The biggest payroll problems your company can face – and their solutions

Payroll errors have made the headlines recently. British superstore chain Asda left 5,529 employees waiting for their full wages. Some staff were missing over £500 of their earned wages.

Even professional services firms have been impacted by payroll problems of late. 55,000 US employees at Ernst & Young found wages that were paid a week previously had later disappeared from their accounts.

The clothing retailer Next underpaid by up to £200 a month. In this case, the company noted that the problem was caused by the implementation of a new computer system that went wrong. Naturally, many staff were angry about the mistake.

These concerning incidents persist, and Julie Lock, commercial director at software company Advanced, told UNLEASH: “The severe payroll issue that Next is experiencing is really concerning, it’s high profile and will take a great deal of effort to remedy the financial and reputational impact.” 

Julie Lock, commercial director at Advanced

Amid a cost of living crisis, these mistakes are even more costly for employees.

Lock noted: “A payroll professional’s fundamental task is to ensure accurate and timely payments to employees; this is drummed into payroll professionals during training. 

“We all work to earn a living, so to find that your wages are not what they should be is incredibly worrying. 50% of UK households have less than £250 in savings, and half of workers on monthly pay schedules say they run out of money between paydays. That means half of us are living paycheck to paycheck

“There is simply no room for less pay – when something such as this happens, the knock-on effect to people’s lives is immediate and sometimes catastrophic.”

With this situation in mind, let’s look at how finance teams can create an effective payroll system.

What makes a good payroll system?

First and foremost, a payroll system should fulfill its purpose; it needs to pay employees accurately and in a timely manner. 

As a result, when considering a payroll system to use or reflecting on the efficiency of an existing one, HR teams must get insight into whether the hours employees are working are being accurately tracked, if payments are verified, and the system’s ability to recognize tax codes. 

None of these payroll processes are simple, and experts have sat down with UNLEASH to discuss the prominent issues they see businesses facing. Not only that, but there are some solutions to problem areas.

Of course, before HR and finance teams can solve a problem they have to know what warning signs to watch out for.

What issues can wage systems face?

Tax codes and international regulation

Payroll systems need to be able to read tax codes and be incredibly accurate and compliant.

Ada Yang, client services director at Certino (a technology provider that supports shadow payroll), noted how international codes not being read properly by systems can lead to issues: “Failure to do this, may lead to the employee – and their employer – falling short of their tax and social security compliance obligations.”

Ada Yang, Client Services Director at Certino

Fortunately, there is a solution for payroll professionals although it isn’t simple. Yang explained: “To avoid this scenario, employers need to implement a shadow payroll. 

“This is used to calculate the appropriate tax and social security liabilities to be submitted to the host country and, in parallel, adjustments may be necessary to the home country payroll to avoid additional costs.”

Unpacking the difficulty behind doing this, Yang noted: “It sounds complex, and it is.

“Calculating shadow payroll accurately requires a high degree of expertise. 

“Global mobility teams need to collect and consider data on each assignee’s salary, their location, and a range of other factors, alongside the legislation governing the host and home market. If they get this wrong, they could end up with a costly fine and reputational hit.”

When it comes to finding a shadow payroll provider that will help ensure payroll accuracy, Yang recommends looking at the technology they use: “The best examples of this [shadow payroll] have been developed by tax and technology experts, and are designed to automatically calculate shadow payroll for whole workforces at speed, and to an unparalleled degree of accuracy. 

“The technology helps organizations remain constantly compliant while surfacing accurate, real-time data on their international operations. This can also be used for budgeting and cross charging purposes.”

Cash flow management

Cash flow management is the process of understanding a company’s outgoing and incoming finances. If a company does not manage this area well, it not only risks not paying employees but its own future.

Jim Colassano, senior vice president of product development and strategy at payment platform The Clearing House, described cash flow management as a top issue for many businesses.

Jim Colassano, senior vice president of product development and strategy at The Clearing House

Offering his advice, Colassano said: “Employers must fully fund payroll prior to distributing it, and that process takes time – sometimes up to four or five business days for payments to settle in good and final funds.

“Companies can improve cash flow management by switching to real-time payments.” 

Real-time payments do what they say on the tin and enable employers to instantly pay their employees and avoid payroll mistakes rolling on for another month.

Equally, the process enables contractors or part-time workers to be paid for their work quickly and effectively.

Access to earned wages

On the note of real-time payments Ram Palaniappan, founder and CEO of payroll platform Earnin, claimed that payroll systems “don’t keep up with the demands of modern life.

“Most people get paid every two to four weeks, but bills and expenses don’t wait for payday”. 

Ram Palaniappan, founder & CEO at payroll platform Earnin

Palaniappan added: “This mismatch between financial obligations and pay cycles creates a “liquidity gap” for millions of working Americans.

“This reality means that when workers do not have access to earnings, they are forced to turn to overdrafts and cash advances or pay high bank fees.”

According to Palaniappan, this reality leads to many workers resorting to overdrafts and payday loans. 

He suggested: “One way businesses can improve their payroll system without actually having to change their system, is to implement Earned Wage Access as an employee benefit.

“Enrolled employees will have the ability to monitor their earnings within an app, cash out a portion of their earned wages ahead of payday.”

How can you protect payroll systems?

There are many things that can negatively impact a payroll system’s accuracy. However, keeping your system tightly regulated and checking its accuracy is a strong start. This requires organizations to commit staff to ensuring payroll systems run smoothly. 

On top of that, all businesses need to be transparent when problems arise. Rather than waiting for employees to realize that they are being underpaid, getting ahead of the problem and communicating exactly what has happened can calm the situation. Moreover, real-time payments could provide a quick fix in cases where employees are waiting for wages.

Technology has been pitched by the experts we spoke to as an essential component of getting payroll right. Many organizations have moved away from manual processes, but it is evident that earned wage access, real-time payments, and real-time compliance checks will require further investment from the majority of businesses.

Of course, to protect technology investments contracted standards can also help ensure that services do not have the blips that have made headlines in recent weeks.

Technology investments and greater time spent observing compliance codes may not sound appealing to some organizations, but they are a lot more effective than widespread complaints from staff and the public.

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