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Don’t let payroll problems impact on staff retention

Adapting to the constantly shifting rules and regulations about pay and employment legislation has been tough for HR and payroll teams through the pandemic.

Adapting to the constantly shifting rules and regulations about pay and employment legislation has been tough for HR and payroll teams through the pandemic.

These challenges increased substantially as soon as the government introduced its furlough scheme in spring 2020, transforming the HR and payroll landscape almost overnight. From then on Continual changes to work regulations required detailed adjustments to everything from employment status to average weekly earnings calculations governing maternity or paternity pay. Last year also saw the extension of IR35 reforms to the private sector, updates for the national minimum wage age bands, and increases to statutory redundancy pay and statutory maternity pay.

New research shows how frequent mistakes or delays in paying employees occurred in these difficult circumstances and how serious the consequences were, particulalrly for younger workers. The research found that more than nine-in-ten companies (91 per cent) admitted making payroll errors every month in the 12 months up to April 2021 and almost all had problems processing payroll because of furlough confusion.

Many of the firms taking part in the research said their payroll teams were working extra hours to cope with the changes and nearly half said it involved more manual processing and admin. The combination of relying on shared spreadsheets, the possible distractions of working from home, and having to work additional hours under challenging circumstances  are a recipe for human error becoming inevitable. Especially when so many firms have to pull in figures from more than one system for HR and payroll, each of which requires updating.

The disruption these mistakes caused to the lives of employees impacted is evident in parallel research among 1,000 employees. This research found nearly two-thirds (65 per cent) of those falling victim to payroll mistakes or late payments had to borrow money from friends or family. Even worse, some had to use their credit cards or take out high-cost loans to get by.

Unfortunately, these are not isolated errors. More than seven-in-ten employees paid wrongly or late said it had happened to them as many as three times in the 12-month period and further results show how the younger employees took the biggest hit. Most 16-24 -year-olds (53 per cent) had suffered a payroll mistake and a third (33 per cent) reported there were times in the last year when they were barely able to afford food due to payroll errors. Young people are more vulnerable because they are more likely to be on lower wages and have smaller savings.

The repercussions of regular errors in employee pay are serious not just for employees, but also for employers. Failure to meet National Minimum Wage requirements could easily result in stiff legal penalties and blacklisting by government agencies.

There are also deeper effects on employee retention, recruitment and company culture. If an employer cannot pay its workers correctly, employee confidence in HR and in management is likely to spiral downwards. Retaining employees therefore becomes significantly harder. More than four-in-ten employees in the research (43 per cent) said they would leave an employer that repeatedly paid them late or incorrectly, with many employees considering moving to a new job as soon as the employment market improves. There may be many reasons for leaving a job but being paid incorrectly should not be one of them. Failure to retain employees only heaps the costs of recruitment on to organisations already struggling to get back on their feet. And as word-of-mouth gets around that a company consistently makes pay mistakes, recruitment itself may become more difficult.

These difficulties payroll encountered should be placed in the context of the wider challenges facing companies that need to streamline processes and reinforce company culture and resilience. On a practical level, having good payroll software that automates many routine tasks and fulfils them with greater accuracy would be a major improvement. As part of an integrated HR platform, this would remove many of the problems associated with separate systems and the complications of finding up-to-date figures quickly and easily.

This would ensure that everyone is notified of changes to National Insurance, pensions, and holiday entitlements as they come into force. For payroll teams, it would give them immediate access to the latest guidance on specialist matters such as employment status and gender pay gap reporting. Self-service functionality also hands more power to employees and makes it easier for them to update their own records or notify of absence, changed personal circumstances or to seek leave.

On a broader level, it is important HR and payroll are part of a strategy to improve communication between managers and individual employees. It is damaging to company culture to have HR and payroll as remote, faceless functionaries that are unapproachable.

Payroll mistakes must be reduced, but this should be just one part of more far-reaching initiatives to build a collaborative culture that brings employees on board and aligns them with organisational goals and values. Constant and regular communication between departments, managers and employees is vital. More resilient companies will be those with a cohesive culture that encourages and motivates employees and gives them many different reasons to stay.

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