Payroll process documentation is crucial to efficient payroll operations and compliance risk reduction. It enables businesses to keep payroll accurate and up to date. With well-executed payroll process documentation, companies avoid making mistakes that could lead to employee distrust, ruin brand reputation, or get them fined due to non-compliance.
Proper documentation ensures people responsible for handling the payroll understand and follow the correct procedures at all times. Moreover, onboarding new payroll department hires becomes easier when the process is well-documented. This post discusses the best practices for payroll process documentation and the benefits of automating payroll.
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Without an accurate and up-to-date payroll process, HR specialists risk missing important regulation updates or making mistakes that would lead to non-compliance. Outlining the procedures clearly empowers the payroll team, ensuring they're well-equipped to manage the function while complying with the relevant labor laws. From structuring the data entry and payment processes to report handling and recordkeeping standards, having clear and concise payroll procedures guarantees accuracy.
Below are the top tips and best practices to guide your payroll process documentation.
Before documenting the process, consider performing an audit to determine areas you can optimize. Find out whether there are manual processes that can be automated? Are the systems and policies up-to-date? Have you classified the workers correctly? Are the current processes exposing the company? For instance, you might realize manual processes increase the risk of errors during data input, time theft, etc., or outdated systems and policies expose you to security and compliance risks, and so forth.
Once you identify the areas that require improvement, you can then develop appropriate solutions to resolve them. For instance, if you have been having challenges with time theft, a possible solution would be investing in attendance and time clock software. Similarly, learning about the difference between the various categories of employees–full-time workers and independent contractors, exempt and non-exempt employees–would ensure you classify them correctly and avoid potential fines.
A payroll calendar allows you to know what happens when and keep track of important deadlines. For example, preparing the calendar lets you outline the payroll processing dates for the entire year while factoring in public and other company holidays. It should outline dates and deadlines like paydays, IRS deadlines for tax payment and return filing, local bank holidays, and federal reserve closed dates, etc.
The next step is to create a payroll handbook that maps out the processes. Essentially, the booklet should outline the payroll timeline and provide detailed steps of the processes involved from the beginning of the pay period to the end.
It should contain detailed steps or information on:
You should also establish standardized guidelines for the payroll process. The policies may cover areas such as benefits, payment schedules, payroll deductions, and payment methods.
Automating the payroll improves processing efficiency and reduces compliance risks. There are automation tools that can help with tasks such as timekeeping, calculating overtime, calculating deductions and taxes, and tax filing. Some solutions have self-service capabilities, further reducing the workload of the payroll team. For instance, employees can log in and submit timesheets and tax information or review pay stubs.
When looking for a payroll software provider, consider a solution that can integrate with HR to increase efficiency. Integration eliminates repetitive manual processes, thereby minimizing errors and saving the payroll team time.
Having a payroll calendar is crucial because, among other benefits, it enables you to keep track of important dates such as paydays and IRS tax and return filing deadlines.
Companies should always strive to pay employees on time, as late payment can affect their morale and productivity. If you keep missing payment dates, it creates uncertainty and may cause financial-related stress among the employees ruining their productivity.
Another downside of late payment is that it can ruin a company's reputation and downplay your efforts to secure quality talent. Missing tax payments and return filing dates exposes a company to fines and penalties for late submissions. It can also raise suspicion and trigger IRS to direct auditing of your processes, leading to additional costs.
Businesses are increasingly adopting technology to improve efficiency and scale their operations. Payroll processing is one of the functions that has benefited immensely from automation technology, enabling organizations to optimize workflows and deliver employee pay faster and easier. From reducing compliance risk to increasing payroll teams' efficiency, payroll automation has multiple benefits.
Let's look at a few of them.
With so much employee paperwork, knowing which records are required for payroll documentation can be challenging. Below is a checklist of the documents and records you need per the Fair Labor Standards Act (FLSA).
Employee's:
Other vital payroll records include:
According to the U.S. Fair Labor Standards Act (FLSA), you should keep payroll records for at least three years. In addition, records containing wage computations, e.g., time cards, work and time schedules, etc., should be retained for two years.
Issues such as misclassifying employees, failing to report all taxable compensation, not paying overtime, and late filing are possible mistakes that can attract non-compliance fines. Your payroll practices should align with the Fair Labor Standards Act and other relevant state and local laws to reduce compliance risks.
If you aim to run an efficient payroll while minimizing compliance risks, you should consider payroll process documentation. To achieve this, you need to conduct a payroll audit to determine areas that require improvement or automation, then create a payroll calendar to keep track of important dates and deadlines and avoid missing paydays and late filing. You should maintain a payroll handbook detailing all the relevant processes, such as timekeeping procedures, wage and deduction processing, payroll approval processes, and post-payroll procedures. In addition, you should establish payroll policies for standardized guidance.
Finally, you should consider automating the payroll and integrating it with HR. Automating payroll is beneficial in many ways, including reducing errors, saving time, enhancing record accessibility, increasing data security, saving money, reducing compliance risks, improving employee satisfaction, and simplifying tax filing.
Generally, with cloud-based payroll software, you can streamline all your payroll processing thanks to integrated benefits administration, time and labor, and tax deductions, among other features. It can also provide paycheck analysis, assess compliance risks, and support self-service conveniently via mobile app or website.
For more information, contact us or let us connect you with an expert if you need help rolling out your payroll process documentation.