Payroll maturity: how does your organisation measure up?

While all too often the payroll function is not given the recognition it deserves, in reality it could be said to act as the central nervous system of the business.

Let’s explain: without payroll, the organisation would simply not be able to function. It would have little idea of who was employed, how much they were being paid, and whether they were being compensated for their work in a fair, accurate and compliant fashion.

In other words, a healthy payroll department is fundamental to helping the wider HR organisation meet its business objectives and enable positive employee outcomes.

Key considerations in enabling it to do so include:

• Payroll accuracy and efficiency
• Payroll team roles and processes
• Compliance and risk management
• Employee experience
• Reporting and analytics

How effectively each of these elements work both alone and in combination with others is a measure of their maturity, and the maturity of the wider payroll function.

Here is a quick guide to understanding what such maturity looks like in each of its three most common manifestations.

Level 1: Low maturity

Immature payroll processes generally lead to high error rates, elevated costs, greater risk, and low rates of employee satisfaction. This scenario tends to come about as a result of how teams are structured – because they are often small, everyone is expected to pitch in together, resulting in a lack of clearly defined roles and responsibilities and little-to-no segregation of duties.

By the same token, critical processes and key person dependencies are not usually documented, even though payroll runs tend to rely on the expertise of a small number of people with very specific knowledge. This means that should they leave, a significant business continuity risk opens up.

All too often, however, team knowledge does not stretch to the specifics of legislation and regulatory requirements. This means the business can end up facing unknown compliance risks, which includes having processes and systems that fail to support their needs.

Reporting activities are likewise basic, poor quality, ad hoc and offer little strategic value due to the use of disparate systems for storing data, and even manual, makeshift spreadsheets.

Unsurprisingly, a common by-product of this lack of maturity is significant and frequent payroll errors, which have a noticeable impact on employee satisfaction and cost large amounts of time and money to rectify.

The situation is also not helped by the more than likely absence of employee self-service applications, including access to payslips and frequently-asked questions (FAQs), despite there being high numbers of error-related queries and complaints.

As a result, employees have limited, or no, means of finding out key information for themselves, which increases the burden on payroll and HR teams who are forced to spend time responding. Unfortunately, this scenario ends up generating a vicious circle of inefficiency.

Level 2: Medium maturity

Once the payroll function hits medium levels of maturity, it finds itself able to react more effectively to key issues as they become apparent, although challenges remain in certain areas.

For example, while payroll errors still arise, the rate at which they appear has become more manageable due to the introduction of better software and some automated processes. The downside is that such errors are costly, still represent a compliance risk, and there is only a limited understanding of why they are occurring.

Challenges contributing to this situation include inadequate payroll processes and structures. For instance, while the team may now have more awareness of compliance risks and legislation and can handle certain aspects effectively, other issues remain unidentified and unmanaged.

Moreover, more clarity on staff roles and responsibilities may exist, but it is still limited and certainly does not cover cross-functional relationships. Processes, which include those relating to holidays and sickness absence cover, are also better documented, but the implementation of a tried, tested, and actionable business continuity plan (BCP) is unlikely.

Another plus is that some, limited use of employee self-service applications to undertake activities, such as viewing payslips and referring to FAQs, has become more commonplace. This means query volumes are kept at manageable levels outside of peak times, although they can still be significant.

Reporting, meanwhile, is starting to become more mature, consistent and strategic in nature, with payroll data becoming more closely integrated with other HR and business information.

Level 3: High maturity

When payroll maturity is high, the function is able to adopt a more strategic role and its focus moves to identifying and undertaking continuous improvement activities and enabling better cost-effectiveness.

Not only are payroll runs more often error-free, but consistent root cause analysis is used to explain why any issues are occurring, while helping to identify and resolve any unforeseen or unexpected problems at the same time.

Payroll employees stay ahead of the game on compliance by keeping their legislative and regulatory knowledge up-to-date and undertaking risk management assessments. This means the vast majority of compliance risks are known about, accounted for, and mitigated using state-of-the-art payroll software.

In addition, high levels of confidence and clarity exist with regard to staff roles and responsibilities and the processes they own, both within the payroll department and on a cross-functional basis. As a result, in the event of major organisational change, such as a merger or acquisition, it is possible to adapt the structure of payroll team and its duties easily in order to minimise disruption.

As a result, the focus is on ensuring ongoing process improvement, something that is made easier by the fact that they are all fully documented and include effective, underlying workflows. Just as important, a comprehensive and actionable BCP, which is updated and tested regularly, has also been put in place to enable the organisation to respond successfully to any unexpected crises.

Meanwhile, because of the high adoption of mobile self-service tools, which enable employees to undertake activities such as accessing payslips and selecting benefits, the number of workforce queries has dropped significantly. As a result, payroll and HR teams are able to spend less time answering them and more time undertaking value-adding tasks.

Finally, payroll applications have been tightly integrated with the organisation’s core HR and finance systems, creating a single source of data, and enabling the advanced automation of reporting and other analytics-based activities to support strategic decision-making.

Get your free payroll health check

To find out more about how to guide your payroll function to maturity, why not take advantage of a free process health check from Zellis? Get in touch with us today to see if you’re eligible.