payroll calculator

Avoiding the negative impact of payroll errors

In discussions around payroll accuracy, the focus is on people, process and technology, and not on one of the less considered sources of error – payroll inputs. Ensuring that your people are well trained, your processes are right, and your technology is configured correctly are all very important steps to take; however, if the best system in the world is given the wrong input, it will produce an incorrect output.

According to Frontier Software, organisations need to start paying more attention to the data input stage of the process. If an error happens once or twice, it may not cause too much trouble. But if it persists, the total amount in incorrect pay could be huge and the penalties significant.

John Dunham, Business Manager at Frontier Software points out that errors can occur in several ways. "If you rely on manual data entry, errors could arise from just one wrongly pressed key. A system user might also record hours as double time, instead of time and a half, or overlook one entry from a list. Errors can also be made by the employee, such as accidentally providing the wrong information while completing a timesheet. Depending on the source of the incorrect data, the size of error could be small or very large.”  Dunham continues: “Errors can also arise when payroll is not aware of exceptional conditions, such as payroll not being advised of a leaver prior to running a process, or where an employee called in sick, but no leave form was submitted.”

When it comes to the consequences of an input error, there are two possibilities. Overpayment is potentially the better of the two; whilst underpayment can have a much more detrimental effect. Payroll errors can impact staff morale, staff retention and the organisation’s overall image and reputation within the community.

No process is perfect, and mistakes can happen. Frontier Software says that almost every payroll department will have experienced an error at some point. Whilst payroll strives to ensure that data inputs are correct every time, there are steps you can take to avoid ongoing, long-term errors. Key to this is simply making sure that your staff have a high level of knowledge and awareness around the entitlements of each employee. Ideally, line managers should be conversant with their team’s entitlements and should check all the hours received before approving them. Injecting some rigour into the process of ensuring correct data could help protect against over/underpayment scenarios.

Ensuring that your payroll system is configured correctly is also important, as this will help increase payroll accuracy and ensure compliance. Most organisations now have a solid payroll platform in place – something that certainly helps ensure accuracy and timely payment. However, Dunham warns that payroll departments can’t entirely rely on technology to avoid mistakes. If a platform is not configured correctly or given the right information, you will still be vulnerable to errors. The best approach is a collaboration between your technology and your people.

Dunham says, “If we have payroll teams conversant with what must happen and payroll technology configured to enact those rules, then we also need people to be careful about providing correct data and other people to double-check the data for accuracy. There is definitely a co-dependency between the two.”

A good payroll system should have an automated approval process and provide visibility of outstanding approval workflows. Plus, reports that compare this pay to a benchmark pay for every employee. Enhancing this baseline is also a good step to take. For example, Frontier Software’s ichris solution applies a verification step, which sends the payroll calculations to nominated reviewers for approval. By combining technology with knowledgeable, diligent staff, the potential for payroll errors can be significantly reduced.

Dunham concludes, “With this method, errors, be they systemic or just down to incorrect inputs, can be identified and corrected before the payroll is finalised and funds dispersed”.

Article originally published on Public Sector Focus October 2022.