Reproduced with permission from the book, Profit from Payroll by Tracy Angwin, CEO, Australian Payroll Association

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The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency. - Bill Gates

Efficiency isn’t a destination; it’s an ongoing journey. But everyone who has anything to do with the payroll function needs to have efficiency in mind.

In the past decade we’ve seen the cost of qualified payroll professionals increase much more than average workers. This is evidenced by the fact that in March 2015, SmartCompany reported that payroll was in the top 20 job roles that were most difficult to fill. There is certainly a supply and demand issue with good payroll people, and this has contributed to inflated salary increases for the best ones.

This means that in order to maximise efficiency in payroll, you need the best people, for which you will pay a premium, along with processes designed with efficiency in mind and technology that supports those processes.

It is quite unusual in payroll to find people who are always striving for continuous improvement in regard to efficiency. But they exist and we find that employers who have them recognise how valuable they are and actively work to retain them. Payroll is often left out of conversations regarding continuous improvement because it is thought to be so rigid from a regulatory perspective that most assume there is little you can do to gain efficiencies.

This couldn’t be further from the truth.

The fact is that most payroll operations are running in exactly the same way as they did a decade or even decades ago. Technology may have been updated, but the chances of the processes being re-designed to support a more efficient process are fairly slim. Meanwhile salaries have been on the increase, not only because supply of good payroll professionals is low, but also those in payroll need to have many more skills than last century.

So it’s not surprising when managers do benchmarking on their payroll operation they find it is often costing them a lot more than they thought, for what they assumed was a pretty straightforward function.

Organisations with top performing payroll operations are always thinking about where to find payroll efficiency without losing quality of customer service or adding compliance risk. This is the key to any efficiency management exercise, to balance the need to maintain or retain costs with the downside compliance or customer service risk.

Basically efficiency improvement is simply about taking the same resources and increasing productive output, or maintaining the same level of productive output using less resources.

Every year Australian Payroll Association completes a payroll benchmarking study and distributes it to our membership. The two major costs measured are payroll staffing costs and technology costs.

The trend over the last two years is that the larger organisations get, the more likely they are to invest in technology that allows for efficiencies in the payroll office. This makes perfect sense as even small efficiency benefits become material over a large employee population. But you don’t need to have hundreds or thousands of employees on your payroll to see the benefits of technology on payroll efficiency.

It’s not just payroll processing where technology can make a difference to efficiency in the pay office. Very often if payroll data is being used well in an organisation, efficiencies in the payroll operation turn payroll processing time into business intelligence time. This means that the fewer hours payroll professionals take to process a payroll, the more time they have for analysis to understand what is happening in the employee population and relaying this to managers who can use it to make informed business decisions. From this, efficiencies in rostering processes or travel arrangements or other workforce management tasks can be gained.

A word of warning on this however. Just throwing technology at a problem without understanding how the technology works and the processes involved will not magically allow for efficiencies in a payroll operation. I recently worked with an organisation that suspected their staff were being signed on by other employees when they were late, or would arrive early and enter that time in their timesheet rather than being paid from the start of their shift.

To eliminate these issues they decided that biometric attendance devices were necessary. The biometric devices were installed, however this didn’t seem to reduce the workload in the pay office nor did it reduce the labour cost in the field.

On further inspection they realised that although the employees were using biometric attendance devices which eliminated the ability to buddy punch, the real problem was that employees were turning up early to shifts, spending 30 minutes having coffee and a chat before starting their shifts. The biometric devices were of no use as they didn’t have the ability to anchor times to the rostered start time, so employees were still getting paid from when they arrived, not when their shift started.

This is a good example of how technology alone won’t provide efficiency and only having a good understanding of the rostering and attendance process, not just the payroll process, is needed.

Streamline and standardise systems and processes

Having multiple locations with different payroll processes is guaranteed to give you an inefficient process that is also likely to be at high risk of errors.

The most efficient payroll operations have a streamlined and standardised payroll process no matter how many locations or employees are involved. The more exceptions to the rules you have and the more calculations you have outside your payroll, the greater the risk of errors and the lower the efficiency. Once you have a standardised process, it’s important to document it as when the payroll team, so when payroll staff are on leave or a disaster recovery plan needs to be enacted, the person taking over the payroll is able to produce the same efficient outcomes as the person that’s no longer there.

Continuous improvement

The kryptonite of efficiency is the ‘we do what we have always done’ attitude, and this is prevalent in payroll offices across Australia and globally. The phrase that concerns me the most about talking to a CFO or HR Manager about payroll is when they say “We’re okay, Bev has been doing our payroll for the last 28 years”. That sends shivers up and down my spine as the chances are that Bev is going things in a pretty similar manner today as she did two decades ago.

The key to ensuring you have the most efficient payroll process possible is a continuous improvement program. You need people on your team that are always looking to improve the efficiency of the payroll operation as well as the value it brings to the organisation in business intelligence and reporting. Whether that be how data is collected and managed, how calculations are made, how knowledge is improved, how business intelligence is shared with the organisation or how service to customers and employees is managed.

Technology that’s working for you

If you can dream it, it seems that technologists can build it these days. But just like the earlier biometric example, just because technology is available, doesn’t mean it will work for your organisation.

When I first started in payroll, the fact that you could use a mobile device to scan a bar code to record employee attendance was seen as incredibly technologically advanced. It was developed to work for employers with geographically dispersed teams. But for many reasons the concept never became fully developed. The scanning pens were expensive and because they were totally mobile, they were prone to damage and loss. Although developed to keep an accurate record of an employees worked times, the employer still wasn’t sure if the employee worked where they should. In theory an employee could sit at home all day with a series of barcodes scanning themselves in and out and then download the pen the next day. As with many concepts that don’t take off, the theory was great, but in practice it was a clunky solution to a complex problem.

These days there are some incredible solutions to employer problems using GPS functionality, mobile devices and location services.

While the barcode scanning pen wasn’t a great solution for mobile workforces, there are now apps that can scan barcodes or QR codes which, when used with geofencing allows for a very accurate attendance capture without the traditional loopholes of older technology. Geofencing, which is available using smartphones, is a feature in software or apps that allows the user to define geographic boundaries. So for example, you can link a scanned code to a location that will only clock the attendance of an employee if the code is scanned within the geofenced boundary. No more employees sitting at home on the couch clocking themselves in and out of work!

But as with the biometric device example cited earlier in this chapter, there is no point having technology for technology’s sake. It has to be solving a specific problem that you have and these problems can be different for every employer.

If you aren’t using self service, why not?

Unless there’s a really good reason not to, all employers should be looking to use a self service portal in their payroll operation.

Some of the biggest hurdles to an efficient payroll operation is the amount of manual paperwork, forms and data entry that has to happen before, during and after processing.

Self service software can help to reduce or eliminate this. If you can avoid it, it makes sense not to have two people complete the same tasks. For example, if you have line managers who are entering timesheet or attendance data, or filling in forms which are sent to the pay office, all to be rekeyed into the payroll system, why not give those managers a portal to enter the information allowing it to flow directly to the payroll system after the appropriate authorisations. Using self service also assists in cost control as it is much more difficult for employees to participate in time or leave theft using electronic forms and approvals.

Allowing employees and managers to enter form details and data at the source means that the payroll team only need to check the information, not rekey it. This means a reduction in the chance of manual data error as well as taking less time to complete the task.

Look closely at your processes

In the last section of this book we will look at processes and how to ensure they are working the best for your organisation. Processes are a key part of ensuring your payroll operation is working at its efficient best. The first thing you should do is understand the steps in your process, map them, and then compare them to what actually happens.

To do this, I prefer the post-it method. Start by writing the process down, from data collection to payslips. Once you have all the steps that you think are in your process, put them up on a wall using post-it notes. Then challenge your payroll team to go through their actual payroll process and see if any steps should be added or deleted until you are confident you have replicated what actually happens. At this point there is no need to think about efficiencies in the process, just concentrate on getting the current procedure documented and agreed on.

In doing this process hundreds of times I often find at this point, that when a payroll team verbalises the process it’s not the same as what they actually do. They will often skip over manual tasks that they complete out of habit and leave them out of the process. They tend to simplify the process and it’s not until it’s questioned that you end up getting an accurate view of what actually happens in the pay office.

Now each step needs to be examined for efficiency. Is it in the right place? Are there any ways to automate it? What manual tasks are being completed? Is there double handling of data? What data is being moved in or out of spreadsheets? What calculations are being completed outside of the payroll? How are reports run and delivered? How much time does this take? Can information be shared electronically?

Using the post-it note method you can move the steps in the process around until you have a visual representation that should illustrate the actual payroll operation in your organisation.

Look to simplify, standardise and automate any steps possible.

These are just some of the things to consider when you are aiming to improve your payroll processing efficiency.

Regular efficiency reviews will ensure your payroll department is always providing a payroll service to your organisation in the most efficient method possible.

At the very least, all payroll departments should analyse their current operation annually to identify efficiency gains. You may find efficiencies in the form of time or cost savings as well as ways of providing better information to the organisation. When time savings are identified it is important to look at what other tasks can now be performed with that time and what value do those tasks have for the payroll department and the wider organisation.

Measure efficiency

As with any efficiency conversation, if you are to improve, you need to measure. So as part of your continuous improvement processes, make sure that the payroll efficiency and cost are being benchmarked regularly.

Every year, Australian Payroll Association produces a Payroll Benchmarking Report. This is a useful start to benchmark your payroll operation, and then track it on an ongoing basis.

Automation

As discussed earlier, a key to gaining efficiency in your payroll function is to automate calculations and processes where possible. Automation benefits the payroll function in three ways.

Firstly, automating any processes that are currently being managed manually will produce time savings and therefore cost savings for organisations. In modern times, technology is cheaper than salaries and wages so it make sense to use as much technology as possible in your payroll process if you wish to manage costs and improve efficiency.

Secondly, using technology and automation will provide much more consistent outcomes than manual processes. This can also give organisations more certainty around budgets and forecasting of wage costs.

Lastly, with the processes automated with consistent calculations, the opportunity for manual error is significantly reduced. This means that the percentage of payroll errors should reduce and it also reduces the opportunity for governance issues and payroll fraud.

Key points

An efficient payroll operation has standardised processes and setup;

Well automated payroll functions lower risk and operational cost;

The more data is entered at the source, the more efficient your payroll process will be.

Checklist

Consider if all the technology you are using in your payroll process is solving problems for you, if not, change it to something that does;

If you don’t already have a continuous improvement programme for payroll, implement one;

Keep track of payroll benchmarks to track improvement and your performance against your peers.

Author note:

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