optimising payroll

Four steps to optimise the payroll department

Cumbersome work processes, manual entries and payroll systems not being updated – these are just some of the major culprits which can make work in the payroll department a burden. With our experience from numerous optimisation projects in payroll departments, at Azets we have a good understanding of the vast potential for efficiency improvements within this function.

Fortunately, optimising the work of the payroll department does not have to mean major organisational changes or expensive system investments.

In this article we give you an overview of four methods that can streamline work in payroll administration – and make life easier for your payroll employees.

1. Describe the work processes

The first step towards optimising the work in the payroll department is to describe what actually happens when payroll is prepared. If you don’t know what is going on in the department, you can’t question the status quo – or help your payroll staff work more efficiently.

By preparing process descriptions for payroll processing, you can discover undesirable elements in the workflows that neither you nor the payroll employees were aware of. When you handle the same tasks every day for several years, it can be extremely difficult to describe what exactly you do, as it often becomes second nature. But if tasks and processes are described on paper, the department is forced to consider its routines – even the more undesirable ones. This exercise will be an eye-opener for many payroll employees.

The payroll department must be critical of its own routines!

In addition to rethinking processes and routines in the payroll department, a process description will also reduce vulnerability in the event of illness, absence or resignation. Many companies are extremely dependent on individuals when it comes to payroll work. In some places, the payroll department is made up of a single person and in some places, only the payroll accountant has access to the payroll system.  With thorough and in-depth process descriptions, it is possible for a backup to take over if the payroll employee is absent.

2. Keep employees up to date

It is easy to believe that payroll is a distinctly routine task where the same steps have to be completed in the same way every single month. To some extent, payroll processing is dependent on things being done the same way every time – but that does not mean that the process is completely static. In particular, the input that ultimately turns into pay is constantly changing.

Political decisions and legislative changes are made, which have an impact on wages. For example, these could be new ATP rates, rules on pension and personal data, tax rules, employer-funded telephones and cars, rates for mileage allowances and new deduction options.

Finally, there is rapid development on the digital front, where new systems and updates are constantly being added to existing ones. The payroll department must be 100% up to date on all these changes.

If you want to get the most out of your payroll employees, it is important that you prioritise the development of their professional skills and knowledge base.

In many companies, keeping payroll employees up to date on professional developments is a challenge. This is mainly due to the fact that the payroll administration is often quite isolated from the rest of the company – and in some places consists of a single person. Other departments have a professional community, which is taken for granted. But the value of this daily knowledge sharing and discussion becomes clear through its absence when it comes to payroll. The payroll employee's closest manager may be the accounting or HR manager.

3. Get on top of input and output

Are you aware of the inputs that flow into the payroll department each month? Very few managers are fully aware of the scope of this input – and how dependent the payroll department actually is on it. The same applies to output – in addition to the salary itself, a string of other data is sent from the payroll department and to the company and authorities every month.

Input from the business

Input from the rest of the company often hides significant potentials for increased efficiency. The payroll department may receive variable input from five different departments. Variable input is everything that changes on a monthly basis – timesheets for hourly wage earners, registrations of time and absence, severance pay, expenses, bonuses, mileage accounts and overtime. In some places, all of this variable input comes from individual employees – others send it on a departmental basis. If this input is received in five different formats that are not structured in a way that allows it to be imported into the payroll system directly, the payroll employee must manually enter all this information – and the more manual these workflows become, the longer they take. And the greater the risk of typing errors.

If manual typing tasks are mapped and reviewed critically, you often discover that some of these can be automated.

When there is an overview of the various inputs and the formats they are received in, a good portion of these are guaranteed to be possible to standardise.

Output to the company and the authorities

If we look at output from the payroll department, there are a number of deliveries that are fixed every single month. Information must be provided to pension companies about contributions. Data must be delivered to the accounting department, which needs it for the monthly accounts. And reports must be made to the Danish Customs and Tax Administration, to ATP, the municipalities, Udbetaling Danmark, and a number of other stakeholders. These tasks are fixed. However, it is often possible to set up your payroll system to write data in a format that can be easily transferred to or imported into the company's accounting program. This can save significant time and risk of error compared to entering the information manually.

Where optimisation potential can really be found is in the reports that are extracted for the rest of the organisation – including management. If management receive e.g. five different reports, these might be consolidated into a single one. If management receive five different reports, but only read one of them, it may not be necessary to produce them all every time.

4. Take advantage of your digital options

Today, payroll systems have a wide range of functions that can make life easier in the payroll department – but very few people are aware of them and how they are used. Perhaps a system for time registration already exists in the company, where it is actually possible to set up the payroll system so that data from this can be imported automatically. A payroll employee may sit down every single month to calculate an employee's hourly wages when this could actually be automated in the payroll system. And the quality control of wages might be done by reviewing all payments slavishly, when the payroll system could in fact export lists of deviations showing only the wage payments that deviate from the norm.

Setting up a payroll system does require some IT skills. In many companies, special adjustments have also been made to the systems in order to make them suit the company. This may make you reluctant to fiddle with them. What if you unwittingly tamper with the wrong thing? Or what if your customisations are affected or deleted by an update?

If you are wary of changing the payroll system, this is understandable. But you should do it anyway.

If you’re not comfortable with reviewing the system yourself, you should get professional help – e.g. from your system provider. If they charge you for a review, it is often worth it. In fact, many of the processes in a payroll department can be automated in the payroll system – if only you know how.

Do you need fresh eyes to look at this?

If you need a sounding board and fresh perspective on your payroll administration, Azets' experienced payroll consultants can help. We focus on the way you do things today – from an objective perspective. The result will often be an optimisation of your existing workflows without the need for investment in new systems or solutions.

For other customers, we have identified opportunities that reduced time consumption by up to 30%.


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