8 Reasons Why Payroll Fails

Of the numerous procedural challenges employers face, payroll has the potential to create the most painful administrative headaches. Payroll is a crucial component to business success, but also one of the hardest to calibrate, thanks to its complexity. More than just a question of paying employees on time, the payroll process involves a high level of numerical skill, administrative know-how, and compliance expertise. This being the case, the payroll process inevitably generates problems, which can become serious if missed or left unaddressed over the long term.

When payroll fails or breaks down, the results can be catastrophic, including everything from missed pay deadlines and unhappy employees to reputational damage and steep financial penalties.

Although it’s impossible to completely avoid payroll problems, they don’t have to spell disaster. The best strategy for dealing with payroll problems is to understand how and why they happen, and then build a solution with the flexibility to respond. To help you fortify your business against payroll failure, let’s take a look at some of the classic pitfalls:

1. Ignoring Inefficiency

Payroll involves a lot of small details and is highly admin-focused, which means there are plenty of opportunities for inefficiency to creep into the system. If you’re suffering from inefficiency problems, it’s likely you’ll learn quickly, thanks to uncomfortably close — or missed — deadlines and resulting pushback from employees.

Don’t let it get to that stage: Monitor your efficiency goals closely, run internal audits to make sure you’re meeting standards, expand your payroll team, and invest in productivity by updating your payroll software platform.

2. Budget

Budget should be high on the priority list when you build your payroll solution since it underpins almost every aspect of the process, from paying your administrators to acquiring suitable software. Spiraling payroll costs quickly turn the process into an unmanageable burden and are a good indication of deeper problems. Don’t be afraid to think outside the box to address payroll costs: While it may involve an initial outlay, engaging a payroll service provider may bring a range of cost-saving advantages in the long run.

3. Cybersecurity

The software platforms you use to run your payroll process are valuable tools, but it’s easy to turn their benefits into liabilities by failing to update them. Out-of-date software not only has the potential to introduce glitches and inefficiencies into your payroll process, but it also leaves you open to serious cybersecurity threats. Because it involves lots of sensitive personal information, payroll is particularly vulnerable to cybercrime, which costs businesses an estimated $600 billion worldwide annually. Beyond that cost, of course, are the reputational damage and compliance fines that security breaches bring.

4. Customer Service

It is important to remember that payroll involves a significant customer service component. Employee inquiries and disputes need to be handled in an effective and expedient manner that leaves all parties satisfied. By neglecting customer service, you may end up with unhappy employees and no feasible methods for dealing with payroll problems. In a worst-case scenario, an inadequate customer service setup will miss the underlying problems of the payroll it serves — until it becomes too late to address them.

5. Skill Shortage

It’s tempting for employers to recruit for payroll with an exclusive focus on numerical skill, but it’s a mistake to ignore the wider demands of the payroll field. While numeracy is an obvious advantage to the mathematical demands of payroll, members of your payroll team must also understand and deal with complex regulations, manage colleagues, and navigate the technological tools you use during the pay process. If you focus on too narrow a set of skills when hiring for your payroll department, your administrators will struggle to achieve the performance you need from them, which may result in an inefficient or even failed pay process.

6. Stagnating Talent

Worse than failing to build a payroll department with a diversity of skills is letting the employees you currently have stagnate in their roles. There’s no point in staffing your payroll with talented employees if you’re not going to offer them the career development opportunities they want and need. By not offering career development, you’ll risk a brain-drain in your payroll department, as employees without career development options will look for greener pastures. Those individuals who do stick around will struggle to navigate the constantly evolving regulatory landscape that defines the payroll field.

7. Communication

Payroll lies at the heart of your business; it doesn’t exist in a vacuum. In fact, it relies on close connections to every other level of business. Payroll and HR departments, for example, must communicate closely with each other for a variety of reasons, including enrolling new employees, resolving disputes, and handling pay negotiations. To this end, you’ll need to install a suitable communication infrastructure between payroll and the rest of your business. If those communications channels are ineffective, problems can quickly transform into delays, missed deadlines, and compliance violations.

8. Growth

When your business grows or expands, remember that your payroll needs to scale with it to meet the increased burdens of a larger employee population, expanded compliance needs, or new tax requirements. Overstretching payroll is risky: Even if the impact isn’t immediate, it may be difficult to respond once problems reveal themselves. Any ongoing disruption could harm both employee and customer confidence.

Don’t let your payroll become an anchor to growth: plan your strategy and consider options to help it keep pace. Outsourcing is always an option. Payroll service providers can quickly add capacity and compliance expertise to your setup, at least until you find your feet. Similarly, if international growth is on the horizon, a payroll provider might become a particularly useful way to handle your move into unfamiliar regulatory environments.

Sandra Sommerville is the group human resources manager at activpayroll.