Eliminating errors in payroll has been a major focus for Australian organisations over the last year. However, in most discussions around payroll accuracy, the focus is on people, process and technology, and not on one of the less considered sources of errors – payroll inputs.

According to payroll expert Frontier Software, organisations need to start paying much more attention to the data input stage of the process. 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.

If this happens once or twice, it may not cause too much trouble. But if the error persists throughout a large organisation over time, then the total amount in incorrect pay could be huge – and the penalties significant.

How do input errors happen?

According to Frontier Software head of sales Kim Boyd, input errors can occur in a number of different ways.

"If your company relies on manual data entry, then errors could arise from just one wrongly pressed key. A staff member might also record hours as double time, instead of time and a half, or overlook one entry from a list. Errors could also come from the employee’s side, if they accidentally provide the wrong information while completing a timesheet."

“The other possibility, of course, is that the payroll system has been configured to reflect award or agreement conditions, but the configuration is incorrect,” Boyd explains.

“Depending on the source of the incorrect data, the quantum of error could be smaller or very large.”

“Other errors could arise, for example, where payroll is not aware of exceptional conditions,” she adds. “These may include where an employee is terminated and payroll is not advised prior to running a process, or where an employee called in sick to a shift, but no leave form was submitted.”

When it comes to the consequences of an input error, there are two possibilities. Boyd notes that overpayment is potentially the better of the two, where an employee receives more pay than they are entitled to.

“In these cases, some organisations may choose to recover the funds while others may choose to forget it,” she explains.

“Then there is underpayment, where an organisation has not met their obligations to pay an employee all their entitlements. The best scenario to hope for is one where the error is detected and only occurs once, but if system misconfiguration or misinterpretation of entitlements occurs over a long period or to many employees, the size of the underpayment can be huge.

“That’s when you typically see the media, unions and lawyers get involved.”

No matter the cause of the error, Boyd notes that it’s not just official penalties that organisations need to think about. Payroll errors can also impact staff morale, staff attraction and retention, and the company’s overall image and reputation within the community.

“What starts as a simple mistake can become a nightmare of publicity and legality,” Boyd says. “This can negatively impact staff engagement, if not well managed.”

Avoiding payroll input errors

No process is perfect, and naturally, mistakes can happen. In fact, Frontier Software says that almost every payroll department will have experienced an error at some point – but if the issue is caught and managed in good time, then the public is unlikely to hear about it.

Boyd says that every organisation undoubtedly strives to ensure that their inputs are correct every time and that there are steps that companies 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 the entitlements of their staff, and they should check all the hours they receive before approving them. Injecting some more rigour into the process of ensuring correct data could help protect against overpayment or underpayment scenarios.

Ensuring that payroll is configured correctly is also important, as this will help increase payroll accuracy and ensure compliance.

“For data issues, organisations need to develop ways to check inputs before they are finalised for payment,” Boyd says.

“Many organisations rely on line management to check the time data of all employees prior to it going to payroll. This is because they are best placed to know when their employees worked and the day-to-day changes in patterns that might pick up unrecorded absences and the like.”

“The challenge lies in embedding the means by which inputs are checked before being finalised in a pay process,” she explains. “The process has to be repeatable and well understood by those charged with completing it.”

Merging technology with good practice

With the rise of automation and new software, most companies now have a solid payroll platform in place – a step which certainly helps ensure accuracy and timely payment.

However, Boyd 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, and so the best approach is a collaboration between your technology and your people.

“Ideally, it’s the marriage of technology that can prompt nominated users to check data inputs for accuracy that will get the best results,” Boyd 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. So there is definitely a co-dependency between the two.”

Boyd highlights that a good payroll system should generally have an automated approval process, and provide visibility of outstanding approval workflows, as well as 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.

“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,” Boyd says.

“This distribution of figures for verification ensures that there are many eyes on payroll calculations, which can reduce error and the possibility of being the next media story.”

Article originally published in HRD magazine, September 2022.