The path to high quality in payroll ...

Payroll is a cornerstone of the company’s foundation. It is an area that ideally runs flawlessly, problem-free and efficiently. Still, payroll has a lot of grey hairs and frustrated employees on its conscience. Therefore, in this article, we invite you to a parent-teacher meeting for the payroll function. We focus on the challenges and why they arise – and we take a closer look at outsourcing as a possible solution.

Pay. One of the most basic functions in the company – because, no pay, no employees. And yet, many large Danish companies struggle to achieve the quality and efficiency they want.

But why is this so?

There is a critical absence of organised skills development for payroll people as no formal payroll education exists. Therefore, payroll people are a rare and sought-after breed who seldomly acquire more knowledge than what they learn from their colleagues and hunt up themselves.

This also means that key person dependency in payroll is high. And this is vulnerable as you are lost if your payroll employees take a long-term sick leave or decide to quit. At the same time, as a rule, only the very largest companies have sufficient payroll employees for them to cover for each other.

Internal payroll functions are therefore often under severe strain. There is a lack of people and skills, and, at the same time, payroll system technology is developing rapidly – and it may be difficult for the payroll employees to keep up as they do not have the time to familiarise themselves with the new systems.

Payroll is a mixed stew which HR, Finance and the employees cook together. They each provide the main ingredients for the dish: HR provides the HR data, the employees ensure time recording, and Finance typically handles the entire ‘after payment process’.

But too many cooks may spoil the broth. Especially if there is no overview of the end-to-end process and no distinct distribution of roles and responsibilities – because there are a lot of interfaces in payroll. A lot!

And the problems usually arise in the interfaces as there is no control of who is responsible for what, who must contribute with what, and who is to approve what. And things are often handled very manually.

It may sound like a bad excuse to blame the payroll system if errors occur. But large Danish companies often use relatively complex payroll systems – and the systems are a common source of errors because the people using them have rarely had the time to familiarise themselves with all the functions and the underlying setup.

Therefore, calculation errors may occur in the system, even though the data you receive is correct – simply because the people working in the system have not had the opportunity to get to know the system and the entire setup properly.

And when the internal payroll function is already under severe strain due to the lack of people and skills, a system error may be the straw that breaks the camel’s back. As correcting pay is complex and time-consuming.

Although it may seem like it, we do not mean to be alarmists. But we would like to make it clear that payroll poses a serious challenge to many companies; you are not alone if you find that establishing a well-run payroll function is like trying to tame a wild horse.

Therefore, it may seem obvious to try to outsource payroll.

… because outsourcing the task to a professional partner should solve the problem, right?

Unfortunately, it is rarely that simple.

Generally, suppliers become larger and more professional and therefore also better at catching the companies. Still, many companies that choose to outsource experience a mismatch between their expectations and what they get from the supplier.

The unmet expectations are often a result of insufficient balancing of expectations and a resulting flaw in the cooperation. E.g., a need for an internal resource in the company ensuring coordination and administration of the payroll process will usually remain – and the company will still not completely escape key person dependency in the payroll area.

Also, the company may expect for the supplier to handle EVERYTHING in relation to payroll. But some parts of the payroll process cannot be taken on by the supplier as they require that you are part of the organisation.

For example, after the payroll run, there is a reconciliation task in the overall finance function. And the suppliers will often believe that they are solely responsible for reconciling what they delivered. But if you have a company that enters all sorts of other things – not directly related to pay – on the same account, there is still a task left for the company in relation to reconciliation.

More than half of the quality in payroll often comes from what the employees have recorded, and what the managers have approved. And you lose a lot of quality if no one decides on the recorded data – e.g. in relation to vacation, illness and absence – and this is not possible for an external supplier.

Another classic pitfall is that an inhouse payroll function has a completely different knowledge of what goes on in the organisation than a supplier. An inhouse payroll function is physically present in the company and reads the messages on the intranet and therefore knows, for example, that an employee is to be paid again when he or she returns from paternity or maternity leave.

Moreover, there is a general issue in the fact that many companies have little control over their internal processes in relation to payroll – and if these processes are not under control, it is, after all, very difficult for a supplier to solve the task satisfactorily.

… and then there is the money. Because everything beyond standards costs money with a supplier. The same applies internally, but you do not see it the same way because it ’only’ costs permanent staff’s time … but errors become very noticeable in outsourcing because it becomes expensive.

Does this mean that the only right thing to do is to keep payroll inhouse? No, but whether you need to successfully outsource your payroll function or optimise your inhouse payroll function, a number of things must be under control to provide the best possible conditions for your employees or cooperation with the supplier – and to achieve the quality you want.
First and foremost, it is crucial that you establish an overview of the end-to-end process with all its interfaces and roles and responsibilities to determine who does what when.

If you choose the outsourcing strategy, it is therefore also important that you define which interfaces the supplier should handle, and what you wish to keep inhouse – and that you decide on whether you stay on your own payroll system or switch to the supplier’s payroll system.

Basico now offers payroll services
 
As something completely new, Basico now begins to offer payroll services. This is an area in which our clients have requested assistance for a long time, and we are happy that we now have the skills and organisation in place to meet this need.

Outsourcing is a hot topic in payroll. Many companies are considering it, and, if you already chose to outsource your payroll function, you may have found that it did not quite turn out as intended.

We are ready to help, regardless of whether your payroll function is inhouse, outsourced or somewhere in between.

If your payroll is inhouse, we can help create an overview of the entire end-to-end process and define interfaces and responsibilities. Furthermore, we can help test and analyse the use of your system across payroll, time recording and shift planning. This analysis is our steppingstone to finding out how things can be improved or corrected.

If you are considering outsourcing, we can ensure that you take all relevant parameters into consideration before you make the decision to outsource.

We can also contribute by creating an overview of all the processes running in connection with payroll. After all, payroll starts when the employee is hired and is not completed until booked, reconciled and correctly reported.

We help you get an overview of the entire end-to-end process, define where the interfaces and approvals are and assess whether the tasks are in the right place.

We help you put together a solid business case, and, if you conclude that outsourcing is the right solution for your company, we can help you get a clear idea of what you wish to outsource and what is to stay in the company.

We have thorough knowledge of all relevant suppliers in the payroll area, and we can help you find the supplier that matches your needs and establish a good basis for the cooperation.

Furthermore, we can help with the entire implementation – adjusting the processes, making dataflows and system integrations run and with skills development of the employees.

In other words, we can help you organise your payroll function and ensure efficiency and high quality.