The best way to run payroll in 2023

Payroll inefficiencies and errors cost companies an enormous amount of time and money. Yet, many organisations continue to run this business-critical process the way they always used to, living with the inefficiencies.

Companies often only realise the cost of running an outdated payroll process once it's too late. Look at what happened to EY, the consulting firm, when an error accidentally reversed the salaries of over 55,000 US employees. And as employees across the company woke up to empty bank accounts and overdraft alerts, the firm was quick to rectify the error — but ADP had already done the damage.

Payroll mistakes cost organisations a lot of money — a lot of it. In 2015, PwC estimated this cost at a massive £30m per year for UK FTSE-100 businesses for compliance issues alone. But that figure doesn't quantify the downstream impacts on your brand, employees, or teams running payroll.

With increasing numbers of employees reportedly worried about finances in the wake of the economic downturn, making an error on your payroll process could have catastrophic consequences for your employees' emotional and mental well-being, not to mention retention.

And here's the thing: EY's payroll mishap was utterly preventable. With the right tools and processes in place, they could have avoided the media storm and the loss of trust from their team.

So how is this decades-old process evolving to fit modern organisations — and what can your organisation do to build a more efficient, error-free system from within?

The age-old payroll outsourcing is out — here's why.

Payroll is one of your organisation's most critical functions — yet most organisations only invest in the result, not the process. Simply put, as long as everyone gets paid on time, companies rarely care about how.

If it works, don't break it, right? Well, think of it this way:

• If your hiring process takes months and you've got a track record of hiring the wrong fit, then you'd look at all the points in your strategy to find out why.
• If a step in your sales process means you're consistently missing revenue targets, you will take action to fix it.

It's the same principle with payroll. Payroll is more than just paying people on time; it's a complex, business-critical process. Yet, very little has changed about the payroll process in decades — it's inefficient, rigid, and standardised on someone else's terms when it can be so much better.

Many organisations outsource this fundamental process to an external provider like an accountant, tax advisor, or payroll bureau or use payroll accounting software without proper knowledge. Outsourced options are usually rigid and slow, while other payroll solutions often miss critical reporting or compliance needs. This lack of visibility and control makes payroll a black box for organisations, leaving them open to several vital risks.

Increased likelihood of errors = more compliance issues

We all make mistakes from time to time. But when processing payroll for your entire company, a small mistake can translate into a huge nightmare. Payroll compliance is one of the primary sources of anxiety for people running payroll. Payroll errors don't just mean your employees get the wrong tax designation or salary — you could be opening yourself up to a hefty fine by unintentionally being incompliant.

Less visibility and control = lots of avoidable errors

Outsourcing your payroll sounds like it should be more efficient by default — because you're handing off the process to the experts. But even when you entrust your payroll process to an external provider, mistakes can still happen — they're just more difficult to spot and fix, especially when internal teams have no visibility and control over the end-to-end payroll process.

Finance and HR teams constantly work towards deadlines imposed by external providers, giving them no room to oversee and fix errors as they crop up.

This rigidity means that when an error gets flagged just days before payday, teams are still accountable for the problem, but they're unable to rectify it proactively.

Siloed and manual processes create operational inefficiencies

Payroll is a complex process involving many small details— tiny inefficiencies at each stage that accumulate down the line.

Current payroll accounting solutions can't manage the growing complexities of today's organisations, adding more manual admin behind the scenes. Meanwhile, when outsourcing payroll, Finance and HR teams often end up sharing a manual admin burden, playing a game of email ping-pong with spreadsheets and PDFs to ensure payroll gets processed on time.

Multiple stakeholders and manual input increase the risk of errors — but it also means that your HR and Finance processes aren't working in sync. It's inefficient for the entire company because crucial team members spend their time on menial tasks.

Traditional payroll solutions have a breaking point.

In the last decade, we've seen massive shifts in how people work. Changing HR team structures and part-time contracts have added complexity to an outdated process. Couple that with shifting compliance and regulatory requirements, and it's easy to see how paying your people is far more complex than it used to be.

For high-growth organisations, traditional payroll presents a considerable challenge. They need a process that better addresses the current industry changes yet helps them stay agile to the evolving changes in their workforce.

Modern organisations need payroll solutions that can keep them compliant, error-free, and efficient.

As far as conventional wisdom goes, payroll is only successful when it's invisible to your employees. But that discounts the tremendous amount of work usually involved in the backend of the process.

Organisations need a better way of paying their employees that responds to and scales with shifting business priorities while giving them access to expert knowledge and complete visibility over their end-to-end process.

So far, existing solutions managing this complex process have been focused only on the result. And this is where payroll has to make up a lot of ground if it's going to stay in touch with how modern organisations operate.

To move forward, organisations need to think of payroll as a business-critical process, not a transaction.

• Ultimate control and flexibility: When organisations own their end-to-end payroll process, they can automate salary and tax calculations, adjust pay without artificial deadlines, resolve payroll errors in real-time, manage approvals easily, automate payments to employees and HMRC, and so much more. Bringing payroll in-house means ultimate control and flexibility to make your process as efficient as possible.
• Fully integrated with existing business processes: Creating better visibility of the end-to-end payroll process depends on breaking down silos between tools and automating processes that remove manual labour. The best way to optimise your payroll process is to figure out a way to integrate payroll with all essential tools in your stack – from HRIS to accounting systems.
• Always be compliant: Bringing payroll in-house means understanding that the logic for salary and tax calculations will need to be updated based on new HMRC legislation. Keeping up-to-date with the changes might look like a lot of work. But, depending on the control over your payroll process, it can be straightforward and less complex than the endless back and forth with your outsourcers.
• Payroll that scales with your organisation: A payroll process out of your control can never be scaled. You'll always be left at the mercy of your outsourcers prioritising your productivity over theirs – and they naturally pick themselves. Bringing payroll in-house and having complete control, flexibility and visibility over your payroll data are essential if you want to build a solid payroll process that can keep up with your company's growth. If not, your team will never be able to reach their full potential because the payroll inefficiencies will always bog them down.

Make payroll your strategic advantage with Pento 👩‍🎤

Payroll doesn't have to be an afterthought or burden — and it definitely shouldn't be a source of anxiety every time payday rolls around.

It's common now for People or Finance teams to own payroll alongside other priorities regardless of their knowledge or expertise in payroll. But it gets very overwhelming very quickly. Payroll often takes precedence over other tasks because of its business-critical nature.

As your company grows, the complexity of your payroll will only increase. The variables go from monthly commissions and one-off bonuses to managing benefits, gathering approval, ensuring proper reporting and dealing with audits. Your current payroll management process has a ceiling; often, it'll be too late before you realise that you need a new payroll process. And that you needed it yesterday.

There's only one way out for today's modern organisations who want to stay lean and efficient – provide People and Finance teams with payroll tools that automate the admin and reduce the burden.

At Pento, we're helping hundreds of People and Finance teams be the master of their payroll process by bringing it in-house. With Pento, teams get ultimate flexibility, visibility and control while we automate the admin around data entries, payments, and compliance. Our offering doesn't end with a piece of software. We've gone beyond and assembled a team of CIPP-accredited payroll experts who help you with anything day-to-day and share the best practices around managing your payroll efficiently with Pento.

If you're an efficient People or Finance team and want to stay that way, book a demo with our team to find out how we can help you run payroll in the best possible way in 2023.

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