Helen Bradley and Kurt Best explain why good payroll software is crucial to good employee relations and sound financial management in your business.
While there are many factors involved in running a successful business and maintaining good relationships with employees, payroll is one of the most important. It might be your biggest expense and it is a critical process that must be performed on time and accurately. Not only to pay employees, it must also handle regular reporting to various government agencies.
At the heart of any payroll system is your payroll software. There is a wide variety of programs to choose from, and we've investigated what's available and talked to some industry specialists to determine what you should look for when buying payroll software.
This software services your business in many ways. It services office administration in making payroll processing easier and it services your employees by dispensing pays in a timely manner. And it services you, as a manager or owner, by providing management reports, helping you meet legislative requirements, and protecting you from legal action or penalties for making incorrect or under payments.
What You Need
Nothing is more destabilising to your business than staff who are suspicious and doubt the accuracy and consistency of your payroll system. Employees have a legal right to receive accurate pay, a pay slip containing not only their gross wage and deductions but complete details of what they are paid for, entitlements such as leave balances and RDOs, and superannuation payments made on their behalf. The challenge doesn’t stop there.
Expectations are that your payroll system should perform other services in addition to simply calculating a pay. It should handle salary sacrifice requests where pre-tax deductions are made from the gross into an employee's superannuation account and it should handle multiple payments, such as paying part of a pay into an employee’s mortgage account and the balance into their regular account. In short, as Susan Burns, payroll services manager for Quicken Australia says, "It should do the job it is supposed to do, which is to process your payroll."
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From your business point of view, the link between your payroll capabilities and underlying employee satisfaction, not to mention the significance of labour cost in your total expenses, highlights the importance of managing the process accurately and effectively. Payroll software ensures calculations are consistent and in accordance with applicable awards, enterprise agreements, or individual contracts. “A payroll purchasing decision should factor in key components such as the number of employees, pay frequencies, types of employees (temporary or permanent), varying pays, Award requirements, integration of the payroll with your accounting software, reporting requirements, leave accrual, compliance, payment methods, technical support, training and testing the software before you buy," says Andrew Fiori-Dea, general manager of MYOB Australia’s business division.
Making Choices
If you have a large payroll with most employees paid the same way each pay period, then your payroll software should make it easy for repetitive entries to be made. Some programs have a spreadsheet-like interface for efficiently entering a large volume of data. On the flipside, if your payroll is highly specialised and varies each pay period involving complex calculations, then your software should make it easy to handle these.
If you operate a timecard or other attendance recording system, interfacing this with your payroll software will save manual data entry. Where, for example, an employee has not clocked in or out, your system should handle exceptions effectively.
If you terminate an employee or make employees redundant, your payroll software should assist in calculating termination payments. Where termination or redundancy is not voluntary there may be ill feeling involved and it's critical, for your legal protection, that final payments are correctly calculated and pays are delivered in a timely manner.
Where legislative and tax changes take place, your payroll software must be updated with these. Ensure the payroll developer is committed to regular updates, factor the costs of these into your purchase price and always install program updates in a timely manner.
Software should be compliant with Australian conditions and, where possible, cater to special state requirements such as state-based taxes or workers’ compensation reporting requirements.
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From a regulatory point of view, payroll software should assist in complying with government reporting and payment requirements including remitting taxes in a timely manner. Compulsory superannuation payments must be paid at a minimum on a quarterly basis for small employers and with Super Choice effective from July 1, 2005, many employees can now tell employers where their obligation should be paid. This change could involve tracking a separate fund for each employee. If your payroll software can calculate the payment and automate the transfer to various super funds, this legislative change shouldn’t cause problems.
At the end of each year, Payment Summaries must be provided to all employees, including terminated employees, with an additional copy lodged with the ATO. While this isn't difficult, there timeframes are short and other business issues won't stop while you see to your payroll obligations.
Matching Systems
When considering payroll software, in addition to supporting your pay-making process, consider how it works with your current systems. A standalone payroll package will operate independently of other programs such as your accounting software and offers the most flexibility, letting you choose software that best suits your situation. However, you'll have to make journal entries in your accounting software to carry over the figures for each pay period. Some payroll packages offer a level of data transfer to the more popular accounting systems–however, this is not always easy to do in practice.
The alternative is to purchase fully integrated software, which is part of your accounting system or tightly integrated with it. While choices of program will be limited, you won't have to make special journal entries. In addition, when using integrated software, you can retain all your business data—suppliers, customers, and employees—in the one location.
When shopping for payroll software, always involve the person responsible for making the pays. You must understand exactly what your software is required to do, including how your pay calculations are made. Look for a close match with your existing system or one that can be tailored to it. Alternatively, you may need to alter your systems to match the software’s systems. Either way, it’s important to understand the compromises required before you purchase. Fiori-Dea also offers this advice: "Tell the software provider if their package doesn’t meet your needs and why, as they may have suggestions and alternatives."
If there is one piece of software that has the capability of affecting employee relations in a negative way it is your payroll software. Good payroll software should be transparent and should do its job in an effective and timely manner. A poor choice of payroll software can erode employee morale and cause problems for your business. Take the time to evaluate new software carefully and always ensure that payroll is managed competently. Payroll software is a tool to assist properly trained payroll personnel, not replace them.
