According to a report published by the UC Berkley Labor Center, in 2012 only four cities had local wage ordinances. Now there are 42, and that number will continue to grow as more and more cities pass legislation that affects payroll. With so much to track and remain compliant with, staying on top of new labor laws is a full-time job.
Finance leaders sometimes apply simple processes to payroll, because they don’t have the time or resources to stay current with new and changing labor laws. Those who do this will find themselves trapped in the undertow of noncompliance, and struggling to keep their heads above water while unexpected costs pull their businesses under.
Managed Payroll vs. What You’re Doing Today
For businesses hoping to make it to the safety of dry land, there are two approaches to consider: outsourcing payroll or doing payroll in-house. For those that do payroll in-house, the responsibility probably falls to an employee who is already burdened with a heavy workload. In this scenario, without the proper controls, payroll errors are more likely to occur.
For example, there may be:
- Incorrect or missing Social Security Numbers.
- Missing employee work hours.
- Incorrect calculations of federal, state, unemployment, Social Security and Medicare taxes.
- Inaccurate compensation or merit increases.
- And much more.
For those businesses that choose to outsource, a managed payroll service leverages outside payroll experts to efficiently calculate, balance and reconcile compliant driven transactions generated by HR, benefits, and tax specialists, all within an accountable, controlled environment. This ensures error free net checks. The result is an efficient payroll process that will manage costs and maintain compliance.
Components of a Managed Payroll Solution
While you may have the best talent in payroll, your all-star team or employee can still make mistakes. To reduce the number of human errors, payroll needs an accountable, controlled environment. It starts with having a system that runs audits and checks for errors during every stage of payroll. Along with the right system, implementing step-by-step processes with a reoccurring schedule is necessary. Finally, input from multiple departments is needed to ensure a successful payroll - HR, Benefits and Tax.
HR: HR manages the employee lifecycle, ensures compliance, and approves competitive compensation and changes to bonuses, salary/hourly wages, and commissions. Having HR contribute to the payroll process can prevent the fines and penalties that could occur from failing to comply with local, state, and federal labor laws governing payroll. Since HR is also responsible for the employee lifecycle, they inform payroll departments of changes that occur, such as new hires, terminations, raises, etc. All this data needs to be absorbed by payroll departments, to ensure that employees receive their accurate pay.
Benefits: Each payroll has benefits deductions that differ by employee. If handled incorrectly, insurance carriers can send retro charges that could range from thousands to tens of thousands of dollars. Likewise, companies could be paying more in employer paid contributions than they should. A benefits specialist can monitor each check and ensure that the company and its employees are both accurately paying the correct amounts for benefits. To make matters worse, if medical premiums are incorrect, then tax deductions could be affected. Getting benefits wrong may set up a domino effect that creates inaccuracies across the entire paycheck.
Tax: Filing taxes is stressful enough, but filing inaccurate taxes is a nightmare waiting to happen. It can bring about lengthy interactions with the IRS and cause anxiety for employees. A tax specialist can monitor every payroll to make sure that employees’ incomes are properly taxed. The result will be avoiding the hassles of providing back-up documents and possibly submitting an amended return with additional fines.
Avoiding Poor Payroll Management
For finance leaders who wish to avoid unexpected costs, wasted time, and noncompliant processes, the safest and best option is to outsource to a managed payroll service. My company, Zuman, is a complete HR, payroll, and benefits partner designed specifically for high-performing companies like yours. We have been managing payroll, HR and benefits administration since 2012, and we'd love to help. :-)
About the Author
Jennifer is the Director of Operations and Client Success for Zuman. She joined Zuman after serving as Payroll Implementation Consultant for Paylocity and seven years as Account Manager for ADP/ProBusiness.More Content by Jen Holden