Best Practice Payroll Processing in Australia

Transcription

1 Best Practice Payroll Processing in Australia Driving efficiency with payroll best practice By Tracy Angwin Managing Director Australian Payroll Association

2 Executive Summary Efficient business processes deliver heightened rigour as well as cost and productivity savings across the enterprise. Best-practice payroll processes are no exception. Gaining a solid understanding of these processes will help payroll professionals identify areas for improvement in their organisation. Frontier Software has commissioned Australia s leading experts, the Australian Payroll Association, to research Payroll Best Practice and deliver their findings in an easy to read ebook format. The resulting work that follows explores the various aspects of payroll processes and aims to deliver some thought-provoking ideas on how your business may benefit from implementing procedural change. In order to identify efficiencies it is vital to understand your current processes. Mapping payroll processes often uncovers inadequacies that can be easily rectified. Once manual data entry is minimised or removed, impressive productivity savings can be achieved. Fraud is a serious issue for anyone responsible for payroll today, so it s imperative that we explore the processes that can reduce risk and eliminate any vulnerabilities. We hope you find the following pages to be a useful resource. By ensuring your payroll department implements best-practice processes you will minimise risk, drive efficiency and increase the real and perceived value of the payroll department in your organisation. 2

3 Defining best practice Like payroll, best practice is about money. But that s not all. In order to improve payroll processes, reduce costs and errors, you need to understand your payroll goals and strategy. The Australian Payroll Association defines payroll best practice as - Integrating and streamlining payroll systems and processes helping to build efficiency and improve payroll and business outcomes 3

4 You can t improve what you don t measure To get to a point where you are confident of best practice in your payroll department, you need to know where you are now. To begin, start with the total cost of payroll processing per employee paid. This is relatively simple to determine, regardless of the systems you have in place and how these systems are delivered. Just ensure you include all relevant costs for example, people, payroll systems, IT resources, consumables and, of course, technology costs. Total costs will vary depending on your industry, your pay frequencies, your processes and your technology but a recent study by the American Productivity and Quality Centre* showed costs ranging from $67 to $398 per employee, per annum. Given the largest cost in most payroll departments is typically payroll staff, it makes sense that automating payroll process will deliver significant savings. In 2012, most payroll systems have some level of workflow and process automation. This ranges from eliminating paper-based, manual timesheets with online timesheets or electronic time and attendance systems through to the delivery of payment advices electronically using an employee self-service portal or by . There is also a variety of ways payroll systems use workflow to help automate processes and disseminate information throughout the enterprise. Manual data entry can also be eliminated by integrating your payroll system with other data capture devices such as security and point of sale. Talk to your software vendor and explore what is possible. *American Productivity and Quality Center (APQC) payroll benchmarking data

5 Define and design payroll process Methodology A payroll process can only be as effective as its team is dedicated to keeping it current and relevant. It is very common, particularly after implementing a new payroll system, to not revisit the payroll process for some years. Even though business requirements change, payroll staff are replaced, and pressures to deliver efficiencies and decrease costs are amplified. It is often the case that payroll departments continue with the same processes because it has always been done that way. Often an If it s not broken, why fix it? attitude is taken. As part of payroll evolution, all payroll departments should analyse their current payroll process and look to identify risks and gain efficiencies at least annually. You may find efficiencies in the form of time or cost savings as well as ways of providing better information back to the organisation. When time savings are identified, it is important to look at what other tasks can now be performed with that time. Consider the value it brings to the payroll department and the entire enterprise. 5

6 Key Consideration The most important thing to consider when doing a process review is that it is essential to focus on the actual processes of the payroll department, not what you think they are or what you want them to be. Using Post-it notes on a wall can help immensely. Determine the steps in your process, map them and critique them as to whether this is actually what happens. When you finalise your actual process, look at ways to improve it. Regular process reviews will ensure your payroll department is always providing the best service in the most productive manner. Key Timesheets Process Leave Requests Change of Address Updates 6

7 Simplify and standardise In order to ensure you have the most efficient process possible, look to simplify, standardise and automate any steps possible. A good place to start is what you do manually. When do you use a calculator, paper or spreadsheet, and can this be something which your payroll system can deliver? A process review includes looking at how your attendance data is collected and interpreted against the industrial instruments used in your organisation. Is it possible to collect the data in electronic format at the work location? Use systems to automate the extension of the timesheets and minimise or eliminate manual data entry into your payroll system and subsequent keying errors. Look at how your data is maintained and whether data is keyed more than once. Are there ways for employees or managers to enter data at the source and eliminate paper-based forms? 7

8 Communication How do your employees communicate with the payroll department and how does the payroll department disseminate information back to employees and managers? Is there a central point of contact to ensure no enquiries are lost? How are reports and other information distributed in your organisation? Is there an opportunity to share management reports and other information electronically and securely? Have you investigated electronic filing methods to replace current manual processes? What other manual processes exist in your procedures and how can these be eliminated or streamlined? What opportunities exist for fraudulent practices and how can these be mitigated? These are just some of the questions that should be posed regularly when reviewing your payroll process. 8

9 Tools Aside from the actual payroll process, there may be tools you could use to ensure labour costs are minimised in relation to productivity. This includes effective rostering to optimise payroll costs. Existing tools which can be utilised might include integrated software allowing for immediate costing to be available on a daily basis. This is particularly useful for organisations that require daily costing, but currently can only ascertain how their actual compares to budget after the payroll has been run, sometimes days into the subsequent pay period. If costs could be tracked daily, it would give management the ability to alter rosters to reduce future costs based on demand or productivity if required. Or perhaps you have an event or demand-based organisation. You can use rostering systems to match staff numbers and capability to the rosters and skill requirements needed on a daily and even hourly basis. This is effective rostering and ensures that maximum productivity is delivered for minimum labour cost. 9

10 Superannuation A tool which will become even more relevant with the upcoming proposed mandated standards to superannuation payments is the use of clearing facilities. A clearing house isn t necessarily an expensive service. You may find that your default superannuation fund or payroll supplier has a costeffective solution which eliminates multiple cheques or other payments to super funds whilst ensuring money gets into employees superannuation accounts in the timeliest manner possible. As a specialist processor of over 280 million EFT transactions per year, Cuscal understands the value of process efficiencies and how this assists a payroll department. Compared to traditional creditor payment options, superannuation clearing services deliver straight-through processing. This results in efficiencies in terms of removal of data entry duplication and provides a point of data validation ensuring minimal rejected payments from super funds. Bruce Emery, Head of Business Development and Customer Partnerships Cuscal 10

11 Employee Self Service More evolutionary than revolutionary is the use of employee self service portals which are now standard in most medium and large organisations. Allowing employees to keep their personal information such as address and next of kin up to date and pushing information such as position details, payslips and payment summaries to them electronically significantly decreases phone calls and s to the payroll department. By using electronic timesheets and on-line leave management, manual processing and lost forms are eliminated. The responsibility is pushed to line managers rather than the payroll department. 11

12 Your payroll team Staff from the payroll, finance, IT and HR departments may form part of a payroll team. Team composition is largely dependent on the payroll system and infrastructure, as well as the tasks that comprise the end-to-end payroll process. The core payroll team are the people who collect and collate information required for data input, process the payroll and provide reporting back to the business. One of the things that is often missing from a payroll team is a detailed list of responsibilities and tasks allocated to team members. Position Descriptions To ensure best practice, each member of the payroll team needs to have an accurate position description. In combination, these descriptions cover all tasks in the mapped process. Delegations should be included in the position descriptions and care needs to be taken to ensure the delegations work to minimise the risk of fraud and error. Question the vulnerabilities in the process and how these can be addressed or eliminated. Key Performance Indicators Based on their position descriptions, all payroll staff should have key performance indicators which enable measurement of what is being achieved. The key performance indicators should contain a mix of accuracy and error criteria, customer service standards and process improvement initiatives. They should be regularly monitored and updated where necessary. Currently there is no nationally accredited qualification in payroll, so it remains difficult to establish the skills and knowledge of payroll staff and candidates. Until payroll qualifications become available it is worthwhile using internal or external resources to ensure payroll staff are up to date with all legislative knowledge and processes. A scenario-based test incorporating leave, superannuation and termination as a minimum will help understand the breadth of understanding and what knowledge gaps exist. When gaps are identified, the appropriate on-the-job or external training should be delivered as soon as possible. 12

13 Turnover Once all of the payroll team have the skills and knowledge to deliver to their KPIs, and the payroll process is running as designed, it is important to try to reduce turnover as much as possible. Both knowledge of the organisation s payroll and reporting requirements, as well as understanding how the payroll system is set up, are key to ensuring the quality of service and payroll output. High payroll staff turnover puts the payroll process at risk and is normally indicative of fundamental problems in the department. These issues could be system related, cultural or perceived unsolvable problems. No matter which of these applies, it is important not to ignore the indications and to investigate early to gain a thorough understanding of what needs to be changed. With a high percentage of women in the payroll profession, it is important to provide as much flexibility as possible for those with good skills and knowledge. This may extend to allowing flexible workplace arrangements such as working from home or another remote location. Both small and large organisations typically have the capability of utilising secure remote work tools such as a virtual private network. It also assists best practice by having all parties being able to access original source documents from the one place. Most software suppliers now offer their products in a hosted environment. This means that employees can access the software and their database using an internet connection from anywhere in the world. This is very useful in providing flexible working arrangements and in a distributed payroll department environment. 13

14 Electronic document storage Dianne Pryor is a Payroll Administrator whose skills have been recognised by her employer, QT Mutual Bank Limited. She is engaged by them to work from a remote location away from the corporate head office. One of the first things Dianne implemented was changing the way employee paperwork was handled from keeping hard copies to now accessing electronic files. Dianne explains, We have a shared drive with HR and payroll which contains a number of folders including new employee paperwork, current employee files and a folder for terminated employees. When a new employee starts, an employee terminates or there is a change to an employee s rate or conditions, the paperwork is scanned and filed electronically. The result is that both HR and payroll have access to employee source documents which can also be extended to auditors when necessary. In the event that paperwork is misfiled, it is easy to find using our strict naming convention. Although the benefits of electronic filing are obvious for those working in remote locations, this process is also best practice from a disaster recovery point of view and is extremely valuable in terms of time saving and physical storage space. As well as ensuring all parties are accessing the correct information from a single source, it also means all source documentation is backed up as part of standard IT procedures. 14

15 Errors Payroll is run by humans and, by their very nature, humans make errors. However, errors may be reduced to a negligible amount or eliminated entirely with the right systems and processes. Firstly, there is a distinction between deliberate and accidental errors. Deliberate errors are typically those made by employees in the data or timesheet collection part of the payroll process. These can be varied and sometimes hard to quantify. However, it is likely that a percentage of your hourly paid employees overstate the number of hours they have worked. If possible, having an exceptions-based data collection system where any exceptions are transparent and preferably signed off by a team leader or manager works best. Leave theft is another obvious area for deliberate errors. Those organisations without electronic leave management systems are at most risk from employees having leave forms signed and approved by their manager which never make it to the pay office. Accidental errors are typically caused when there is manual intervention or data entry into a payroll system. This could be from timesheet extension when award conditions are incorrectly interpreted, to data entry errors. There may also be errors in the setup of a payroll system, particularly around the accrual of leave and calculation of allowances and superannuation. 15

16 Spot checks In order to minimise errors, spot checks should be completed every pay run. The use of variance reporting is critical to minimising errors. An exceptionbased report highlighting payments which are outside an expected range can ensure that obvious errors are dealt with prior to the payroll being processed. Spot checks on payroll data should also be completed periodically. This includes ensuring source documents are on file for payroll data and changes to that data. Ensure historical items are also included in these spot checks. For example, if an employee has had a salary increase last year, is there a corresponding document authorising it? At Australian Payroll Association, we believe that one of the things that can help elevate the payroll department in an organisation is to publish error rates and customer service statistics. Most payroll departments go to great lengths to ensure their employee s queries are answered in a timely manner and they deliver quality reporting to the organisation. We encourage our members to feed these achievements back to the organisation which in turn sets an expectation as to what they should look forward to in terms of customer service standards from the payroll department. Typically it is unrealistic to expect a zero error rate, but much can be done to get it as close to zero as possible. This includes implementing relevant functionality from your supplier s employee self service and manager self service system. This can also be termed e-hr or ESS (Employee Self Service). At a minimum this gives your employees access to the details held within your payroll system, including name, address, position details, bank account numbers, contracted hours and leave history. This functionality enhances service levels and allows employees to take responsibility for maintaining their own information as well as keeping it up to date. By doing this you are more likely to hold correct contact details. 16

17 Employee/Manager Self Service Having a payroll, HR and ESS/MSS system which shares a single database allows organisations to have a single point of entry for all employee-related information. In the past, organisations may have had to enter details multiple times into different systems, so the chances of incorrect data being held increased two or three fold. Examples of multiple data entry points which can be integrated include the payroll system, HR database, company contact directory, rostering or time and attendance system. The process of leave management is perhaps the one most impacted by the use of ESS/MSS. By using a selfservice portal, employees are able to electronically request leave and have their applications approved by their manager. Once approved, the transaction typically sits in the payroll system until it is processed. This not only eliminates paper, but also dramatically reduces the opportunity for error. Suzanne Richards, HR Manager at DLA Piper has implemented such a system. Richards says that not only has online leave management eliminated an inefficient paper-based process, but it allows transparency of information which ensures the organisation s leave records are accurate. No longer is there an opportunity for leave applications to be authorised, and then lost in in-trays and not make it to the payroll department Suzanne Richards HR Manager DLA Piper 17

18 Governance The answer to compliance regulations does not lie solely in software packages, but in business process and controls, and leveraging technology to support and enhance those processes. Gartner Most important is ensuring data integrity and the appropriate security and maintenance of data. Ensure each data field has a proper format, whether it is capitals, a fixed number of digits or how states or postcodes are entered. If your system does not alert you to duplicate entries, you should regularly run a routine to ensure each employee has a unique file and is only active in your payroll system once. 18

19 Access The key to data security is to minimise access to confidential data to as few users as possible. Only those who require access to this data to complete tasks allocated to them should have authority to view or edit it. Look into other functionality such as reporting and exporting of data to make sure it doesn t go against your delegations of authority policies. Sometimes software allows users to export or report on all data, without taking into consideration the limited employees or departments they have access to via the payroll. Delegations and transparency Delegations for each person with access to the payroll system should be kept in writing and strictly followed. It is important to keep delegations up to date as the payroll process changes. Delegations should include entry of new starter information, changes to financial data, changes to data and importing of data as a minimum. Transparency is critical to payroll governance, and this should be supported by payroll technology. For example, when a salary change is made, an should be sent not only to the payroll manager but to the employee s manager or finance manager. Or when critical data such as bank account details are changed, these should be recorded in the audit trail. If reports are printed to file, ensure that they are saved securely on a network drive. If reports are to be ed, it is preferable to have them password protected to allow them to remain confidential. No organisation wants to be in the headlines because of a loss of control of sensitive personal information. 19

20 Documentation Once processes and procedures are agreed on and signed off, they should be documented and regularly assessed to be kept up to date. The test of this is that a person with no knowledge of your payroll system or your organisation s payroll requirements should be able to pick up your documentation and run a payroll from data collection to producing a bank file and reports. Documentation should also include checklists, end-of-year and end-of-month procedures. Disaster recovery documentation should also be produced and be part of your organisation s Business Continuity Plan and all documentation needs to be tested regularly. Disaster recovery procedures for payroll need to be completed with other disaster recovery testing. Payroll process and procedure documentation needs to be checked regularly to ensure that the documented procedures match the actual procedures. If they don t, either the document or the procedure must be updated. Payroll procedure documentation should not be written and left to gather dust at the bottom of filing cabinets. Can you put your hands on up-to-date payroll documentation for your organisation? 20

21 Communication A process is strengthened when it has buy-in from all stakeholders. As such, you need to formally share the payroll processes and procedures you have agreed to with your organisation, particularly the HR and finance departments. Ask for their feedback and incorporate it into your processes. Encourage an environment where continuous improvement is central to your payroll culture. When you make changes to the process, measure and communicate them! If you implement technology, calculate the efficiency in time or monetary values. Publish this information and make it available to your organisation s management. The calculation of savings can be a return on investment on new technology (in both time and cost savings) or the implementation of a new procedure which saves time in the pay office, and therefore allows payroll professionals to work on more proactive and strategic initiatives to feed back to the business. Saving time Time saving can be incremental. Five minutes a day over a year is over 21 hours or more than half a full-time working week! You might find this type of saving by using an online calculator rather than a manual calculation. Not only may it be quicker but it will also give the comfort of ensuring standardisation in calculations. Define your goals, and communicate the way you measure them. Then share your achievements with all stakeholders. 21

22 In conclusion Payroll professionals are responsible for understanding and interpreting a myriad of everchanging regulations and legislation, as well as managing the demands of employers and employees. The payroll function plays a vital role in any organisation. It s not just a back office function of number crunching and sending information to the tax office. Getting it right and providing good customer service to employees and managers contributes to a positive culture in any business. Getting it wrong can have dire consequences from significant monetary fines to strikes and general low morale across a business. By ensuring your payroll department implements bestpractice processes you will minimise risk, drive efficiency and increase the real and perceived value of the payroll department in your organisation. 22

23 Sponsor comment Supporting Payroll Best Practice We hope this ebook has identified several areas for process improvements within your organisation. At Frontier Software, we are committed to assisting organisations of all sizes to leverage their workforce. We will continue to work with industry thought leaders to conduct research and develop ebooks that will enhance the way business interacts with their people. To view other ebooks in our research library, please visit Frontier Software delivers the software tools that support best-practice payroll processing. Our software is architected to remove the manual burden from busy payroll professionals. If you would like to know more about how we can help drive efficiency within your organisation please us at or call 1300 FRONTIER. 23

24 Sponsor comment Introducing chris 21 Effective payroll management is underpinned by more than best-practice processing. A solution that can harness the benefits that technology provides will drive efficiency across the enterprise. Frontier Software has a superior payroll solution, chris 21, which is utilised by best-in-class organisations globally. chris 21 and its modules deliver a fully integrated Payroll, HR and Talent Management solution. chris 21 will remove many of the tactical elements from payroll and streamline compensation management. The system also provides extensive salary packaging and modelling functionality, which allows management to perform what if analysis. chris 21 provides the workforce data required for informed decision making. chris 21 is a powerful date-based payroll system boasting a plethora of productivity enabling functionality which includes: Automatic award updates YTD figures at a glance Unlimited leave types Fully customisable screens and field labels Modelling tools for terminations and redundancies User-friendly reporting tools. 24

25 About Tracy Angwin Tracy Angwin is a veteran of the payroll market place. Her weekly newsletter Payroll News is a must read for anyone responsible for payroll in Australia. Her passion and commitment to improve the services offered to payroll professionals was the driving force behind her decision to create the Australian Payroll Association in Since then she has continued to provide membership services including payroll advice and guidance, training, networking and skills designed to meet the needs of frontline payroll professionals. Prior to founding Australian Payroll Association, Tracy held senior management roles at Sage Micropay and Northgate Arinso. Tracy and her husband and two small children live in Sydney. You can contact Tracy at tracy@austpayroll.com.au. For more information on Australian Payroll Association visit 25