Payroll For The Modern Business (Part 1: What is the problem?)

Date
2 March

Author
Jamie Allen

Recently we have been looking at the way we help certain businesses with automating Payroll. Almost every business we work with has payroll of some description but whenever we talk about payroll, it never seems to be an issue that is right at the top of the agenda. In some ways, this does seem a bit odd. I am aware that it is only a once-a-month exercise and many businesses will outsource to a bureau but that said if you add up the bureau/staff costs then the journal posting time across departments it is still not insignificant. As such I wanted to dive into this area a little more and open the discussion up a bit.

I would add that I have probably only ever processed a dozen or so payrolls in my life so I am certainly no expert and consequently this trilogy of blogs will focus on the operational/accounting side of payroll.

Starting with the issue, if indeed payroll is seen as an issue. For someone outside the finance bubble, payroll is a once-a-month exercise to input employee’s earnings into a system to calculate various taxes and their salary according to their situation. This sounds simple but, in my experience, it really isn’t due to the huge amount of variables in this process including timesheets, hourly pay, benefits, SMP, bonuses, Salaried dividends, pensions, pensions integrations, tax codes, multiple employments and then with COVID, furlough and all the various schemes. I am not here to win the hearts and minds of payroll people, but personally, I don’t envy them at all. All of this and payroll largely is not a lucrative exercise, people want it done cheaply and when it goes wrong it is obviously a sensitive area when mortgages need paying. As such, I have a huge amount of respect for payroll providers/clerks and even more so after the last year.

After all this, some numbers are created and then these are placed into the accounting system. In the simplest examples, this is 4 numbers typed into a journal. Indeed, this short sentence is likely the reason most people don’t focus on payroll. From an automation perspective, there is not much value in automating 4 numbers and bureaus are usually well priced, so case closed. Maybe?

At levels above this, maybe more time is being lost:

·       Do you have 100’s of employees being keyed in manually?

·       Do you have an integrated timesheet system for hourly pay?

·       How modern is your payroll system?

·       If you use a bureau/accountant, how do you communicate and review before submission to avoid errors? Is it interactive?

If you start to add the cost for a bureau/accountant/employee and rota system plus time to post a journal by department, plus review and corrections then paying employees, there is, potentially, quite a bit of inefficiency that can creep into this which can almost be ignored in comparison to larger operational or financial issues. Even though, as we know, this is potentially a risky area and not one you would want to get wrong.

Over the next couple of blogs, I am going to investigate the market around how this issue is currently being tackled and would welcome any opinions on this area.

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