Changing the perception of payroll

Payroll still suffers the stigma of being a back-office, low-profile function of HR – affecting engagement and attrition levels of payroll staff. Akankasha Dewan finds out how the function can combat its negative perceptions.

Undervalued. Misunderstood. Not respected.

It’s undeniably a real irony that payroll – perhaps the most important component of human resources departments today – is often associated with the above adjectives.

Commonly dismissed as the boring administrative side of the HR function, leaders often forget the importance of payroll in attracting and retaining the most fundamental asset of their organisations – their employees.

“Most employees will have limited knowledge of payroll and the important function that it plays,” admits Manojit Dhar, senior manager, compensation and benefits programmes, Asia Pacific at Sabic.

“It may be seen as an administrative burden that is necessary, but provides no real added value to the business. It is a constant battle for payroll professionals to change the perceptions and preconceived ideas of their role in a business.”

This battle is further intensified in companies that have no clear idea of where payroll should fit in their organisational structure.

A study by Advanced Business Solutions (ABS) in 2011, showed of 79 trans-Atlantic respondents, a quarter felt that payroll should sit within HR, 24% within finance and 36% placing it somewhere between these two departments.

Interestingly, there was no mention of it operating as a standalone function.

At the time, Simon Fowler, managing director of ABS, described payroll as “the precious orphaned child of an organisation – highly valued, but without a clear home.”

Anjana Harish, the APAC payroll and HR operations manager at Sabre Holdings, agrees with the “orphaned” nature of the payroll function, but strongly feels the division should be part of HR departments.

“At Sabre, the payroll function belongs to HR. I think it should belong to HR because although payroll deals with a lot of payment and finance, it ultimately deals with people. So it should be with a people function such as HR.”

She adds, however, most organisations still continue to overlook and undervalue the importance of payroll, pointing out that even a small error could cost a business hundreds of thousands of dollars.

“Many people aren’t interested in payroll, mainly because it requires a high level of accuracy. Some people might even find it quite monotonous. It is also quite transactional,” she observes. “There has been a lot of challenge in terms of manpower in the payroll function. Rates of attrition are very high in the function. Not many Gen X are interested in it, and it’s getting more and more difficult to find quality people.”

Case Study: Sabre Holdings

Indeed, overcoming the lack of interest in the function is easier said than done, considering a fundamental irony surrounds the function’s status – the better the payroll team performs, the lower the profession’s profile becomes.

“In payroll, your presence is known only when you make a mistake. As long as everything is fine, nobody really knows about the function,” Harish says.

Building a strong identity

Jana Lim, APAC payroll manager at JDSU, suggests payroll leaders should leverage precisely on the expected efficiency of the function and how far it has evolved, if they wish to build a strong engagement with their profession.

“The role is no longer just entering payroll transactions and getting people paid on time,” she says. “Over the years, this role has expanded its value by providing advice to business unit leaders and business partners in strategic decision-making and also ensuring compliance to local statutory requirements.

“Payroll professionals should constantly remind themselves to value-add to their organisation. They should ask themselves what they can offer to business partners and business unit leaders in helping them in making decisions.”

Harish agrees, and adds one way payroll professionals can increase their credibility is by having business-oriented conversations with senior management, based on the data they are dealing with.

This includes going against the traditionally held notion that payroll is merely a reactive function, and instead adopting a more proactive usage of the data the function deals with on an almost daily basis.

“What we can do to make our jobs more glamorous is to leverage on this data and provide a lot of information to management,” she says.

Essentially, this means to combat the negativity within the profession, payroll teams must be more proactive and be seen to be more valuable and visible to the business.

“For instance, we can provide them with the cost of each employee in each country. This is something only payroll is able to provide. I think any executive will be happy to have this information – on how much they’re spending on each employee in every country. We can also see how much money it costs to employ a person in China versus one in Singapore,” Harish says.

Anjana Harish, APAC payroll and HR operations manager, Sabre Holdings

Dhar agrees, and identifies a similar evolution within payroll departments, adding that payroll professionals today have a bigger role to play in ensuring organisations remain competitive in economies worldwide.

“The management requires certain information so payroll provides a report. If seen in the right measure, the payroll department has a hand in influencing company strategy by providing adequate information to the relevant decision-makers,” he says.

“For example, a business may be employing staff members to do an increasing amount of overtime, which pays a higher rate than usual. Payroll could analyse the long-term costs of this and offer alternative, more sustainable options such as bringing in a new employee to work part-time.”

But as much as the evolution of the payroll function has added credibility to its relevance as an integral component of the HR function, it has also made handling wage structures more complicated over time.

All three leaders agree that today’s payroll professionals are required to keep up to date on compliance issues and other complicated systems, compared with the past where they were only responsible for preparing cheques.

Acquiring the right skills

The implications of this is that payroll departments have to employ skilled professionals – dedicated to the payroll function – rather than building a payroll team as a sub-department within accounting or HR.

However, it’s building and finding these skills that most payroll leaders struggle with. In fact, in June this year, Markit’s 2014 Labour Market Report on Jobs announced the key skills which recruiters struggle to find most is payroll skills.

“Not knowing what you don’t know – I believe this is the greatest challenge which most of the payroll leaders will face,” Lim says. “Payroll professionals may not be HR practitioners or certified accountants. Yet they are expected to have knowledge in local statutory acts, accounting (booking of personnel expenditure), transfer pricing, risks, etc.

“Some may not understand that with the globalisation of the workforce, the treatment of benefits provided to employees has different tax implications and cost impacts on the organisation. Thus they are unable to support the business unit in their decision making. This could be challenging as there is no single institution that can provide training in these areas. This can only be learnt on the job and not academically trained.”

Jana Lim, APAC payroll manager, JDSU

Dhar agrees, adding that as legislation, regulations and laws to protect businesses and employees have evolved, payroll professionals have had to become experts on these matters across countries and in businesses it operates in.

"This is crucial to ensure the company as a whole remains compliant and protected."

Employing the right systems

However, Harish suggests increasing reliance on automated systems may help in overcoming the gap in skills and manpower the function currently faces.

“We can’t really do much to reduce the attrition level directly, but what we can do is to reduce the effect of such high attrition levels,” she says. “We do a lot of documentation and put in controls, so the function isn’t people-centred, but process-centred.

All three interviewees concede that setting up an effective automated payroll system is part of making the function more process-centred, systems which reduce likelihood of errors and are time-efficient.

“Having the right payroll software in place can actually save you time and money, as once the software is installed and your staff are trained, submitting records or paying employees can be done with a few clicks of a button,” Dhar says.

“You can also have access to a range of custom reports, allowing you to gather and analyse huge amounts of data with ease.”

He elaborates on the elements to consider when choosing the ideal payroll software, adding it’s important to work out exactly what functionality is required out of the system and what functionality may be required in the future.

“Obviously you can’t predict exactly what will happen, but trying to ‘future-proof’ your systems can be a huge benefit in the long run,” he says.

Making sure payroll employees remain up to date with the latest software and any changes to legislation is also encouraged, Dhar adds.

“This will not only save time in the future, but will enable you to use your software to its full potential while remaining compliant.”

While Lim concedes to the efficiency of such payroll systems, she warns there is no one-size-fits-all solution when it comes to addressing payroll needs.

“I don’t really believe there is an ideal payroll system,” she says. “What we need to keep in mind is that when we are evaluating a payroll system, there is no perfect fit to the organisation. If the system which we have selected has some shortcomings (even minor ones), we will have to look for alternative tools to enhance the results.”

She says payroll leaders should keep in mind that not every payroll system works similarly.

“If the payroll system involved interfaces with the HRIS system, then you should make sure the source is cleaned and set-up correctly – example, department, cost centre, reporting managers, personal details, hire date, etc.

“This has an impact on payroll end results. An audit log should be in place to ensure tracking of what has been changed and who makes the changes.”

Improving the effectiveness of processes

While being a huge supporter of incorporating automated systems to increase efficiency of payroll services, Harish concedes, however, it’s impossible for payroll professionals to rely completely and solely on payroll systems.

Manual intervention is still significant in payroll because data involved in the process is collected from employees, who insert details onto spreadsheets and systems manually.

“Collection of data cannot be automated 100%,” she says. “We can get automated data from the HRIS systems, but there are a lot of variable changes – such as employees leaving and pay variables such as bonus, recognition awards – which happen during the month which affects the payroll. These make the process difficult to be automated completely.

“We have to minimise manual intervention – but there are limitations to it.”

This manual intervention is perhaps most keenly needed when it comes to validating the data the systems have collated.

This validation involves metrics such as measuring the percentage of entries that have been inserted into such systems, their timeliness, and the percentage of accuracy of the payslips that have been generated from the systems.

“Payroll cannot be done without people,” Harish says.

“When we present a proposal for outsourcing to the management team, they normally think we’re going to reduce the number of heads who are managing payroll in-house, but I always tell them it’s not possible to reduce the headcount because you still need people to check even if you’re outsourcing, since there is lots of data being handled.”

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