Have you ever heard the phrase “Pay me now or pay me later”?

Implementing and maintaining payroll systems is a bit like that. Let me explain.

Recently, I’ve been doing a lot of work with two particular payroll systems, one I’ll describe as having a more complex setup, the other a less complex setup. I don’t want to name these, as I’m only using them as examples and I don’t want to prejudice the system with the less complex payroll setup as being in any way an inferior product.

The characteristic I want to highlight as differentiating the level of complexity between these two systems is how earnings, deductions and benefits are added to employees.

In the relatively less complex system, earnings, deductions and benefits are added directly to the employees concerned. In other words, there is one system-wide list for each of these transaction types. When recording a new hire, payroll staff manually pick each applicable transaction from a single drop-down list. This step must be repeated for each earning, deduction or benefit applicable.

In relatively more complex systems, there are indirect ways to add earning, deduction or benefit transactions to employees. The typical scheme requires you first create “groups” out of the available earnings, deductions and benefits. For example, an employer may have separate classes of benefits for executives, senior managers, regular salary and hourly-paid employees. When recording a new hire, payroll staff only need to know which of these four classes applies. Selecting the “regular salary” benefits group attaches all the benefits needed for that type of employee.

This is where “pay me now or pay me later” comes in. One trade-off between relatively less and more complex payroll systems lies in the effort to configure and maintain of these systems.

In relatively more complex systems, employers invest more effort up front in determining the optimum configuration that will effectively support the similarities or differences between the various classes of employees. Getting this right will greatly reduce the time and effort required for new hires or employee transfers. Getting this wrong, however, can actually complicate these employee maintenance tasks.

Relatively less complex payroll systems can seem easier to implement. Less complex payroll systems don’t require the same effort up front to analyze requirements before setting up earnings, deductions or benefits and adding them to employees. If you’ve missed something initially, just configure and then add it where it’s needed.

An assessment of complexity is often taken into account when employers select new payroll, or payroll-related, systems. Smaller employers or those with less payroll complexity, often view negatively the greater implementation effort required in more complex systems.

However, what’s often overlooked is the greater ongoing maintenance effort that less complex payroll systems may require. Consider the example above of an employer with different earnings, deductions and benefits for salaried versus hourly-paid staff. Transferring an hourly-paid employee to a salaried position means more than just turning off the hourly wage and replacing it with a pay period or annual salary. In addition, each of the hourly earnings, benefits and deductions have to be identified, turned off and replaced with the set of their equivalents for salaried employees.

Not only is this more work, but there is also greater opportunity for clerical error. Experienced payroll staff know that each time you touch your payroll setup, that’s an opportunity to introduce error.

By contrast, it’s much easier if payroll staff just transfer an employee from the “hourly” group to the “salary” group. It’s not just a question of the number of entries that have to be made, but also of the level of operational knowledge required. If earnings, deductions and benefits are grouped based on key employee attributes, payroll staff need less knowledge when they process new hires or employee transfers. In systems that might be considered relatively less complex, this type of employee maintenance is actually more complex, as well as more prone to error.

The final point I would make is that relatively more complex payroll systems more or less require employers to analyze their requirements, before the system can be configured and employees can be added. That’s not a bad thing; that’s a good thing. Too often employers attempt to implement what they currently have in their existing payroll system, without considering how, or without the knowledge of how, their new system might be different. Ideally this analysis should be done before setting the criteria for selecting a new payroll system, however there is still time to do it during the actual implementation itself.

Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 25 years’ experience in all aspects of payroll. He can be reached at armcewen@shaw.ca or (250) 228-5280. If you like these articles, please sign up to my email list to be notified of future postings.

About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
Gallery | This entry was posted in Best Practices, Payroll / HR sofware and systems and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s