroll errors are human errors. Because we have a lot of steps in the Payroll process and the first step is info gathering to be sure that everything is in the right hands to be processed.
Then you have the time registrations if we pass the first step of the master data regarding your employee situation, fiscal situation, his salary, his/ her contract agreements and stuff like this.
Once this is done, you will have your monthly Payroll. Time registration of the presences, absences, holidays, overtime… All have impact on the net pay of the employee.
Sometimes, salary package is not well known by the operational teams. We process the Payroll when there is still some discussion of a sign-on bonus. The employee still needs to give information to the professional team, which is not yet done. The day we process the Payroll depends on the Payroll calendar. And you sometimes have the absence or maybe the poor follow up of the remuneration of your employees. Sometimes you have a lot of changes in the sector where you work for.
Due to the COVID, a lot of changes have happened because of the very strict home working regulation in some countries. Some of us are more flexible, but it can have a huge impact on the pay of your employees.
And then you have also the tools and the rules in place in the company you work for. You have the software. If you work with an internal software rather than an external software and the changes in social and fiscal regulation, you have every year a review of the fiscal data from the state, for example, that decided the tax rates are reviewed higher, lower. What’s the option because of the fiscal situation? Are they still processed like the year before? So you can have changes on that point, you have a sector decision or you have a national decision about the salary norms and stuff like this that can have an impact on the software you need to update to apply to those new rules. You can have an employee or service that makes that your employee thinks he’s capable and he has the necessary tools in hand to manage himself is time registrations. But then you need to be sure that the confidence and the trust is applied in your company. And you also have the fact that you don’t have a tracking system or pre-process checks for your Payroll that can increase or decrease the payroll errors that you can have monthly.
Even just one error can lead to a lot of escalation. It can take a lot of energy for someone to take care of, to correct and to finalize at the end of the point.
You have one entry point is your error. The employee comes up or the finance team comes up with an error in the Payroll. You as an HR needs to investigate if there is an error or not. If there is no error, then you just have one step back – Inform the finance or the person that reports the error that there is no error and remind maybe the rules to avoid that to happen again the next time.
In the opposite, you validate that there is an error. So you will have the time needed to make the correction to keep your employee or the person concerned by the error informed about the situation. You will put a deadline for this to agree together depending on the type of error. If it’s a mistake when your employee was not paid yet, then you need to act very fast. If it’s a small error, just as we forgot to pay overtime, we can take them for the next month. But you need to keep your employee or the person concerned on track and informed about the situation of the correction.
Second step is to receive the correction. If you do it internally or if you do it externally, you need to validate the correction to say, okay, that’s done. Because if you make a correction and it still folds, it’s still with a mistake, you will lead again to losing time, losing money, losing patience of your employee, etc. It’s like a snowball that has a lot of consequences and becomes bigger and bigger at the end.
And then the last step is to pay the concerned parties. One error can have a huge impact on your operational team. If it’s an impact on the nets, sometimes it can be only an impact on the net for the employee, but sometimes it can lead to overtime for an error on your gross salary. It can lead to correction to the social security parties, to the fiscal parties, etc.
Imagine that you have, for example, 50,000 employees, and you have a percentage of 1% errors in your Payroll… You will use more than one headcount to have that done on time.
Avoiding as many as possible errors is my experience. And it’s really a return on investment to get your teams regularly trained. They have to process, they need to be trained about social and fiscal regulations applied in their countries.
It is also really important to make a regular Payroll compliance audit of your process internally or externally depending on the system you’re using, to be sure that everything is always on track.
And then for the monthly Payroll you need to write really clearly what the procedures are to avoid things being forgotten in the process. Or you need to apply some internal preprocess checks that can be very useful. If you have someone that is paid the same way every month, it’s easy. Your absence process can lead to no change in growth, but you need to track them because it can have an impact at the end of the year.
Another option to avoid errors is to ask trial files to the Payroll provider. If you have trial files, you can always use the month before. There is a reference as okay, the month before was correct. I can use it and compare it with the gross to net from this month and it can be very fast. Just with the vlookup we have tools, free tools that help us as Payroll processors to decrease the errors you can have at the end of the Payroll process.
And an investment in the Payroll process is absolutely also a solution. So again, if you want cost saving, do a lot of investment at the beginning of the Payroll Process.
I’m mostly working for Europe and we are working with three big platforms that are ready to provide Payroll for different kinds of countries – ADP, BDO and Cloud Pay. Active Payroll is also one of them.
They have internal knowledge to assist in different countries such as Belgium, France and Netherlands, countries with different Social Security systems.
There are also other Payroll providers but they are mostly less flexible than ADP or Cloud Pay Platform because you really need to sign contracts for different types of service that you want.
Working in Payroll can often be overwhelming, with data entry mistakes and system issues causing major headaches. Fortunately, there are methods to ensure smooth operation of your team’s processes.
Ensure that your Payroll runs as smoothly and reliably as a finely tuned engine! Incorporate the most up-to-date models, practices, and tools to eliminate common pitfalls while providing employees with accurate data – all while avoiding unnecessary stress.
Let’s have a quick overview of the new habits and impacts that companies had to face during the pandemic and also their plans for the coming years which are showing in the graph on your left hand side.
Following Global Business Service Report analytics from Deloitte in 2021, more than 50 – to almost 90% of respondents agreed with the situation that pandemic created an impact in our work and personal lives, either work remotely, or use more digital/online tools. If your company is not in the digital sector you probably have to cut your expenses, maybe revamp your business plans or work with an external parties. These are the greatest impacts on US companies’ plans for the next two to five years.
The graph on the right hand side showed 80% of the American Companies that made the choice of offshoring before or during pandemic want to keep their offshore operations. However, 20% don’t find any added value in offshoring mainly because of the service quality and the control over the resources.
This somehow shows that outsourcing or offshoring is still a solution that works well.
Covid 19 has caused a lot of negative impacts to a lot of businesses in the last 2 years. However, with the offshoring nature of work, the employees were already working remotely to deliver work for onshore clients.
From a BPO company’s point of view, during the high peak Covid period, we did not have a lot of difficulties adapting to the situation and were able to maintain service quality thanks to our established IT infrastructure, security requirements, and the Company were able to provide all necessary computer equipment for employees to work remotely.
After pandemic slowed down and everything started getting back to normal, like the situation of anywhere around the world, we had to deal with a staff turnover situation but the impact was just in a short period as we have a good training program using our internal e-learning system, we have put in place a formal hybrid work program that allows qualified employees or teams to increase employees’ commitment while still maintaining good service quality.
Covid-19 also forced a lot of businesses to allow their employees to work remotely. Therefore, they started getting familiar with the remote work concept. It makes sense that Companies were trying to save costs, but finding sustainable solutions to support their business operation and transformation are even more vital.
People living and working in North America are probably more familiar with the term Shared Service Centers (SSC). Shared Service Centers are part of the company and work cross-business units, and outsourcing means working with an external party.
From the perspective of an outsourcing company, we can say that top 3 functions which are Finance, IT, HR are quite correct, these functions are usually operated within the same country but tend to be outsourced/ offshored more and more as well. Depends on the function, the reason behind it could be because the processes are easier to be outsourced, or because outsourcing can bring about the same work quality but with a lower cost.
Source: Statista 2022 – US Companies Outsourcing Locations
This map shows the top outsourcing locations Americans are considering:
What does that mean? American found the values in offshoring activities across continent, India and Philippines are the typical examples for that.
2 years ago Vietnam was not in the top 10, but we believe Vietnam is growing in the emerging markets for BPO industry, especifically in Finance Accounting which involves more functional skills requirement rather than services that requested high level of English proficiency, which you can easily find it in other BPO countries like India and Philippines, where people are already using English.
When you work with an external party on Payroll Processing, there are 2 possibilities of outsourcing:
So here we list out pros and cons of each outsourcing model to have a clear understanding and perhaps help you to find what best for your business.
PRICING MODEL
This is typically a software-driven model. The vendor will offer a SaaS and complementary services such as processing or payments as a complement to the software. They give you an end-to-end automation tool for your Payroll process.
This is usually good solution for small to midsize businesses. It’s good during the beginning of a business transformation when the processes are not really optimized. The tool can help manage the process a bit better but it can be very costly so it’s very important to chose the right provider that fits your business in terms of maturity, level of transactions but also the complexity of your organization.
The downside is that all the exception will still come to your team and you don’t have a level of support, and less flexible, much relying on the tool/platform, and need a certain amount of time to be familiar with the processes or tool.
PRICING MODEL
Basically BPO provider manages the functions within the client’s environment. You typically have a dedicated team. You can scale-up and customize to your needs. Its also quite cheaper in terms of cost per transaction.
The cons would be there is no fixed price, you need to compare different providers in terms of pricing, quality, etc, you don’t have a ready-to-go solution. But on the other hand, it’s better suited for higher volumes AND exceptions. You can customize your team or the type of tools you want to implement.
At Innovature BPO, we don’t have an-inhouse software, we work as solutions integrator. We have partners who work with payroll automation tools and we can help with the integration, and complement with headcounts. We can also work exclusively manually or work with the most standard tools and platforms already implemented on the clients’ side.
Its necessary to have clear policies for payroll, create a manual describing all of your payroll activities, including when payroll exceptions are made and the procedures for reviewing and approving changes, etc.
Creating a policy for records management and retention is also recommended. Doing so helps you comply with legal requirements, for example, FLSA requirement to keep payroll records for up to three years.
A thorough review of existing processes will help you uncover inefficiencies and areas for improvement. If your organization is experiencing errors and needs a fresh approach to managing payroll, you may need to consider switching payroll providers. Once you identify your company payroll priorities, you can identify a payroll partner that aligns with your goals, and then take careful steps to ensure a seamless transition.
Creating a policy for records management and retention is also recommended. Doing so helps you comply with legal requirements, for example, FLSA requirement to keep payroll records for up to three years.
An integrated payroll system automates payroll workflows, helping you avoid manual entry, paper-intensive processes that can often open the door to errors.
An integrated system keeps payroll activities aligned with time tracking, scheduling, and employee benefits, so you can manage the workforce and achieve consistency between payroll and HR data.
Having a clear process for paydays, issuing W-2s, and meeting payroll tax obligations helps you avoid missed deadlines and late filing penalties. By following a payroll calendar throughout the year, you always know what’s next, and you can plan the time you spend on payroll more effectively.
There are many existing laws affecting how you administer employee pay, and regulations change over time. By keeping track of the updates, you can make changes to payroll processes accordingly, instead of playing catch-up with every law change.
Benchmarking is indeed important to create added value for your business. Most of the SMEs we talk to don’t have any benchmark or very little information to provide. One of the most popular reasons for this is the belief that they are their own organization, and hence, do not need to emulate any other organization.
Hence, when they are willing to make the transformation to their business because they want to scale up, because of a bear market, or with what happened with COVID-19, they are having a hard time assessing what they should outsource, retain, or automate. They have a rough idea but it’s still very blurry.
Benchmarking is a process to discover what is the best standard of performance seen in a specific department, company, by a particular competitor, or by a completely different industry.
We will share a list of several criteria that we think are important to take into account. For instance:
Taking an example of benchmarking the level of efficiency.
This is just to give you an idea that there is always an area for improvement, you can use criterias to defind what are key measurement, for example in payroll, it could be number of payroll processed per hour per person or per team, what is the acceptable ratio of errors in accordance with the scales of your organization. Set the initial benchmark and slowly adjust in accordance with the process, the resources and then based on your analysis perhaps decide what to keep, what can be outsourced to bring more values to the team.
By implementing the right structure into your system, you can ensure that tasks run smoothly while also taking away some of the pressure. Make sure to take advantage of solutions available so all data entry is up-to-date and accurate, helping solve any glitches along the way quickly and easily!
Discover how outsourcing can increase your business’ agility and enable it to quickly respond to changing conditions. Outsource now for a more versatile organization that’s ready for the future!
Payroll Processing inside your business is a time-consuming process. Keeping track of benefit deductions, garnishments, new hires, and terminations, paid time off as well as federal and state regulatory changes can be frustrating tasks. Each year significant labor hours are spent preparing W2s and ensuring that they are sent out timely.
Outsourcing Payroll allows employers to concentrate on their core business and frees up the business owner, human resources or accounting personnel to work more on strategic tasks that could ultimately affect your bottom line.
Regardless of the number of people employed by your business, attending to payroll demands a great deal of time and attention to detail. Pay period follows pay period, requiring the business owner to input critical amounts of data and double-checking for any keying errors- time taken away from tasks a small business owner must attend to.
Those repetitive tasks should not be hours taken away from a key management or owner’s daily productivity. Outsourcing payroll immediately frees up precious time. Employers only need to make contact with their outsourced payroll specialist by approving time once each pay period.
Payroll processing is a complex and potentially risky business operation. Even with long-time trusted employees, there is always a risk of identity theft, embezzlement of funds, or tampering with company files for personal gain.
There’s also an evident risk when using in-house payroll software: How safe and secure is payroll data on the company’s server or network? This very real question can consume a business owner’s energy and attention as well.
Additionally, online payroll solutions offer a “safe haven” for your confidential payroll data. In addition to redundant backup and multiple server locations, a quality payroll provider invests in state-of-the-art systems for storing and protecting data, simply because it’s part of the service provided to clients.
The direct costs of processing payroll can be greatly reduced by working with a payroll provider. Big businesses can afford to maintain robust payroll departments. However, small/ medium sized businesses, having an in-house payroll process is a money burner. If your business has fewer than 30 employees, there’s a very good chance that you can save money by outsourcing your Payroll operations.
If you are the owner of a small to medium-sized company and you are trying to do payroll yourself or inhouse, the cost of the time spent is even greater. If you outsource payroll, you don’t have to worry about your payroll processing company calling in sick, resigning, wanting to take a vacation OR wanting to request a possible maternity leave that you have to pay for. There’s also the matter of confidentiality when it comes to payroll. If an employee wants to “share” how much a fellow employee is making that can cause extreme drama in the workplace.
Do your company have the latest version of Payroll software and the most recent tax tables installed on computers? Using the wrong tax tables can result in stiff penalties. Paying a maintenance fee and having to upgrade software is a fixed cost ongoing. Outsourcing payroll removes those costs/ headaches and keeps payroll running smoothly.
Providing direct deposit to employees is difficult if a company doesn’t use an outside payroll service. More importantly for business owners, direct deposit eliminates time-consuming and error-prone paper handling and the need to reconcile individual payroll checks every month. Using direct deposit reduces the risk of fraud by eliminating the use of paper checks that could be altered or counterfeited. When you use direct deposit, your account number remains confidential to your financial institution or payroll provider. Confidentiality is another benefit of outsourcing payroll.
Most business owners and payroll related staff don’t have time to research and study constantly changing regulations, withholding rates, and government forms.
By outsourcing payroll, a small business can take advantage of the expertise that was previously available only to big companies. The most valuable payroll companies have a team of experts who handle many areas of Human Resources and Payroll. Some of those would be a benefits department that would handle the administration of benefits and deductions in the payroll system, workers’ compensation experts, who would administer the changing of class codes should a job change for an employee, human resource experts who would help in employee issues and HR strategy.
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