Payroll needs to evolve

Payroll needs to evolve – now

by Rohan Geddes and Alanah Hearn

^{Share this article}

‘Set and forget’ payroll is no longer fit for purpose. The function needs more support and better controls to ensure it can handle the level of risk it carries daily and to provide the business with greater strategic insights.

Payroll has never been a more critical issue for businesses than it is today. Front-page headlines of multi-million-dollar underpayment by some of Australia’s iconic brands have put risk committees across the country on alert wondering whether they might be next. Wage trust has suddenly become a topic of BBQ conversations.

Why is this once ‘back-office’ function now in the spotlight?

For many companies, payroll has long been considered an essential but somewhat unglamorous part of the business. A ‘set and forget’ mentality has resulted in a lack of support and a lack of focus on governance and compliance. But as recent events attest, the long-term consequences of this hands-off approach are now starting to bite. Payroll needs to evolve to keep up with the changing landscape in which it operates.

Complexity driving need for change

The past decade has seen significant shifts in the way people work, with equally significant impacts for payroll. For example, the rise of part-time and casual workers has strained payroll systems with the need to accurately record hours of work, breaks and shifts and accrual of leave.

Systems have also struggled to keep up with increasingly complex Enterprise Agreements, which typically do not consider payroll implications. On top of this, payroll systems are often inaccurately or incompletely configured. This means they need manual intervention, which wastes time and introduces new sources of error.

The unprecedented disruption of COVID-19 is further compounding these existing complexities. Payroll now needs to accommodate at short notice new arrangements such as reduced hours and temporary flexibility.

Regulators look for ‘source of truth’

Another important factor driving the evolution of payroll is the heightened level of scrutiny by regulators. Increasingly, the Fair Work Ombudsman and the Australian Taxation Office are looking to a company’s payroll for a single source of truth to draw conclusions about matters ranging from wages to tax to superannuation. Currently, the Federal Government is relying on company payroll functions to administer the economy-saving JobKeeper scheme accurately and honestly.

And this is not just a trend in Australia. Globally, regulators such as the Low Pay Commission in the UK are looking to payroll data to make decisions.¹

Payroll as strategic advantage

But the case for improving payroll goes further than addressing regulatory, business and reputational risk. It also presents an opportunity for the function to play a leading role in strategy. Payroll is not only one of the largest expenses on a company’s books, but it’s also the front line for what is often a company’s biggest asset – its workforce. As such, it controls critical data that can be harnessed for making strategic workforce decisions.

In the last few years, new visualisation tools have become available that can quickly unlock important business insights from payroll. These tools can show what people are being paid on a period to period basis and draw conclusions about the changing workforce demographics. They can show how efficiently workforces are being used and how costs can be changed by optimising roster management.

Focus on resourcing and controls

So, how do companies make sure their payroll is operating to its full potential?

The first step is to ensure it gets the resourcing and support it needs. Payroll has long suffered from chronic underfunding, and without more investment in training, resources and technology, the function will simply not evolve.

The second step is to adopt a continuous improvement mindset. Practically, this means putting in place the right controls and governance to turn payroll from a ‘set and forget’ function to one that quickly responds and adapts to the risks and opportunities in the business.

While there is no ‘one-size fits all’ template, the following 12 principles will help companies create a plan to ensure their payroll function can reach its full potential.

1. Enhance focus on governance and compliance – payroll is more than transactional

2. Create role clarity – articulate clear responsibilities and handoffs

3. Invest in issue management and remediation – fix what you need to fix

4. Standardise ways of working – be consistent across the function

5. Build controls – design roles that enable controls to be appropriately managed

6. Integrate systems – link systems to minimise need for manual intervention

7. Enable accountability – make people accountable for payroll outcomes

8. Deliver operational excellence – build efficient payroll processes and workforces

9. Drive performance outcomes – actively manage outsourced providers

10. Develop capability – develop and promote best practice

11. Drive data analysis – leverage payroll data to drive effective workforce insights

12. Influence regulator consultation – contribute to consultation initiatives

References

^₁_{Low Pay Commission, May 2020, Non-compliance and enforcement of the National Minimum Wage and Financial Times, April 2019, Underpayment of UK workers on minimum wage on the rise'}

Subscribe to Workforce Matters

Payroll needs to evolve – now