Maximising payroll accuracy, whether in-house or outsourced, is critical. But benchmarking errors is the easy bit. It's the steps taken to prevent those errors and the manner with which they're dealt that determine stress levels in payroll teams. And some experts believe payroll professionals can use the information gained from accuracy measurement to contribute more to their employers - but they must push themselves forward to do so.
Kevin Page, payroll manager for Tyco Electronics, runs the payroll for 2,600 employees; his team inputs 5-20,000 items each month. 'Our error rate is less than 0.5 per cent,' he says. 'I analyse data across six categories - payroll input errors, HR input errors, incorrect data received, incorrect timesheets, data not received and system errors. You can over-complicate error analysis; this gives me enough information to correct problems.'
Error rates this low would be a tall order in most functions but payroll inaccuracies can create monumental management issues. Yvette Lamidey, technical adviser for IPP Consult, believes 0.5 per cent is the limit of acceptable errors but says some managers get too hung up about mistakes: ' I've met incredibly efficient payrollers who still make errors - after all, they're only human. And when you have hundreds of line managers sending data in, it's nonsense to think you'll get 100 per cent accuracy from them - never mind the payroll team.'
The main source of errors often lies outside payroll, with new or inattentive managers paying scant regard to procedures, despite the headaches inevitably caused when their staff are paid wrongly. 'The biggest problem for me is when managers forget to submit overtime or put data in the wrong columns on timesheets,' says Page. 'You can never eliminate these issues but we chase managers on deadline day, check submissions before inputting and send payslips in advance so that mistakes can be rectified by pay day. Errors affect morale; a number of our employees are paid around the minimum wage so they expect their pay to be correct and small omissions can make big differences. Our error analysis is issued to managers in HR and finance, which helps raise the profile of the payroll team and ensures buy-in from senior management, as no-one likes to be named and shamed.'
Concern over the ability of colleagues to get it right pales in comparison with the doubts many payroll managers have about outsourcers. Assumptions that accuracy levels will plummet once responsibility is handed over are widespread. This needn't be, though, according to Maria Mason, a director at Headcount Services, which processes over half a million payslips a year for 1200 companies: 'In-house payroll managers and board directors imagine outsourcing will cost more in time to fix errors than the costs they'll save operationally,' she says. 'Yet outsourcing allows them to gain more control through sophisticated reporting procedures and advanced technology that gives them complete access to the system. They don't realise that outsourcers can process payrolls much faster while actually reducing error rates.
'We can call on experience built up through managing payrolls for a host of organisations - experience that someone who's been running the same payroll for years doesn't have. Automating the data flow - for instance, integrating with HR or finance - means people don't have to input the same figures more than once, which improves speed and enhances accuracy.'
As service providers, outsourcers are always looking to streamline their processes and reduce errors; it's how they earn good margins. But many payroll managers believe their employer has unique challenges that would be difficult for an outsourcer to overcome. ' Our business is so complex that if we gave payroll to a third party, the lack of day-to-day contact with line managers would mean less understanding,' insists Page. 'Error rates would have to suffer. And because an outsourcer wouldn't be business-facing, there wouldn't be same incentive to care about getting things right. You have to know the people.'
It's how the customer-supplier relationship is managed that makes the difference, says Marcel Horst, operations director at outsourcer Ceridian: 'A good account manager should ensure everything goes smoothly. They should maintain an ongoing dialogue, hold monthly meetings, review accuracy and devise ways to improve processes - invariably, there will be opportunities for customers to advance things at their end. But it would be tricky to use error benchmarks to evaluate outsourcing options as you'd rarely be comparing like with like.'
'I've rarely come across an in-house team that has actually kept a long-term log of errors to compare with,' says Mason. 'But penalties can always be built in if a pre-agreed level of acceptable errors is breached.'
Lamidey says give and take is required: 'At the start of an outsourcing contract, there are learning curves on both sides; everyone needs to be more forgiving until things settle down. And like any relationship, openness and honesty about who made what mistake is something that gradually develops.'
Some may be willing to be convinced about outsourcing but draw the line at sending the payroll overseas. Headcount Services processes its clients' work in the UK , something which Mason says her clients insist on: 'The quality of data- keying is just a small part of their concern,' she says. 'Offshore providers often also don't have the expertise to comply with different national legislation, and employers can't afford to take risks with issues such as SSP or maternity pay.'
Ceridian provides both UK-based and offshore processing. Horst dismisses the view that British accuracy levels rule supreme: 'The theory is that people outside the UK lack experience or skill sets, and don't understand British legislation - but that's an easy blame,' he says. 'We've been processing UK payrolls in Mauritius for four years and recently conducted a four-month accuracy study, as there was a perception amongst our clients - and even our own UK-based staff - that the offshore operation wasn't up to much. We found little or no difference across all categories of error. Our managers travel extensively between here and Mauritius so there's ongoing training and constant knowledge transfer.'
Critics of offshoring say physical distances, as well as disparities in working hours and cultures, obstruct service standards and hamper error management - but solutions can be found: ' Time differences can actually work in favour of British organisations,' says Lamidey. 'Offshoring in Asia means processing can begin much earlier. And if problems do occur, conference calls and video conferencing can be used - you just need good communications in place, as well as account managers who are available during UK hours.'
Wherever processing is outsourced, accuracy levels will depend on universal buy-in, according to Mason: 'The outsourcer's key people must spend time in the business, meeting stakeholders and ensuring everyone understands the system and sees the benefits - especially those whose job roles are changing. You have to examine all current procedures and suggest how they could be changed to improve the overall process.'
Measuring accuracy levels gives payroll managers a handle on how well their staff or outsourcers are performing - but the intelligence they generate can be exploited for wider purposes, a trend Mason says is set to continue: 'Management information is critical,' she says. 'Alongside KPIs, you can examine issues such as the number of phone calls generated by errors, manual payments raised and where errors originated. This helps identify training needs, particularly when there are disparate functions contributing data.'
Employers are therefore increasingly asking outsourcers to deliver more than slick payroll processing: 'They're demanding more meaningful reporting,' says Lamidey. 'Outsourcers will use this to leverage their services in the future - demonstrating how they can innovate by providing over and above standard payroll services to help clients manage their business. They have to offer something distinctive and creative.'
Payroll's status is changing but not as fast as Lamidey would like: 'Payroll managers are sitting on a wealth of information and employers invest enormous amounts in systems but what about the extra value? Payroll professionals could be much more proactive but they frequently don't understand what management need to know - and management themselves often don't realise what information is available. Surely finance, HR and operations directors need to be looking at payroll in more depth?'
As companies strive to trim fat, payroll may hold the key to substantial bottom line improvements: 'Monitoring shouldn't just be about the cost of payroll inaccuracies and of the payroll function as a whole,' says Lamidey. 'It's about what payroll teams can return - in many organisations, they represent vast untapped resources.'
