Payroll is a vital part of your HR processes. It ensures that your employer receives their compensation, which is a crucial incentive for them to do their best work. It’s in your business’s best interest to run an accurate and efficient payroll process. Without paying your employees, not only will the quality of their work likely suffer, general morale and business reputation can suffer.
How does payroll work?
The payroll process has several parts. It includes evaluating the number of hours an employee has worked and calculate that employee’s pay based on their hourly rate or contracted salary. It also includes the deductions of various costs, such as employee health benefits, 401k contributions, or general tax deductions. It’s important that both sides of payroll – pay and deductions – are accurate, as there are local and federal mandates that govern the payment of employees and the handling of mandatory income tax.
Manual Payroll System: Risks and Challenges
Because of the various facets of running payroll, including handling sensitive employee information like bank account numbers as well as managing deductions and other tax-related factors, manual payroll system can not only slow your business down, it can run the risk of costly errors. Here are some of the challenges a business might face with manual payroll system.
1. Human error
Any input done manually is prone to error. There are ways to prevent this, such as a triple cross-check process and other safeguards, but the reality is that mistakes can still happen, even with the best HR and finance teams. Manual entry increases the risk of human error, leading to incorrect documentation and delayed employee payments. This is especially true if employees have complicated salary structures or have taken extended leave, as manually computing the correct pay with these extra parameters can be challenging.
2. Compliance mistakes
In addition to math errors, manual payroll system increases the risk that some employees will be incorrectly categorized or have an incorrect amount of tax money withheld. Whether that error increase or decreases an employee’s take-home pay, it’s bad for the overall business. Mistakes in this area can lead to fines and penalties against the business, creating extra stress for employees and lowering revenue for the company.
3. Lower HR productivity
Manually entering payroll information is tedious. It eats up a huge amount of time and is a drain on HR and finance employees. While it’s a necessary task and certainly falls well within the responsibilities of HR teams and finance professionals, there are other tasks that these teams could dedicate time and energy to improve the business. Plus, saddling your employees with repetitive tasks that can put the business at risk if not done correctly can decrease employee engagement and make it more likely you’ll experience higher turnover.
4. Compromised information security
Like all things in HR, payroll can often include sensitive employee information, like address, bank account, and social security number. Maintaining privacy and avoiding data leaks is a high HR priority that becomes much harder to do when payroll is being managed manually. Automating HR processes like payroll not only helps to expedite the process and ensure its accuracy but also increases security and safeguarding of important employee information.
To help avoid these and other payroll problems, many businesses outsource their payroll processing to a payroll management company or by implementing payroll automation software for their internal HR team to use. If you’re looking to take your HR in a more modern direction or are growing your business and your staff to the point where a manual process no longer makes sense, automating or outsourcing payroll processes may be a path to consider.