Managing payroll has become a critical and increasingly complex aspect of running a business, especially with evolving legislation and diverse employment arrangements. Mistakes in payroll, whether intentional or not, can lead to severe consequences for businesses, including hefty fines, reputational damage, and in extreme cases, legal action. Here’s an exploration of why payroll is such a challenging task, the available solutions, and the future of payroll management.
Key Challenges in Payroll
1. Complex Legislation and Awards
Payroll errors often stem from misinterpreting employment laws and awards, which are nuanced and vary between countries. For example:
- In Australia, the Fair Work Ombudsman has criminalised international wage underpayment, increasing scrutiny on businesses; and
- In New Zealand, the intricacies of the Holidays Act have led even government ministries to make mistakes in calculating employee entitlements.
2. Superannuation and Payment Timelines
Recent changes in Australia require businesses to pay superannuation concurrently with wages, adding another layer of complexity. Late payments, even by a single day, can now result in penalties.
3. Administrative Overhead
A 2024 report by Employment Hero revealed that over 95% of payroll professionals need at least three days to complete a pay run. This highlights the resource-intensive nature of the process, particularly for businesses with large or diverse workforces.
4. Industrial Awards & EBA’s
They are often drawn up by the like union representatives and lawyers: – people that will scant regard for the software programmers and accountants that have to implement all the intricate terms and conditions.
Types of Payroll Solutions
Businesses can choose from several types of payroll systems based on their needs:
1. Basic Payroll in Accounting Software
- deal for small businesses with straightforward payroll needs.
- Examples: Xero, MYOB, QuickBooks.
- Limitations: Lack of award interpretation and manual adjustments for complex cases.
2. Standalone Payroll Applications
- Tailored for compliance with complex legislation.
- Examples: iPayroll, Smart Payroll, Access PayEasy.
- Pros: Highly accurate, integrates award and leave calculations.
- Cons: Higher costs compared to basic solutions.
3. Integrated HR and Payroll Suites
- Combine payroll with employee management for seamless data flow.
- Examples: Employment Hero, Elmo, Rippling.
- Features: Automated workflows, rostering, and performance management.
Choosing the Right Payroll System
When deciding on a payroll solutions, businesses should evaluate:
- Complexity of Workforce
For companies with casual, part-time, or shift workers, standalone or integrated systems may be better suited. - Scalability
Growing businesses should consider systems that can handle increased employee numbers and varied roles. - Support and Automation
Systems with robust customer support and automation capabilities can save significant time and resources.
Future of Payroll: Automation and Accuracy
Payroll providers are embracing innovation to address inefficiencies and improve accuracy. Employment Hero, for instance, is developing fully automated payroll services with the goal of reducing manual effort by up to 80%. Similarly, Rippling’s modular HRIS offers workflows and global payroll capabilities, targeted at operations for international businesses.
Payroll is no longer just a back-office function but a critical business process with legal, financial, and reputational implications. While the task has grown more complex, modern payroll solutions—tailored to specific needs—can alleviate much of the burden. By adopting the right tools and staying updated on legislative changes, businesses can navigate payroll complexities with confidence and precision.
DIY Auditor
A lot of businesses take the view that “I pay big money for this payroll software:- it should be perfect”. Perhaps it should, but unfortunately we aren’t there yet. For the reasons described above, it’s almost impossible for any payroll system to handle every nuance of the payroll landscape.
This is where payroll officers, management accountants and CFO’s need to channel their inner internal auditor and perform spot-checks on their payroll system.
This is more than just a “looks reasonable per last fortnight” check, rather it’s about manually recalculating (on a random spot-check basis) specific payroll or leave calculations.
By combining robust payroll systems with proactive auditing practices, businesses can ensure their payroll processes are not only compliant but also optimised for accuracy and efficiency.