How Important is Payroll Accuracy?
This was a question raised in a recent article published by learnpayroll, The Learn Centre Ltd. The answer would appear to be – Payroll Accuracy is very important! They refer to a survey put together by SD Worx where 44% of respondents reported they would consider leaving their job if they were paid incorrectly.
The article looks at various questions and the response of employees. There seems to be some variation between countries, and a surprisingly high proportion of employees perceive they have been paid incorrectly in the past. We have not seen the questionnaire and cannot comment on how representative it is, but it is interesting to see the responses and the choice of questions. Payroll accuracy is certainly something that needs considering.
Tax code changes
The most common reason we have questions raised is about changes in employee’s net pay, which is most often due to a tax code change. This may be reported as a payroll inaccuracy, but obviously is in the hands of HMRC, and therefore although the tax code may be wrong it will have been applied correctly.
The employee should have a notice from HMRC before the code is changed, but these notices do not always arrive. Once a code is applied the employee should contact HMRC; we provide the details they need on the payslip.
Payroll Accuracy – The Issues
There are three main areas of opportunity for payroll inaccuracy; preparation errors, processing errors or reporting errors
We would suggest keep the amount of work and information required to a minimum at this stage to help eliminate errors. You should not really need to generate salaries every time if there is no change. If a pay rate, payment or deduction is the same every time why risk a data corruption by reproducing the data outside of the payroll?
Time and attendance systems are worthwhile using for hourly paid staff; make sure you have a system you trust, and manual adjustments can be made if necessary. It is better to send a report directly from the time and attendance software than try and transpose it, although it has to be the correct report.
Make sure you have an audit trail for all changes. If a member of staff has a salary deduction you need to know why, as this could be reported as an error. You should also keep new starter details as provided by your new starter, as they may give you incorrect information.
Instructions should be precise, with adequate unambiguous information, and the employees accurately identified.
Once the payroll information has been prepared the actually processing begins and RTI files, payslips, pension deductions, BACS payments etc are prepared. Data is taken, processed and results in a payroll.
Considerable care should be taken at this stage, as simple human error can again very easily creep in. The information needs to be correctly handled, as the aim is to be compliant with HMRC and The Pension Regulator guidelines.
It is useful if there are checks within the system to make sure everything is compliant, and totals can also be checked against any totals in the preparation information. As many checks as possible at this stage can help eliminate errors before the payroll is returned.
At Payroll Options we have multiple data validation and RTI compliance validation checks. We also process the payroll in parallel with two members of staff, cross checking by computer to help eliminate the opportunity for human error.
If the payroll is processed in house it is useful to have some separation between preparation and processing, and an audit trail should still be maintained.
This is an interesting area, as it would imply the payroll has been processed correctly, the correct information presented to HMRC, but then an issue with the reports. The reports must accurately reflect what has occurred within the payroll, as these will form the basis of financial journals and potentially reporting to pension companies and payments to HMRC.
Consistent reporting is the key here. If the reports are the same every time the payroll is processed, then there should be no opportunity for incorrectly configured reports to be used. It is useful if the reports are presented to someone other than the person processing the payroll.
It is possible to have accurate payroll, but processes must be maintained and all stages must be understood and communicate effectively. There must also be adequate feedback and any issues quickly addressed.