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The human consequences of payroll errors


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The basics of payroll seem to be straightforward, however errors are common, resulting in a significant impact to employees. Some of the world’s largest employers regularly fail to pay staff correctly due to payroll processing errors.

At a time when billions of people globally are facing the greatest cost of living crisis due to rising food and energy prices, under- or overpayments in payroll are likely to worsen financial pain.

Small payroll errors can become huge monetary burdens

Payroll errors can have a profound effect on people, not just on their abilities to pay bills on time, but affecting their overall wellbeing, morale, and productivity.

According to the 2022 Alight International Workforce and Wellbeing Mindset Study, debt is ruining lives. Even when paid accurately, 49% of US employees and 59% internationally said their income doesn’t cover their expenses.

This can have a profound effect on employees’ wellbeing, morale, and productivity, which overtime can make people leave. Pay is the number one reason people are changing jobs. Of those who left their previous employer in the past year, 30% globally did so for better pay and/or benefits.

Recruitment, at a time when competition is fierce for workers, will be harder if an employer has a reputation as a poor payer.

Why are so many people having to deal with the stress of payroll errors when they are already stressed with the soaring cost of living?

The root causes of many payroll errors are

  • outdated and largely noncompliant manual payroll processes and
  • a lack of skilled payroll professionals

Even large companies with high volumes of multi-country payroll operations, still continue to use manual systems (18%) and spreadsheets (40%) as part of their payroll processes. This is despite these methods being proven to be prone to human error.

Investment in payroll modernizations is often sidelined, with the “if it’s not broken…” argument extending the life of long outdated and inefficient in-house payroll processes. The issue is, payroll is so complex and so challenging to infiltrate with the naked eye, that errors do happen, repeatedly.

Ultimately, without a modern payroll infrastructure, a firm can never achieve payroll performance – which is good for profits and for employee retention.

When does payroll go wrong?

Most payroll errors are just that, oversights, and longer-term issues that were not spotted or corrected at the time of data input.

Among the most common payroll issues noted in the Alight Global Payroll Complexity Index report were "organizational inconsistency" in the payroll process, incorrect tax withholding, and over-and-under payments to employees. Along with these, employee misclassification issues and overtime miscalculations commonly contribute to employees receiving the wrong pay.

Inaccurate payroll data is expensive and high risk. Anomalies could be detected by artificial intelligence (AI) and other technologies, including robotic process automation (RPA) if they were used.

Unchecked processes and data hit the bottom lines hard, often year on year until detected, if ever they are. Typical consequences are compliance failures and payroll leakage, which alone costs the average US firm $30 million per annum. This is without considering the personal cost to employees.

Manual processes are prone to payroll errors

A disorganized and inefficient payroll process can be a recipe for disaster. Relying on paper-based processes, manual data entry, and a mass of spreadsheets can lead to errors that may take many weeks or months to uncover.

Having a manual system for managing payroll increases your reliance on one person to manage all payroll actions. Without an organized and automated payroll system, it’s harder for someone to fill in when the payroll manager is out of the office or leaves the company.

Poorly managed payroll administration can also set you up for problems in the event of an audit or process review if it is not possible to provide complete pay records.

No one mentions payroll until if goes wrong, but when they do, the consequences can be dire

Systemic payroll errors are making the news headlines. Even those on salaries significantly above minimum wage don’t have a financial buffer great enough to compensate for errors made by their employer.

At any time, but specifically during a cost-of-living crisis, low-paid workers must be able to rely on their employer to pay them for the work they do.

Financial wellbeing is closely linked to people's income and employers who link financial wellbeing strategies to pay and benefits policies can help employees to gain more control over their finances.

This works to the benefit of the employer and employees. Companies seen to be investing in total employee wellbeing can boost their employer brand, more vital than ever now competition for staff is so fierce.

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