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An efficient payroll system is a priority for every employer – but how do you find a solution which works for both your small business and your budget?
Most employers understand a good business must be built on solid administrative foundations – which means creating an effective payroll system. Australia represents one of the most complex payroll environments in the world – making a process which is already time-consuming and labour intensive that little bit more challenging. As a small business it is essential to pay your employees accurately and on time, you’ll need to develop a payroll solution which fits your compliance needs and your budget, while delivering at the level you expect month in, month out.
It’s no surprise that building a successful payroll system requires financial resources – so you’ll have to consider it just as carefully as any other area of your budget. While large enterprise organisations may have the time and resources to manage mistakes, small businesses and start-ups don’t have that leeway, and may not be able to recover from payroll missteps quite as easily.
The good news is, effective, high-performance payroll solutions aren’t the exclusive domain of enterprise organisations. If you’re developing a payroll system for your business or looking for ways to kick your current system to a higher gear, read our guide to achieving a high performance without creating an unsustainable budgetary drain…
Pay Frequency
The frequency with which you pay your employees has huge consequences for the pay schedule you keep and how much it costs you. On the one hand, a weekly pay schedule allows you to keep a much closer eye on budgets, while also helping employees manage their own finances. On the other, weekly pay brings a heavier administrative burden for payroll employees who must work to a tightly-packed schedule of deadlines almost every day – as opposed to the flexibility of a monthly system.
Obviously, much of the pay process, and its administrative burdens can be mitigated with automated payroll software, which can also handle tax reporting requirements to the authorities – an especially important capability the era of digital tax mechanisms like Single Touch Payroll. The decision to adopt a monthly or weekly pay schedule should depend on the capabilities of your payroll team members, who must be able to balance their compliance checklist with your wider budgetary considerations.
Salaried vs Hourly
Echoing the budgetary consequences of monthly vs weekly pay, is the question of salaried vs hourly. There are plenty of good reasons to keep employees on hourly pay rates – and if shift work is an essential part of the service your business offers there may not be an alternative. However, from a payroll perspective, it obviously makes a lot of sense to standardise the way employees are paid as much as possible.
By extension (and if feasible), it makes the same kind of sense to bring as many employees as possible onto a salaried pay schedule, simply because salaried pay involves far less calculation of hourly variables – such as overtime, holiday pay and so on – and therefore less fine-detail work for payroll employees. Alternatively, it’s worth finding a payroll software platform which handles both approaches suitably well, in order to reduce complexity for your administrators.
Direct Deposit
There are certain time and financial costs to consider when processing payroll with physical paper payslips – but those costs can be mitigated by employers who adopt a Direct Deposit system to handle payments to employees electronically. While physical pay-cheques must be produced, printed, signed, and mailed to employees, Direct Deposit allows for the immediate transfer of funds, eliminating the burdens of physical pay records instantaneously.
Sometimes referred to as the ‘Direct Entry’ method , the switch to Direct Deposit may generate an amount of friction with employees – especially those who have been paid with a physical cheque over the long term. There may also be a nominal bank fee – a cost which will quickly be offset by the savings Direct Deposit brings. Employers with remote payment needs (employees working on oil rigs, or in the field, for example) stand to gain a particular benefit from Direct Deposits since the physical need to mail and cash cheques no longer need to be factored into the pay process.
Technology
It’s easy to overlook the cost burden that out of date technology can place on your payroll system – not to mention the potential innovative benefits you could be missing out on by not upgrading. While most payroll deployments utilise some form of technology to get the job done every week or month, there’s no one-size-fits-all solution, so it’s important you understand what you need from your payroll software before you purchase it.
It is important to do your research when selecting your software platform. While you could choose an end-to-end solution, there are less expensive options out there which will fit your business and your budget. Once you’ve settled on a solution, ensure it is updated regularly to avoid slow-down and obsolescence. Make sure you also stay tuned-in to the IT landscape, keeping a lookout for innovative cloud computing tools which offer both cost-saving benefits and free up valuable space on your own network.
Cyber-Security
Closely connected to the issue of payroll technology is the need to protect the information it holds. Breaches in cyber-security cost Australian businesses an estimated AU$29 billion every year – not to mention its associated reputational damage. Payroll is particularly vulnerable to security threats since it focuses so heavily on personal information – including sensitive banking and personal information. Avoiding the financial damage of a security breach is infinitely preferable to dealing with it and the best way to do this is to update, audit, and test your security measures regularly.
Your payroll cyber-security solution must involve more than just protections against malicious viruses and hackers, it must also place a special focus on data-security compliance. In the European Union (EU), for example, the General Data Protection Regulation (GDPR) has introduced strict new rules (and penalties) on businesses which do not implement appropriate data-protection measures, while Australia’s Notable Data Breaches law serves a similar purpose.
Career Development
To get the most value from your payroll department, you’ll need to consider the needs of the employees who run it. While developing your employees’ skills through industry training is vital, it’s equally important to help them achieve their career goals – especially after research revealed that 60% of Australian workers left their positions thanks to a lack of career development opportunities. By not addressing employees’ development needs, and letting them stagnate, you’re not only risking compliance and efficiency standards, but a waste of investment through brain drain – as valued members of the team leave for greener pastures.
Career development builds value into your payroll team, enhancing the cost-efficiency of the process and creating a natural ‘trickle down’ effect as senior employees help newcomers get to grips with the field. Look for training courses and career development opportunities from accredited industry bodies, such as the Australian Payroll Association, or the UK’s Chartered Institute of Payroll Professionals.
Digital Tax
Numerous territories have introduced digital tax systems which allow businesses to integrate their payroll with the authorities’ online tax reporting mechanisms. While there may be some friction during the transition away from paper-based tax reporting, the digital systems essentially streamline the process, costing a business less in time and resources, increasing efficiency, and easing the burden on payroll employees.
Digital Tax schemes are in place around the world and include the Australian Tax Office’s recently-introduced Single Touch Payroll mechanism, and the UK’s Making Tax Digital initiative. Obviously, to get the most value out of digital tax, your business may need to review its tech capabilities – although most digital tax tools involve a low barrier for entry.
Outsourcing
The burdens of payroll can be significant – and may even be too much for some businesses to handle in-house. Rather than sinking money into the problem, there is another option: outsourcing the payroll process to a service provider. While outsourcing involves a fee, that initial cost is likely to be offset by the efficiency and compliance benefits a service provider brings, which can be useful for a range of payroll challenges – from meeting deadlines to developing a global payroll solution for international employees. Outsourcing also brings a range of added values: including access to cutting-edge IT infrastructure and robust cyber-security measures.
Payroll outsourcing is an increasingly popular trend: research suggests that around 50% of organisations in Europe, the Middle East, and Africa outsource some or all of their payroll needs, while the global payroll outsourcing market is set to grow to $21.8 billion by 2021. Payroll outsourcing is especially cost-efficient because businesses may develop a bespoke solution which suits their needs and budget well – and can scale up and down as those needs change.
Summary
The importance of payroll can’t be underestimated – which is why it’s always worth taking the time to get right. Your payroll solution should be a living thing, which changes and adapts to environmental factors, like business growth or new legislation, on a regular basis. With that in mind, you’ll need to constantly review the effectiveness of your payroll, and even anticipate the challenges it will face in the future – as with any vital business function, from an employer’s perspective it’s better to anticipate and avoid payroll budget problems than deal with their consequences.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
