The core of any employment contract is, ultimately, the exchange of pay for one’s labour and services. One can argue that one of the pinnacles of one’s company experience and therefore its success lies within the payroll process. While on the surface, payroll may seem like an area that is straightforward and simple to execute, there’s many more layers to it since it involves regulation, tax authorities, social security and more.
If anything goes wrong with payroll, and employees don’t get what they are supposed to receive in pay, the foundations of trust begin to crack. As with any relationship, once trust is compromised, it can be difficult to rebuild that trust with your employees. Payroll is, therefore, a critical function within Human Resources, and one that cannot be overlooked.
What is payroll?
As an employee, you may not even spare a thought about what’s involved to process your paycheck – you only care that it gets banked in on the date it is supposed to be banked in. You may not realise that payroll involves an entire process that (in some cases) start in a timesheet or clock-in device, requires touching base with various government authorities, up-to-date employee details, and usually multiple bank systems, and that’s just scratching the surface.
Main areas of payroll
There may be a few differences across jurisdictions, but the core payroll processes usually reflects the following:
The cornerstone of payroll is the issuance of salaries. Processes here can include manual or digital timesheets, calculating overtime and holiday pay, paying commissions and reimbursing expenses, all of which result in the final wage figures according to the company’s pay-out cycles.
Withholding payments definitely impact the complexity of payroll, especially within multi-country payroll operations, as different state and federal income tax laws may apply in any given jurisdiction. On top of taxes, there are various social security, insurance and other contributions that may need to be calculated and executed correctly.
All these processes rely on the accuracy of record keeping. From each salary paid out, each deduction and contribution, tax and other withholding, new, current or former employees, these need to be organised and filed properly in preparation of any dispute or audit.
Why is payroll important to HR?
Besides being a complex process with little room for error, with salaries being at the key component of any company-employee relationship, one can argue that payroll is core to a company’s operation and culture. How you structure wages, commissions, benefits and compensation determines your baseline culture, and whether you run payroll not just accurately and on time, but fairly and without discrimination, deeply affects how positively or negatively employees view the company.
This makes payroll undeniably vital in any HR operation, whether you are a small business or a multi-national operation. Thankfully, there are many tools available these days that automate the payroll (and HR) experience. From HRMS to payroll engines, accounting software and even automated tax systems by governments, technology is leading the way to making HR work less operationally focused, allowing HR leaders to focus their efforts on human capital strategy and truly supporting the people of their organisation.
