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6 ways your manual payroll system could be increasing your risk profile

19 Apr 18

Article by Ruth Postle, managing partner, Oracle Cloud, Presence of IT

Bill Gates once said: “Business is a money game with few rules and a lot of risk.” It’s absolutely true of course.

But while in some aspects of the business world risk-taking is associated with audacity and big rewards, there are other instances where taking risks offers no pay-offs. Sometimes risky behaviour has no silver lining: it’s just plain bad for business.

One instance in which risk should be avoided at all costs is your payroll system. As a business critical function, payroll needs to run smoothly and efficiently at all times, paying people correctly and promptly and making sure that the burden of compliance and legislation is followed to the letter. 

As we edge closer to the next decade, payroll is becoming an even more complex beast, especially for larger organisations with a global footprint.

Further changes in legislation, a more dispersed and mobile workforce and new, more complex salary structures are just a few of the challenges faced by modern payroll managers.

So it makes sense that a payroll system that helps to simplify and automate these processes, thereby minimising the risk of problems occurring - even better, one that eliminates them altogether - should be at the top of every business’ priority list. Right?

Wrong.

Despite the many risks associated with using a manual payroll system, there are still countless organisations who haven’t yet made the transition to an automated, cloud-based system.  And it’s costing them - big time.

According to recent research from PWC, payroll errors cost the average FTSE 100 company between AU$18M and $55M every year. Even if you’re Bill Gates, that’s not exactly pocket change.

Here are six ways in which your manual payroll system increases your risk profile and places you in a potentially precarious position:

1. Increased likelihood of human error.  

It’s no secret that manual data entry is fraught with potential problems. Underpayments, overpayments, incorrect leave entitlements - you name it.

When you don’t have a single source of truth, staff must enter in data across multiple systems (HR, Finance and Payroll) and that’s where errors sneak in.

If your employees have complex salary structures then the risk of miscalculations is even higher. All of this has the potential to impact both your business’ bottom line and your employees’ satisfaction levels.

A modern cloud-based, date effective system not only eliminates the need for multiple data entry points, it also enables automated leave accruals and automated award interpretation, removing the need for manual calculations. Amen to that.

2. Greater risk of legislative non-compliance. 

Third party reporting is becoming an increasingly big part of payroll’s function and failure to comply with legislation or missing reporting deadlines can result in hefty fines and penalties.

Relying on a manual process to ensure these are adhered to is not only incredibly time-consuming, it also places a huge amount of responsibility in the hands of one or just a few people.

The risk is even greater if you need to consider global as well as local compliance. With plenty more legislative changes expected in the next half decade, this is one issue which isn’t going away.

3. There’s an increased security risk.  

While there are some who believe that storing highly sensitive data remotely is a security risk, the truth is that your data is far more vulnerable and open to misuse in a manual system.

Modern cloud payroll systems offer the highest security standards available, which means your data is stored on secure servers while still giving you the added convenience of remote access and all the benefits that brings - such as online and smartphone time sheeting, approvals and payslip access.

4. Issues with authorisation can cause payment delays. 

In payroll there are always approvals built in to the process as audit/compliance measures, but as the payroll deadline approaches, getting the required approvals in time can prove challenging.

When approvals aren’t granted in time, payments end up being delayed, causing significant rework with out of cycle payments and creating frustrations among employees. 

A big benefit of a modern cloud based system is its ability to redirect workflow, put auto escalations in place and enable approvers to log in remotely to approve.

5. There’s a potential transfer of knowledge issue. 

Manual payroll functions are typically owned and understood by one or just a handful of people.

If those individuals leave the business, this information must be effectively transferred to their successors. In an ideal world, this transition would happen seamlessly.

But newsflash: we don’t live in an ideal world. The reality is that things get missed, forgotten, overlooked - and by the time they’re discovered, the damage has already been done. 

6. It’s costing you more time and money overall.

It’s a simple fact that manual payroll processes suck up time and are rife with inefficiencies. 

Switching to the cloud significantly reduces the time your payroll team is spending on unnecessary admin and data entry, freeing them up to perform other business functions, while switching from paper to digital payslip distribution reduces waste and provides further savings.

A self-service model in which staff can access their payslips, update their details and apply for leave remotely and without the need for a paper trail reduces the admin burden even further - all of which should have a positive effect on your bottom line.

Bill Gates was right: business and risk do go hand-in-hand. But while we can’t control global financial markets or influence market trends, there are some risks we absolutely can mitigate.

Payroll is one of them. 

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