The 10 Ultimate Hallmarks of an Inefficient Payroll Process [with Infographic]

Author Image Written by Garth Belic

If you run a business, it's more than likely that you may have inefficiencies within your payroll process that are responsible for breaching Modern Awards, blowing labour budgets or sucking up a significant amount of time.

What's most concerning is that many businesses don't realise that they're running an inefficient payroll process until it's been brought to their attention. Inefficiencies are usually brought to the attention of the business in the form of a penalty for a breach, budget blowout or delays in a payroll run.

The result is often costly and has a severe impact on the reputation of the business as an employer.

So which of the following feature in your payroll process and what can be done about it?

Find out more below.

While in the perfect scenario, such solutions do the job. However, in reality, there's seldom a perfect situation.

Manual rosters open up a whole host of potential issues including:

  • Compliance errors - your business could potentially be in breach of Modern Awards resulting in underpayments. Employees can report to the Fair Work Ombudsman if they feel they have a case with claims being responsible for unnecessary costs and a poor reflection on the reputation of your business
  • Rostering errors - mistakes such as rostering someone on back to back shifts, rostering them when they're on leave, rostering casual staff despite being unavailable. This can result in being short-staffed if the mistake isn't picked up as well as affecting staff morale if this is a regular recurrence
  • Time wasted - manual rosters can often take significantly more time, mainly when errors are made and revisions are required to re-publish rosters several times
  • Mis-assigned skillsets - allocating a junior team member into a supervisory shift is one example of incorrectly assigning staff to roles. Not only is productivity lost, but this can also harm staff morale and eventually team retention
  • Blowing budgets - failure to adequately identify staff working overtime or rostering too many staff on a shift usually isn't identified with the use of manual rosters.

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The manager/business owner creating the roster will usually receive a bunch of feedback and subsequently need to re-release the roster.

The result is often confusion and conflicting information if multiple revisions are made in a short space of time.

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Wage Theft

In a study released by the Australian Federal Police, employee theft accounts for $1.5 billion a year for businesses with time theft being a primary culprit.

What's nicknamed as the silent profit killer, a recent study found that on average, each employee steals up to 4.5 hours per week from their employers in Australia. When annualised, this equates to an incredible 234 hours per year per employee.

Wage theft comes in a variety of forms with the most common kind arising from buddy punching timesheets, dragging out for late finishes and unauthorised overtime.

Paper timesheets provide a secure method for employees to conduct wage theft due to the weak accountability mechanism it provides. However, this is often in combination with a lack of engagement from the workforce.


Poor Record Keeping

No business is immune from audits. Paper timesheets are the weak link in the event of audits and investigations.

Having to dig up old archives and records to prove compliance is an inefficient and time-consuming method towards modern record-keeping.

With a requirement for Australian businesses to maintain records for a minimum of five years, businesses can be vulnerable to legal action with poor record-keeping practises.


Clerical Errors

With an average error rate of 4%, poor handwriting and inaccurate data entry are the most significant contributing factors towards inefficient payroll. Not only can it prove to be costly, but it can also become time-consuming to rectify any unidentified errors.

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 Supervisors typically mark their approval by signing on the timesheet before the finalised timesheet is passed onto the payroll/admin team.

The manual process of cross-checking attendance against rostered shifts is also a weak link in a complex multi-step process such as payroll.

Just like the risks associated with paper timesheets, the risk of clerical errors and blown labour costs prove to be a significant contributing factor with further costs down the payroll pipeline if not identified appropriately.

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Compliance Dangers

Severe penalties are enforced for breaches of these laws with many businesses being featured on the front page of major newspapers for all the wrong reasons.

And yet a significant proportion of Australian businesses are still manually interpreting pay conditions as part of a highly inefficient payroll process.

With manual rosters built using spreadsheets, basic pay conditions are often adequately covered, but unfortunately, this doesn't always cover all aspects of a Modern Award.

For example, conditions such as minimum working hours per four week period or minimum rest periods between shifts usually result in additional penalty loading, which contributes to budget blowouts.


The Inefficiency of Manual Interpretations

Besides the apparent compliance dangers, this article is still all about payroll inefficiency. And significant inefficiencies exist with manual interpretations for several reasons.

What's most common is that reviewing timesheets against Modern Award conditions means that you may be vulnerable due to errors and inaccuracies. Redundancies such as manager approvals and final checks made by the CFO before the pay run is processed result in multiple handles of the same process. Even then, 100% accuracy is not guaranteed.

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Are those numbers written correctly? Does 7.5 mean 7 hours, 30 minutes or 7 hours 50 minutes? The manual calculators don't appear to be correct. We seem to be missing John Smith's timesheet.

These are the issues that consistently occur each week.

As a result, admin or payroll staff are often chasing up managers and employees alike to clarify information. In a busy operation or if the employee at hand is not available immediately, this can prove to be a bottleneck in the entire process.

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Businesses, particularly larger ones, often struggle to cope with accruing and tracking leave requests and entitlements when they run a manual system.

For manual leave request processes, an employee usually fills in a leave request form before this is handed to their supervisor or manager for approval. The

During the payroll process each week, admin or payroll teams must gather leave requests, check that employees have sufficient leave in their balance, ensure it's been approved by relevant managers and then have their leave balances adjusted.

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From the process of submitting an offer to acceptance to filing to payroll, paper-based employee onboarding is a long and drawn-out process that can take several days up to several weeks if things don't go smoothly.

Many businesses, large and small, currently send contract offers in the post or have new hires come into the office.

Often this results in delays with postal deliveries not running on weekends or if new hires forget to bring all necessary paperwork to finish the onboarding process adequately.

If timing is poor and an employee is expected to be onboarded just before a pay run, missing documents and information can severely hold up the entire payroll process as the payroll team chases these prospective employees for their details.

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As is the risk with interpreting Modern Awards manually, manually entering payroll data may be able to calculate basic conditions such as tax and superannuation.

Still, more complicated aspects of the Modern Award such as additional loading and penalty rate entitlements can often be overlooked.

Clerical errors are also a regular culprit if attention to detail is poor or due to bad handwriting on paper timesheets. Any further rectification as a result of these errors will also result in new bottlenecks in the payroll process.

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 This alone is an incredibly time-consuming process depending on the number of employees.

Any prospective errors that are identified must then be remedied before the pay run is finalised.

Once approval has been made, payslips are manually created, sent and a batch file is sent to internet banking to release the payment to prospective employees.

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Cloud payroll software is designed to help with reducing errors, manual handling and maximising compliance. Not only do they address immediate requirements, but it also helps mitigate risks of legal action or penalties if your payroll actions are not compliant.

Businesses who recognise this often implement integrated rostering and payroll software to help further reduce manual handling of all aspects of managing your workforce and the ensuing payroll management required.

Cloud payroll software is proven to save you thousands of dollars in potential breaches and also help with wage control while remaining compliant within the ever-changing landscape of modern awards and minimum employment conditions.

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We help businesses find the right cloud payroll system that includes award interpretation. We then build and configure a template to help businesses achieve automated payroll compliance. Many professional payroll firms, as well as end customers, utilise Pay Cat for this unique service.

If you're interested in seeing how we can help your business make the transition, get in touch to book a demo with us today.

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10 steps of traditional inefficient payroll process

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