As an extremely high-volume business activity, payroll is a department where delays, corrections, and reprocessing incidents are all too common, however risky to encounter. Payroll is straightaway related to the compensation of all the employees of an organization. A blunder in any employee’s salary calculation implies a hole in the process; this may prompt serious issues in the bigger picture of the payroll process.
A small error in payroll processing can cause financial embarrassment for an organisation or can prompt employee complaints and in most pessimistic scenarios, invite legal actions.
The typical source of most encountered problems is incorrect, incomplete, or mismanaged payroll data, which is gathered during the pre-payroll process. Consequently, it is a need that after the data is accumulated from various sources, it has to be validated.
Data validation is the most significant step of pre-payroll, where the gathered data and information is checked for precision and correctness before further utilizing it in the actual payroll process. It is crucial to affirm that the background work done so far as a major aspect of pre-payroll is error-free to ensure that the subsequent activities of payroll run smoothly.
Inaccurate data can jeopardize the entire payroll process. Validation is a proactive step in the sense that it eliminates the risk of committing mistakes in payroll and the consequences faced while rectifying them later.
Importance of Data Validation in Payroll Process
The HR (Human Resource) department has deserted the picture of the desk work department and now has become a key business partner in an organization. The HR roles have now extended along with the processes. Organizations have increasingly started relying on their human resource management system (HRMS) for a smooth HR workflow.
For HR, payroll is a significant process where even minor slip-ups can have tremendous implications. Given that payroll is a dynamic process with evolving regulations, compliances, and internal changes such as employee exits, new hires, contract staff, independent consultants, etc., it is no big surprise that the odds of mix-ups are the highest.
Payroll mistakes can be expensive and bring about heaps of superfluous work for the HR department. Errors in payroll can lead to employee dissatisfaction, affecting business operations. Subsequently, it is critical to get payroll right and this can be ensured if the data used for processing payroll is error-free. Also, just as the data is garnered from multiple sources, the data used in payroll has multiple uses, as it is not just limited to processing paychecks.
Payroll data finds use in devising organization strategy, the employee benefits system, the finance department, reporting system – to name a few. Hence the importance of data validation as a pre-payroll activity cannot be over-emphasized.
Errors in payroll
There are enormous ways in which errors can occur in payroll. Particularly in small businesses where the payroll is overseen manually or by using spreadsheets, errors can begin right from the hour of making data entries. Let us identify a couple of such errors.
- The majority of errors in payroll can be attributed to incorrect or incomplete data.
- Collecting data from various sources in different formats and integrating it into payroll compliant formats is a challenging task prone to errors.
- The road to making mistakes can start while entering basic employee details itself, like name, employee id, email address, department or project, bank details etc.
- Mistakes may also creep in employee classification or in updating changes in pay grades as and when they occur.
- Another area that needs attention is employee leave and attendance data. As salary calculations are based on this data, mistakes here, will definitely lead to errors in payroll.
- Keeping track of payroll deductions is one of the complex processes in payroll. It is also one of the common areas of mistakes.
- As already mentioned, an important area of payroll, which is prone to changes, is rules and regulations. If the business does not track these changes and make the necessary updates, it can sometimes lead to gaps and errors in compliance.
- Improper organizing and maintenance of payroll and employee data i.e. ineffective workflows can also lead to mistakes in payroll.
Pre-process data validation allows payroll managers to be more proactive: By checking supplied payroll data in an automated and flexible manner, and notifying relevant constituencies of issues prior to the pay run, validation can enable global payroll teams to catch and fix errors before they occur – that is, before they lead to re-runs, added costs and processing delays.
4 Suggestions to maintain spotless HR Data
- Create a strong system documentation
- Conduct new team member training in person
- Create validation rules for entering data into HRMS
- Remember, maintaining clean data is not just accuracy, but aesthetics and consistency
Some errors may seem simple and insignificant but may snowball into serious problems for the organization. Validating payroll data will help in identifying and fixing such errors before they occur. Equally important is ensuring that there is a proper backup of the data and there are no security breaches.
Realizing the challenges and the huge costs of mistakes in payroll, most organizations are moving towards automation and outsourcing of this activity. This reduces the chances of errors as checks can be incorporated at every stage of data collection and pre-payroll. It eliminates the need for manually checking spreadsheets at every stage, thus ensuring that the payroll process is handled accurately.
A competent system of data validation will identify and highlight missing or wrong data as and when they occur. Just as reports are generated after processing payroll, reports on payroll inputs and the detected errors during validation will ensure that such errors do not occur in the future. This will also help in improving and standardizing the process.
Also, it is important to design a detailed process flow, incorporating checks and controls at every stage of pre-payroll. In case of an automated process, tolerance limits and triggers can be included in the data validation process according to organization specifications.
All said and done, whether payroll is managed in-house or outsourced, even the smallest error in data will ruin the entire process and put the credibility of the company at stake. Hence, picking up the right HR and payroll solution is the key to the locked happiness of managers and decision-makers.