In this podcast episode, we discuss additional best practices that can be applied to further streamline the payroll function. Key points made are noted below.

Last time we talked about shrinking the amount of payroll information you collect, and the tracking of errors, and cutting back on the number of payroll cycles. So now we’ve cut back on the amount of data to collect.

Automate Data Collection

The next step is to automate the collection of the remaining data that we absolutely have to collect. The best way to do it is either with computerized time clocks that are in a fixed location, or with ones designed for mobile users. These have been around for a while, so I’ll be quick. A computerized time clock is in a fixed location, and people run their employee badges through it to clock in or out. If you have a lot of employees in one place, you’ll either need to buy a bunch of these clocks, or stagger employee start and stop times. Otherwise, they end up forming a big queue in front of the clock, and you will hear about it. This type of clock checks every scan to make sure the employee is checking in or out at the right time, and sends the information to a central database. You can also run error reports whenever you want.

For mobile employees, you can either create or buy the same type of system, but it operates through a secure website. If employees can get access to the Internet, then you’re good to go. These generally work with smart phones, too. And there’re some variations on this concept that work through the phone system, but you get the idea. The main operational difference between the fixed and mobile time clocks is that there’s no scanner for the mobile version, so you have to enter your time by hand – and that can cause errors that you wouldn’t see with a fixed clock. So that’s a quick overview of time clocks. They have two really nice features. First, employees enter their own time, and the system flags errors.

That pretty much wipes out the pure data entry part of the payroll department. It doesn’t mean that it’s entirely gone; just that the payroll staff becomes more concerned with monitoring what other people are entering in the system. Then the payroll staff keeps track of the errors that crop up, or conducts some extra employee training, or maybe improves a procedure somewhere. The point is that data collection work is now replaced by process monitoring.

Reduce Employee Deductions

So now the detail-level payroll information is in the computer system. What else can we do in the way of streamlining? One good place to look at is employee deductions, which we can tackle in several pieces.

The first piece is employee advances. When an employee wants to receive an advance, the payroll staff has to cut a manual check, and record it in the accounting system, and then deduct it from the next regular paycheck – and maybe over several paychecks. In short, it’s a pain. And it tends to come up with a just a few employees, who basically treat the company like their own private bank. So what can you do?

This is a tough one. You can just shut down all advances, but you might get a backlash from the employees. One possibility is to charge a fee to any department manager that approves an advance. This is an interdepartmental charge, so there’s no cost to the company as a whole. That at least makes a manager think about it before approving an advance. Another option that doesn’t work very well is to direct employees to the local bank for a loan, but they’re probably coming to the company for an advance because they can’t qualify for a loan.

Another deduction item is employee purchases. A company may get some good discounts through its suppliers, and it allows employees to make purchases through the company. That’s fine, but do not let them pay the company back through payroll deductions. Instead, make them pay for it up front.

Yet another deduction item is benefits. There can be a lot of benefit deductions, such as for medical insurance, dental insurance, life insurance, and so on. This can be quite a chore to keep track of. One option is to increase the deduction on one benefit, like medical insurance, and provide another benefit, like dental insurance, for free. If you do it right, the net impact on the company and on the employees is zero, but now there’s one less deduction to keep track of.

Or, you could work with the human resources department and create a single benefit package that has a single deduction. Now, in reality, that single benefit package will have different deductions, because the benefit cost varies depending on the number of dependents on your insurance. Still, this can cut way back on the number of deductions you need to track.

Streamline Vacation and Sick Time Tracking

And moving on from deduction tracking, have you considered the tracking of vacation and sick time? Employees are mighty particular about a mistake in their unused vacation time and sick time, and that means you spend a lot of effort making sure that it’s right. How about merging the two together, and calling it all vacation time? That cuts in half the amount of data types to track. Now, this could have some employee push back, especially if you pay employees for unused sick time. So, it depends on the circumstances.

Implement Self-Service

So, let’s move on to self-service. This is when employees enter their own information into the payroll system for things like address changes, direct deposit payroll information, and payroll exemptions. That type of self-service is called employee self-service. There’s another flavor of this called manager self-service, and that’s usually for entering changes in pay rates.

If you outsource your payroll processing, it’s quite possible that your supplier offers an internet-based self-service module. If that’s the case, they’ll charge you a monthly fee for using it. If you have your own payroll software from an outside supplier, it might be available as a separate module. In either case, it’s much easier to find employee self-service than it is to find manager self-service. And that’s because it’s more cost-effective to have employee self-service, since you can shift far more data entry over to employees.