Assuring payday

by 08 Sep 2010

No organisation can afford to mess with an employee’s pay, writes Angela Priestley, and the risks of payroll must be understood

As an HR professional, it would be difficult to ignore the media headlines covering Queensland Health’s recent inability to pay its staff their correct remuneration on time.

The problems emerged with a bungled payroll system implementation, leaving some employees overpaid, others underpaid and a small percentage not paid at all.

Leaving aside the negative stream of publicity the problem system has created, Queensland Health faces a more serious issue – that being the internal trust and engagement of its employees.

Pay directly affects an employee’s livelihood and it’s the one area where any kind of error can be seen as unforgivable for an organisation.

But employers can seek to avoid such errors like that which occurred at Queensland Health by applying some basic processes and procedures – while also recognising the vital function payroll plays in their everyday operations.

The case for human error

As Jason Low, the general manager of The Association for Payroll Specialists points out, if the payroll personnel in an organisation do a good job, no one rings them up and thanks them for it. “But if you make a mistake, it ends up in the paper, the employees are upset, and you get numerous phone calls.”

That might be true, but for good reason.

To mess with an employee’s paycheque is to mess with their livelihood. Most of us do, after all, depend on our scheduled payday to meet our financial obligations and budget accordingly.

And payroll errors do not need to be as significant or large-scale and public as that suffered by Queensland Health to seriously cause an impact. One only needs to review the website of the Fair Work Ombudsmen to see where organisations have been caught out for poor payroll procedures and practices – be them deliberate or accidental – to know that it can happen to organisations of any size.

Problems may start with the fact that too often, organisations understate the importance of the payroll function and consequently the essential part their payroll personnel play in maintaining operations.

Low says a common mistake is looking at payroll like a data entry job, and thinking a payroll system will “work its magic” simply by punching in the appropriate numbers.

“There are mistakes that happen on a day-to-day basis in the pay office,” says Low. “Sometimes it’s ignorance of the laws and regulations, other times it’s as simple as a data entry error, or information not being given to the payroll person in a timely manner.”

Low highlights the extensive amount of preparation required to ensure a payroll system is operating effectively and that employee information is accurate. He also points out that payroll personnel must understand the laws governing pay in order to answer questions as they arise. “If an employee comes and asks their payroll person or their employer ‘why did you tax me like this’, you can’t say ‘well I don’t know, that’s the way the system did it’, you need to be able to explain it,” says Low.

Training will help, adds Low, while any information available to keep a payroll officer up-to-date on changing laws and procedures will also assist. Low recommends that once payroll personnel are well trained on the payroll systems they are working with that organisations ensure they then have at least a day or two a year to gain insight on changes that may affect the employees they’re working with.

No system is perfect

Payroll risks do not end with payroll personnel. In fact, it’s often the payroll system and its implementation that can carry the most risk for an organisation.

Such is the case with Queensland Health, which is suffering at the hands of a failed payroll system implementation that could not meet the complex needs of the diverse organisation – especially the organisation’s vast array of employees under differing awards.

According to payroll consultant, Nick Forrester, the major risks associated with a new payroll system start with their implementation and the potential for an overrun of costs given that many suppliers will quote based on a “nothing going wrong” mentality.

He cites a study from Forester Research that found that the implementation of an all-in-one payroll system can often be as high as 20 times the original cost of the software.

A good way to avoid such an overrun in costs, says Forrester, is to ensure that payroll personnel are included in the software selection and implementation process. “If they are an active part of deciding which system to select, then they will inevitably be onside and will battle through rain, hail or shine to have a successful system,” he says.

“If on the other hand, as I’ve also seen on many occasions, management – be it HR, finance or somebody else – goes through the process without proper consultation and without involving payroll people in the acquisition process, then it ends up being ‘they got this system, they can suffer’.”

Organisations must also do their research and determine if they require an adaptable all-in-one payroll/finance system (like SAP, PeopleSoft, Oracle) or specific off-the-shelf payroll solutions.

But for many organisations, payroll specific off- the-shelf solutions will provide the bells and whistles payroll personnel need. “The top-tier systems [the all- in-one solutions] emphasise their selling on the basis that it’s a complete system,” says Forrester. “The reality is the payroll system doesn’t need to be integrated with financials. It doesn’t talk to financials until payday, which is once a fortnight or once a month – and you can run an interface easily.”

Meeting the risks of payroll means responding to the needs of payroll personnel and giving careful consideration to the systems they use. It also helps to remember that such systems and personnel play a vital role in keeping the economy moving.

“If every payroll person in Australia went on strike for two weeks, the country would completely come to a stop,” says Low. “The whole country revolves on taxes being collected, people being paid. It’s an important job, but one that’s not visible to people.”

As for Queensland Health, the process has become a little too visible and the organisation’s employees continue to face pay issues as their payroll system is rebuilt.