November 30, 2020

Debunking five major payroll myths

Jaspal Randhawa-Wayte, Director, Zellis, discusses the major payroll myths that sometimes sees the hard-working payroll function viewed as merely transactional

Payroll is an essential business function, but it’s more often viewed as transactional than tactical. The belief that it’s simple, unchanging, and non-strategic is far from true.

And it’s precisely because of pervasive myths around payroll that many don’t realise its full potential to bring value to a business.

So, what exactly do these myths say? Let’s look at five of the most common.

Payroll is easy to get right

You may assume that while every business experiences payroll-related hiccups from time-to-time, for the most part everything runs smoothly. The reality is that problems can occur much more frequently, and the consequences can be very damaging.

Compliance is a pressing concern, particularly because payroll legislation is complex and constantly changing, and the government is strongly committed to enforcing its rules. One of the most significant ways in which employers have been caught out recently is inadvertently allowing take-home pay for individuals to fall below the national minimum wage. Last year, approximately £30m was paid in arrears and fines.

Companies that meet certain criteria are now also required to publish gender pay and CEO pay ratio reports. And, following the recommendations made by Matthew Taylor in his report “Proposals for Workplace Reforms”, the government has been running consultations on various topics, with further legislation likely to follow. Having an effective payroll system to help support all of these new requirements is becoming increasingly important.

An underperforming payroll system can also have a direct impact on employee wellbeing, engagement and – crucially – retention. We recently ran a survey of UK employees, revealing that 60% have spotted an inaccuracy on their payslip, while 39% have been paid late on at least one occasion. This was a surprising finding for us, as we know the large employers we have worked with on payroll have very high standards of accuracy. However, the research suggests that this may not the case for the wider business community.

Furthermore, nearly half (48%) of employees who have been paid late felt their employer didn’t care for their wellbeing, 40% felt less stable in their financial situation, and 25% felt demotivated and unproductive. But, perhaps most striking, is the finding that one in five (21%) employees have quit their jobs as a result of payroll mistakes.

Payroll is non-personal

For many of today’s employees, flexibility plays a big role when choosing which organisations to work for. This is a broad term that applies to many different areas, including pay and rewards.

With the growth of the gig economy, and the increased use of contractors and freelancers to fill skills gaps, the chances that an organisation will be able to pay all of its employees on exactly the same schedule are slim. Instead, the demand for flexible payroll will grow.

We’re already seeing a similar demand for more variety and quality when it comes to rewards packages, as it becomes increasingly clear that one size doesn’t fit all. A more strategic approach needs to be taken – the employers that can personalise pay and rewards to the individual will have a distinct advantage in the battle for talent.

Payroll is only about salary

Our research found that a sizeable minority (40%) of employees don’t know the total value of their employment package, including base salary, rewards and benefits. So, while your business may offer its staff a fantastic deal, it could be going to waste if they don’t fully understand and engage with it.

There’s no doubt that base salary is an important factor for attracting and retaining talent, but it’s often wrongly perceived as the only important factor. By putting more stock into showcasing the total value of its employment package, a business can change this perception and in turn see a very positive impact on its HR strategy. This can be done in a number of ways, from using internal comms to highlight specific initiatives, to producing ‘total reward’ statements as part of, or alongside, the standard payslip.

Payroll system changes are a nightmare

The myth that payroll is simple ties in closely with another myth: that you should avoid changing payroll systems. This is partly because you shouldn’t need to, and partly because actually switching between providers is always going to be challenging.

No technology project of any scale and significance will be completely problem-free. However, deciding not to make changes will only cause you more trouble further down the line. Without the willingness to adapt, you’ll never realise improvements in the way payroll is conducted within your business, while crucial tasks like data cleansing and system upgrades will remain uncompleted. Above all, the employee experience will never evolve.

Having a payroll system in place that can meet the complex and ever-changing requirements of a modern business is essential.

Payroll data isn’t valuable

Most businesses are harvesting a wealth of valuable data, but aren’t using it to its full potential. Payroll may not be an area which immediately comes to mind when thinking about strategically important information, but it certainly should be. If wages are an organisation’s biggest cost – and they usually are – there must be a strategy in place to make sure that employees are as engaged and productive as possible, thereby maximising ROI on hiring and retaining talent.

And that strategy should involve analysing and activating payroll data in its many useful forms, including:

  1. a) Patterns in holidays, absences and illness days, to help inform the creation of health and wellbeing initiatives;
  2. b) Insights on employee engagement with benefits – which are popular, and which aren’t – so that employment packages can be refined;
  3. c) Information on the type and frequency of payroll mistakes and queries, so that process improvements can be made – ensuring legislative compliance and building employee trust.

We found that nearly all CEOs (94%) consult with their CHRO or HR Director to help guide crucial business decision making, so a final consideration is quite simply this: since payroll and HR are closely related, HR leaders can and should be taking these insights to the boardroom. Payroll and HR data is a reflection on the performance and wellbeing of employees which are, after all, a company’s most important asset.