How to automate payroll process

 

Automating payroll is a multistep process that requires companies to evaluate their needs and work with a vendor to ensure that those needs are met. Here are the steps.

1. Assess Payroll Needs

The process begins by thoroughly defining what the organization needs. Start by asking the payroll team and employees directly what is and isn’t working. Surveys and focus groups may also give rise to insights. Some questions to help frame this process include:

• How often do managers and executives ask for payroll data? What do they ask for?
• How much time does it currently take to process payroll? What does the process involve?
• How much of that time is spent correcting errors or making last-minute changes?
• Has the company paid compliance fines or penalties? If so, what errors resulted in fines?
• Do the company’s growth plans call for new benefits or work arrangements not currently in place?

2. Identify Software

Once the company has mapped out what it wants payroll automation to accomplish, the next step is finding the right software. Among the considerations:

• Does the software manage payroll only, or does it include HR, finance, project management, benefits administration, or other functions?
• Does the software integrate with programs already in use, such as accounting software?
• Does the software have all the necessary functionality, such as time-tracking, state and federal tax filings, time-off tracking, and reporting?
• How much time does it take the software to process payroll?
• Is the software intuitive to use?
• Can the software scale?
• How much does it cost?
• How does the system protect confidential data?

3. Input Payroll Information

The first step in using the new software is to enter the necessary data. Accuracy is imperative. It may be possible to import the data from an existing system, but automation typically initially requires at least some manual data entry. Different systems require different data, but payroll staff should be prepared to enter:

• Employee names and addresses
• Employee birthdates
• Employee Social Security numbers
• Employee bank account details
• Employee hourly pay rates and/or salaries

To streamline data entry, experts suggest:

• Collecting the necessary information, including salary records, tax codes, and historical payroll data.
• Reviewing the data to ensure accuracy and consistency. For example, dates are often written in different formats, but the format should be uniform in the new system.
• Organizing the data according to the new system’s requirements. This step also includes ensuring that all data fields are complete and that backups of the data are in place.

4. Plan the Transition Process

Careful planning can ensure a smooth transition that minimizes risks and optimizes efficiency, accuracy, and compliance. The elements of such a plan include:

• Setting clear goals: For example, stakeholders might set specific performance targets, such as reducing payroll processing time and/or the error rate by x%. These goals are central to helping companies understand how effective automation is.
• Defining roles: Assign a dedicated team to manage the process. Then, set the ground rules for how that team operates. Who is ultimately in charge and makes the final decisions? Determine which team members have the approval or veto power over each step of the process. For example, the company’s top financial officer might have the authority to sign off on the payroll system’s integration with accounting but not the training plan.
• Developing a timeline: Any transition plan should have a go-live date, with explicit milestones established along the way. For example, the company may determine that all the necessary data must be in the new system by a specific date for the go-live date to be possible.
• Testing the process: Before going live with the new system, run a simulated payroll with real data to ensure that everything processes correctly. Compare the automated test results with manual results. The test may indicate that one or more settings, such as taxation rates, needs to be adjusted.
• Launching in phases: To minimize any disruptions and work out glitches before they impact the whole process, consider transitioning a single department or location before the companywide launch.

5. Train Staff and Communicate the Changeover

Any system that includes timekeeping and/or employee self-service features requires training the whole company to use it. Many vendors provide training as part of the automation process, but companies may choose to augment that by purchasing additional training or tasking an internal training department with providing additional or ongoing training.

Any training plan should give users ample time to master the portions of the system they’ll use. It’s also wise to clearly and thoroughly explain the nature of the changes to employees, including:

• Why the company is automating.
• How the change will impact them.
• What’s expected of employees to facilitate the transition.
• The complete project timeline.
• Where employees should go to get questions answered, troubleshoot challenges, and report problems.

6. Monitor the Payroll Process After Automating It

Being proactive safeguards the payroll process against errors, data breaches, or system inefficiencies. This includes:

• Periodically comparing the details of automated payroll with historical manual calculations; moderate to large discrepancies may indicate a problem.
• Checking that payments are processed accurately and on time.
• Verifying that the system is maintaining records for as long as required and that those records are readily accessible.
• Tracking key metrics, such as time and cost savings. If these metrics fall short of targets, investigate why.
• Testing for vulnerabilities in data storage and access control, monitoring system access logs, and confirming that payroll data is backed up regularly and securely.
• Reviewing system integrations to verify that data is transferring accurately and completely.
• Evaluating whether the payroll automation vendor is responsive when asked to resolve issues or provide updates.

 How to automate payroll process