Payroll Panic: Causes and Cures

No matter how proficient and experienced your payroll staff are, there is no denying that the payroll function can be stressful and daunting during peak periods such as year-end and strike fear and trembling into the calmest of people when things go wrong. What causes payroll panic, and how can you avoid it? Here are four primary causes — and their cures:

CAUSE 1: Unscheduled staff absence (e.g. illness). Payroll is highly regular and predictable – for the most part! You can schedule staff vacation well in advance, planning ahead and avoiding peak periods. But that does not help if key staff are unexpectedly absent during a critical time.

CURE: Cross train, delegate, and have back-up coverage for every staff function. Try to ensure that no-one is indispensable. If you have a very small department, work with your up-stream to ensure adequate staff back-up plans, either someone from another department who can be seconded in an emergency, or someone within your global organization who can be trained as a back-up for the Canadian business. Have a plan in place to ease the pain such as scheduling extra staff or overtime for a few key people. Prioritize and rank tasks by risk factor – high medium and low. Divide work into manageable chunks, communicate clearly and track progress.  And don’t forget to schedule an event to acknowledge the efforts of the team afterwards so that the next time this happens – and it likely will – they will be ready and willing to pitch in again.

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CAUSE 2: Breach of security. Payroll handles a great deal of confidential information on employees and the company. A data security breach can be devastating to its reputation and viability. According to PWC, 70% of small businesses that experience a major security breach go out of business within a year.

CURE: Invest in protection. Consult an IT expert if and when necessary. Security-focused hardware and software can detect network security breaches before hackers have a chance to access your data. Train staff on all confidentiality and security policies and processes. Regulate employees’ use of work computers. De-authorize USB and optical drives to prevent file transfers. Make sure your password protocols are robust. Restrict access to records and ensure a chain of custody. Encrypt your data. Screen your vendors closely. And lastly, work with a lawyer to create a legal contract that protects you from liability in case of a security breach.

CAUSE 3: Payroll errors. To err is human! One error is forgivable, but more than one becomes a hassle for both you and your employees. And, payroll mistakes can be costly, resulting in fines and penalties for errors or non-compliance.

CURE: Avoid manual overrides and processes where possible. Invest in time and attendance software. With the help of your payroll provider, keep up on and apply the latest laws and regulations. Most payroll providers guarantee on-time remittances or they’ll pay the fine for you. Ensure employees are classified correctly in terms of their entitlement to benefits including health insurance and retirement plans as well as levels of tax or employment tax withholdings. Don’t treat employees as contract workers or vice versa. Keep a strict policy on change requests. Only allow a change to an employee’s marital status, withholding allowances, or deductions if the employee has submitted a written and signed request for the company to do so. The same control applies for any pay rate changes requested by a manager.

CAUSE 4: System issues, upgrades and/or changes. “It’s not my fault” does little to prevent havoc or console you during periods of disruption caused by payroll interface issues, system breakdowns or technology problems at inopportune times.

CURE: Put in place good contingency plans and processes and test them.  Make sure you have strong internal and external partnerships with IT or your technology providers. If you are in the process of implementing a new system or upgrade to an existing system or platform, engage early in the project planning process so you can advocate for and build in sufficient time and address specific payroll requirements.  Allow plenty of time for testing and for running parallel systems or a “soft launch” if possible.

Most of these scenarios are difficult but controllable through good contingency policies and planning. Expect the unexpected and prepare for it!  Get help, and get it early! The relatively low cost of getting help at the right time is a small price to pay to avoid and allay payroll panic.