How to develop a payroll process that works

If you’re following payroll best practices, you know you need a documented payroll process. And you need to stick with it too. But knowing you should do something and actually doing it are two different things.

How do you develop a payroll process? There are a few steps to make your payroll process run like a well-oiled machine. You should always start with an audit and begin development from there. Any payroll process you develop needs to be well-documented and shared with your team.

Now that you know it’s something you need to do, let’s talk about how you can actually do it.

Conduct a payroll audit

When auditing your payroll process, ask some questions to help identify weak spots or holes in your current payroll procedure. Am I using up-to-date or outdated systems to manage payroll with maximum efficiency? What tasks can I automate that I’m currently handling with a manual process? Are all my workflows running effectively or is there a better way to manage them? Next, dig deeper into the pain points of your business beyond your day-to-day payroll tasks. What bigger picture items or issues can you improve? Does your company struggle with employee time theft? Could tools like biometric clocks that require employees to punch in with fingerprints help solve the issue?

Do some critical thinking about the issues you and your team face. Write them down. Identify what is causing the bottleneck and brainstorm ways this to fix the issue. You don’t have to reinvent the wheel here. It can even be as simple as, “We report using spreadsheets and disparate data. This leads to manual errors and consumes a lot of time. Using automated systems will help solve both these issues.”

Here are a few other examples of pain points you can identify in your audit:

• Inconsistent pay codes across divisions or locations

• Overtime calculations in shift differentials lack uniform recordings across departments

• Leave accruals that do not follow company policy

• Exceeding the budget due to unplanned overtime hours

By identifying the holes, you can begin to solve the problems that keep you from a more productive payroll process.

Create a payroll calendar

After you’ve conducted your payroll audit, you can move to the next step: creating a payroll calendar. Before you can dive into developing your process, you need to know what happens when and who is involved.

Your payroll calendar serves as a place where anyone can know at all times, what happens when. What payroll activities are happening this week? What’s coming down the pipeline this quarter? When are forms 1094-C and 1095-C due to the IRS and employees? This is especially important if you have part-time and full-time workers who may get paid on different timelines (weekly vs. bi-weekly vs. monthly) and you need to keep track of multiple pay schedules at a time.

Map out your payroll process

Developing a payroll process will help you stay informed of everything from pay periods to overtime schedules. Probably most important, it will keep you in control of your budget. With a payroll process in place, you can manage and report on payroll with accuracy in a fraction of the time. It will also help you respond to employees coming to you with complaints or errors after you distribute paychecks. As you develop your process, consider the following steps:

• Establish your payroll timeline. Create a payroll processing schedule that allows room to both process payroll and correct any errors before employee paychecks are due.

• Stay in control of your budget by developing an approval process with your managers for hours worked.

• Conduct audits during the pay period to verify the data (especially important if your office allows managers to approve hours worked).

• Review anything a manager may have overlooked that could result in overtimes hours exceeding the payroll budget.

• Update any necessary employee changes that may affect payroll like a change in employee FLSA classification, change of address, etc.

• Perform any pay adjustments required for the pay period. This could include bonuses, commissions, and raises, or any alterations to deductions and health benefits.

• Import timekeeping data and calculate pay. Ideally, this should be within your automated payroll system. Don’t forget to include vacation and overtime hours in your calculations.

• Review payroll reports including the preliminary payroll report and the trend line of payroll expense by department.

• Backup your data. With payroll software, your data should back up automatically, just archive it for your records.

• Deposit taxes and verify transmission to the IRS.

• Keep time cards accessible to review with employees questioning their pay for the period.

Establish payroll policies

No process can be successful without some guidelines to keep things running the way they should. It is important to have clear, standardized rules for your payroll process. A lot of this will depend on your organization and your team. No matter what your payroll process consists of, you need to have clear rules and policies that everyone follows.

Stick with your process

Once you take the time to develop a payroll process, stick with it. No plan, no diet, no fitness regimen, no goals can ever work if you don’t stick to the plan. Document every step of your process and who may be involved. Make note of any approvals needed and who has authority. You will also need to inform managers within your office of the payroll process and any changes in policy (or give them a friendly reminder of the policies in place). Encouraging managers to stick with the process will help you and your team in the long run.

Integrate HR & Payroll

HR and payroll are closely connected—why not integrate their systems to minimize errors and maximize communication and efficiency? Integrate systems where you can and make things easier for you and your team. With an integrated Human Resources management system, you can have time and attendance, payroll, ACA compliance management, and core HR all in one place.