Why is payroll processing difficult?

Payroll processing may seem like a simple process from the outside, but it is actually one of the most difficult administrative functions of an organization. Even a small error can ruin the whole process, and your payroll employees may have to work overtime on corrections. If left unchecked, these errors can cause compliance issues and, in some cases, even lead to legal action. That's why it's necessary to understand the bottlenecks involved in the payroll process so your organization can manage it smoothly and efficiently. Here's a quick rundown of some different challenges that make payroll processing difficult and tips to overcome them:

• Employee classification

Payroll calculation involves categorizing employees into "employment types." Based on your organizational needs, you may hire full-time employees, freelancers, part-time employees, temp workers, contractors, interns, and more. Each of these employees may be entitled to different benefits and compensation based on regional and national payroll laws. For instance, some of these employees may be entitled to receive overtime pay, whereas some may not. Misclassifying your employees can lead to paying some employees less and some more than what they are eligible for. This could also lead to several tax compliance issues. To be sure you're classifying your employees correctly, be sure to understand the different employee types that exist under your regional and national payroll laws. While onboarding new employees, be sure to list their employment type for your payroll staff.

• Attendance and leave calculation

Organizations that manage employee time off and attendance manually will have a hard time calculating payroll. As your organization grows beyond ten employees, tracking their days off, working hours, and overtime can be time-consuming, especially if your employees are working remotely from multiple locations. Collaboration between HR and payroll staff may also be less efficient if everything is done manually. To streamline your operations, you can implement HR software with payroll, attendance, and time off features. This way, attendance will be automated and the working hours of each employee can be accessed directly by payroll officials right when they need it.

• Ever-changing payroll laws

Legal compliance can be tricky to navigate. There is no shortcut for staying on top of payroll laws. Your payroll team needs to be engaged with any changes that are happening at a national or local level. Encourage them to join forums where regular discussions about payroll laws happen. While making changes to payroll policies, it's best to get the new policies validated by experienced officials or external payroll firms. If you have a payroll management system in place, check to see that it is staying up to date with these changes as well. Many should do so automatically, but it's always best to double-check.

• Tax deductions and net calculation

If your payroll workflow is caught up in manual systems and communication between your departments or teams isn't optimized, this process can get tedious. For instance, if you are in the US, you'll need to collect a W-4 form from your new hires to know the correct tax amount that has to be withheld from their salary. You also need to have a list of voluntary deductions for each employee. Reimbursements, if any, need to be accounted for as well. This is why many organizations, irrespective of their size, are moving towards payroll management systems to automate their payroll calculations. Many of these systems integrate with digital collaboration tools so your payroll staff can easily reach your finance department for information. 

• Managing payroll records

Some payroll laws require employers to document their payroll records for a certain period. These records hold important information, including the number of hours worked by an employee, their pay rate, taxes and other deductions, benefits, pay period, date of payment, and more. Having these documents ready helps your organization to pass audits without hassle. Review the payroll laws that apply to your business and ensure that all the information required by the laws is mentioned in your payroll records. These records should be stored in a way that is free from threats that could affect its credibility, regardless if this is done digitally through the cloud or file storage devices, or physically with paper documents and storage rooms. 

Payroll management in your organization can be taken to another level when your staff can fully understand and overcome any challenges that make the process hard and stressful. Having a hassle-free payroll process in place leaves a positive impression about your organization among your employees and helps you stay in compliance. If your organization is expanding, moving toward a cloud-based payroll management system is a better choice as it helps your organization overcome all these challenges with minimal effort. It automates and simplifies payroll management for you and your employees.

Zoho People, our HRMS, is integrated with Zoho Payroll to ease payroll processing for our users. The systems work together, so you don't have to spend time populating the same data twice. Check out more information about our payroll integration here. 

Also read:5 steps for setting up your HR operations online