Often, senior leadership is less concerned about the efficiency, speed, or health of the payroll process and more so about accuracy and compliance. Because of this, investment in system upgrades may be directed towards supporting or maintaining the current solution, versus considering new technology.
But many payroll teams spend too much time and resources to get the gross-to-net-to-zero processed accurately and in compliance, using a solution that may be built on decades-old technology. Payroll executives therefore need to build a strong ROI business case for investing in new technology. This process starts with helping senior leadership understand payroll pain points, which fall into five key areas.
Payroll errors are difficult to measure. Research from the American Payroll Association reveals that even best-in-class payroll departments don’t achieve 100% accuracy. That error rate could be anywhere from 0.2% to almost 2% of the total payroll. For a mid-size company, say 500 employees earning an average of $60,000 per year, a 1% payroll error accounts for $300,000 in cost.
These errors usually come from erroneous deductions, incorrect timesheets, unaccounted for overtime and holiday pay, tax withholdings, or wage garnishments. The best way to determine payroll error is to take the percentage of payroll where error was in favor of the company (and has been fixed to make it accurate for the employee) and assume a one-to-one relationship on the other side. Any reduction in that error from using better technology is considered a hard cost savings. This will appeal to a CFO.
Calculate the time it takes from obtaining gross data – including wrangling timesheets for hourly employees – to closing out the payroll period and generating reports. Automation, especially if the system combines time and pay in one application, will reduce the time required.
Though this is a soft cost saving, position it as a way of enabling staff to focus on more strategic or pressing elements of HR – compensation planning, ACA, and more.
Robust employee self-service will free up some of the payroll team’s workload. When figuring out the ROI, account for the time spent by payroll on issues that can be resolved via self-service, such as time-off and scheduling discrepancies. While staff won’t be completely free of dealing with payroll-related issues (you will still have to deal with password resets from time to time), a good chunk of productivity can be gained.
Cost of current process
To run payroll efficiently, what are you paying for today’s process and system? Sometimes all those costs – for example, software, hardware, in-house printers, tax accountants, and more – could add up to more than the proposed solution. Regardless of what that number is, this is a hard cost saving that needs to be accounted for when calculating the benefits of the new solution.
With a poorly-performing system and process, your company may incur fees or have to settle with regulators due to incorrect tax withholdings. Additionally, if the time and attendance system is not in sync with payroll, wage and hour mistakes and employee misclassifications can arise.
It’s important to account for all of this using likelihood percentages. Probabilities help to determine these likelihood percentages.
After identifying these five pain points and benefits of investing in new technology, your next task is to develop an action plan, which can include the following: