Effective payroll processing isn’t just an essential business function. It also plays a key role in maintaining a high level of employee satisfaction. Employees depend on getting paid promptly and consistently with the correct amount. A payroll process that’s slow, prone to errors or overly complicated can result in a strained relationship between an employer and workers and unnecessarily tax the time of the HR team.
Payroll activities are said to account for as much as 35 per cent of an average HR department’s time. To make the most of this time and to prevent or minimize errors, here are four payroll processing best practices to institute in your business:
1. Conduct regular, ongoing audits
Frequent employee complaints about payroll are signals you should be conducting regular audits of the entire process. The best way to isolate and identify an issue is through a comprehensive workflow analysis, itemizing each step of the process from beginning to end.
Obviously, a company that still makes use of a manual timecard system should expect employees will enter incorrect information on occasion. But automated systems aren’t immune to mistakes, either. These include incorrectly classifying a new employee’s tax status or forgetting to adjust pay rates after an employee is given a raise.
Effective audit action steps include:
- Check and double-check all paperwork and processes to determine that each part is running smoothly.
- Test plugins or add-ons to ensure that payroll software is properly integrated with your time and attendance system.
- If employee time-theft is identified as a problem, install a check-in system and/or biometric sign-in hardware to automatically note the times an employee signs in or swipes a card.
2. Institute a transparent payroll policy
Problems often come about as a result of employee misunderstanding of the payroll system, most often in organizations where pay policies are either not accessible or inadequately presented to employees. Many payroll issues, such as underpaid taxes or employee mis-classifications, can be corrected by instituting a wholly transparent payroll policy.
This policy should include information on:
- How the payroll process works
- How employees are classified
- How salaries are determined
- Employee reporting responsibilities
- Company procedures for handling payroll mistakes
- Levels of vacationable earnings (as set by BC Employee Standards Act section 58)
- The manner in which wages and promotions are calculated
Put the policy in writing, display it prominently throughout the workplace and make sure each employee has a copy.
3. Seek employee input to improve payroll process effectiveness
Even with a policy of transparency, never assume that people fully understand the ins and outs of payroll processing. Communicating with employees can help identify areas of confusion and misunderstanding, such as improper timesheet submission or other issues related to the use of time cards.
Hold an all-staff meeting dedicated to payroll issues. It’s likely you’ll get enthusiastic participation, since every employee is directly affected by the process. At this meeting, ask employees what payroll processes work for them and what areas need improvement. You may be surprised by the creative suggestions you receive.
If senior management has issues with the payroll process, confer with the CFO and/or senior accounting manager. Consider sponsoring a company-wide survey of all managers and supervisors to determine their level of satisfaction with current procedures. Again, inviting suggestions on improvement will encourage support from these individuals after changes are implemented.
4. Know payroll tax policies inside and out
The Canada Revenue Agency (CRA) strictly enforces payroll tax policies for small businesses in Canada. It’s important that you and your HR staff thoroughly understand the employer’s obligations in this area — and that you keep pace with changes in federal government policies.
According to The Payroll Edge, areas of emphasis should include:
- Remittance. Companies that fail to remit payroll taxes on time are subject to fines. If, for example, a remittance due date coincides with a public holiday or weekend, remember that remittance is due the following business day.
- Payroll deductions. The federal government generates payroll deduction tables on a regular basis, so it’s necessary to keep pace with any updates or changes.
- Canadian Pension Plan (CPP) contributions. CPP contributions must be deducted for employees between 18-70 years of age.
- Employment Insurance (EI) premiums. The CRA offers tables outlining employer requirements for withholding Employment Insurance premiums.
- Bonuses and retroactive pay increases. Deductions must accompany any bonus or retroactive pay increase: CPP contributions, EI premiums and income taxes. Check with the CRA on how to calculate the appropriate amount of taxes.
Successful businesses make effective payroll processing a top operational priority. HR expertise in this area is therefore a critical element of that success.