A five step guide to assessing your payroll processes

The question, “which came first?” may be relevant to chickens and eggs, but there’s little debate to be had concerning payroll software and payroll processes.

Any new software is an opportunity to review and examine the current processes for potential improvements, and payroll is no exception. However, if you select the software first, your process changes will be limited by its features.

It's much better to assess your payroll processes beforehand, gather requirements, and then find the ideal software. Think of this as a quick payroll audit: review your controls, documentation, data quality, and results to ensure you make effective, justifiable improvements.

The importance of having good payroll processes

It’s a cliché in business to say that your people are your most valuable resource. That may be true. But what is true for virtually every business is that your people are your most expensive resource, with payroll commonly being one of the biggest overheads across the board.

Which brings us to the process of compensating that resource: payroll.

Why is a good payroll process important?

First of all, regardless of how many internet articles there are about ‘doing what you love’ and ‘being inspired by your life’, the reality is that almost all of us work to fund our lives (food, shelter, clothes, maybe some exotic foreign travel if the paycheck is up to it).

So payroll is far more than just the employer’s half of the employment contract; it’s fundamentally necessary to most employees. This means that if it goes wrong, if there’s a mistake, then the response is likely to be strong, the complaints loud.

Getting payroll right also reduces operational risk, prevents fraud, and protects employee trust, outcomes that every auditor, CFO, and HR leader will prioritize.

Other benefits of having a good payroll process include:

• A good reputation as an employer: Employer brand is important, and if your rep is that of an incorrect or slow payer, you won’t attract top-level employees.
• Compliance: Most countries' labor legislation mandates accurate reporting on some aspect of payroll, not to mention paying taxes and other contributions on behalf of your employees. Errors can result in problems for the employee and a fine or sanction for the employer.

And finally, returning to the ‘workforce as the biggest expense’ point, if your biggest overhead uses inefficient or error-prone processes and systems, the impact on the organization’s finances can be significant. Well-designed payroll internal controls (e.g. approvals, segregation of duties, exception reviews, and reconciliations) turn those benefits into repeatable outcomes.

Below are five practical steps that show how to audit payroll without derailing day-to-day operations.

1. Process mapping

Take some time to map out each payroll process under review. Track the information from action to action, person to person. What you’re looking for are bottlenecks, those steps which slow the flow of data, which can be ripe for a different way of doing things.

Furthermore, search for errors; some stages will cause more mistakes than others. These can then be examined for the causes of those mistakes; are they human, procedural, or technical? How can they be avoided? Finally, the mapping process should show up any redundancies, such as unnecessary checks and monitoring; what are the touchpoints for the data?

Use this step-by-step guide to setting up payroll management with HRMS to evaluate your current practices and find out how to improve them

2. Be clear what you’re aiming for

While it's tempting to fix errors as you find them, it's better to wait. First, decide on the strategic priorities for your payroll review.

You'll want a payroll process that's both faster and more accurate. But if you have to choose between speed and accuracy at a certain stage, which is more important? Knowing your company's priorities upfront will guide your decisions. Think about the big picture: budgets, other company projects, relevant laws, and overall business goals.

Next, turn these priorities into measurable targets, like having less than 1% of payments made outside the regular cycle. Determine which controls will prevent errors versus which will only detect them.

If your company operates internationally, set a global standard for payroll analytics. This ensures that while local teams follow their own rules, they can still compare their performance using common metrics.

3. Process design

Now you can start to change the processes, addressing the issues discovered earlier. Bear in mind the following constraints and opportunities:

• The differing roles and responsibilities (such as budgetary approval levels) in the organization
• Opportunities for building in self-service functionality
• Issues of risk and information security
• Possible access via mobile apps (and even social media)
• Compliance issues (legislation, regulations, reporting, etc.)
• Impact on other HR functions (e.g. workforce planning, time and attendance, and benefits administration)
• Employee reaction (however good your changes, they have to be fully adopted to be of benefit)

Add these design principles:

1. Single source of truth for people and pay data.
2. Role-based access with segregation of duties (no one person can create, approve, and pay).
3. Automated validations (e.g., rate-change thresholds, duplicate bank accounts, negative net).
4. Standardized calendars and cutoffs.
5. Documented payroll internal controls and evidence storage for payroll auditing.

Build an exception-first workflow: surface variances (overtime spikes, retro pay, tax anomalies) via dashboards. This is where global payroll analytics pays off—trend lines, error rates, cycle times, and cost per payslip guide continuous improvement.

4. Payroll maturity

Global payroll experts CloudPay use a 4-point scale to categorize a company’s payroll according to its maturity. The four stages are:

• Immature: Payroll is decentralized, error rates are high, few or no self-service HRMS features, and limited reporting options.
• Reactive: Payroll systems divided by country or region, processes are more reliable but take time to carry out, and some intervention is required while processing.
• Controlled: Mostly centralized at a regional level, integrated employee and manager self-service, largely hands-off processes, and global reporting options.
• Strategic: A single global payroll system, payroll fully integrated with other key software, non-manual transactions are standard, and employee satisfaction is high.

The point is that each advance up the payroll maturity scale brings cost savings, efficiencies, and improved productivity. You may have some solid processes in place that fit your organization, but how mature are they? Considering payroll maturity offers the chance of almost continuous improvement in your payroll management.

5. Payroll audit

Consider hiring an expert to audit your new, improved payroll processes. They'll thoroughly review your procedures, identifying areas for improvement and catching potential errors or fraud.

Finally, to return to the chicken and egg question… although you should ideally never allow the software to drive the process review, it is worth researching the market in general to know what automation is broadly possible, and what isn’t.

Key takeaways

Reviewing payroll processes is an essential step prior to selecting and implementing a new system. The potential cost of not doing so is that you attempt to automate processes that are cumbersome, inefficient, out of date, or simply broken. And even the best software won’t fix that.

Build the habit of an annual payroll audit, keep your process documentation live, and use global analytics to spot issues early.