Profit from Payroll - Building Capability

Reproduced with permission from the book, Profit from Payroll by Tracy Angwin, CEO, Australian Payroll Association

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Employee loyalty begins with employer loyalty. Your employees should know that if they do the job they were hired to do with a reasonable amount of competence and efficiency, you will support them. - Harvey Mackay

I often say that anything can go wrong in your organisation, but if you pay your staff late or incorrectly, that’s a disaster waiting to happen. It affects the morale of your employees and leads to a general mistrust and disrespect of the employer. 

One thing that is often overlooked in assessing a payroll function is an understanding of a payroll team’s capability. This is a combination of the skills, experience and problem solving ability of the members of the team. Without this it is difficult to plan a strategy for how payroll can deliver value to your organisation. 

Therefore, it’s critically important to understand the current capability of your payroll team. Historically this has been very difficult to measure and therefore manage, as payroll is not understood well by those not working in it. 

Essential to understanding capability is the often misunderstood myth that payroll experience equals payroll knowledge or capability. This couldn’t be further from the truth. I’ve seen many people with only a few years experience in payroll having much more knowledge and capability than their more senior colleagues. 

A person can claim to have 20 years experience and of course, it sounds impressive. But is 20 years experience the same as one years experience, repeated 20 times? Worse that that, are the same techniques, calculations, processes and service being delivered today as they were 20 years ago? 

I think there is a vast difference, particularly in the payroll industry. It’s the difference between someone working as a data entry level payroll processor versus a problem solving, value adding payroll professional. The two are completely different roles and provide remarkably different outcomes.

One of the reasons that payroll attracts such smart and dynamic people is that it’s always changing. If you aren’t up for a challenge and don’t like change, you aren’t likely to work in payroll very long. 

This is why many organisations find it so difficult to recruit payroll professionals with any level of confidence. Until recently there hasn’t even been any competency based qualifications that payroll professionals could complete to prove their capability. 

Over the years I’ve interviewed and worked with hundreds of payroll professionals with varied backgrounds and payroll experience. But how can you tell if their payroll experience equals payroll knowledge. In short you can’t. 

Most generalist recruiters are also unable to provide a tangible view on a payroll professional’s capability, other than their years of experience with different employers. It’s important that if you are using external recruiters you work with one that specialises in payroll and has the tools to test candidates on technical payroll competencies. 

As we know, the devil is the in the payroll detail. It’s the interpretation, the understanding of employment fundamentals such as how Fair Work and Modern Awards work together, the combination of events and data as well as the employment peculiarities that often trip up even experienced payroll professionals.

My clients tell us these types of assessments are vital to reduce the risk of employing the wrong person in a payroll job, which can be a costly mistake. 

One of our clients Julie, the payroll manager of a large transport company, recently recruited for a payroll role. She was inundated with resumes from people purporting to have many years of payroll experience, often in a sole charge positions. She got down to a shortlist of two candidates and decided to assess their payroll knowledge. 

Julie was astonished at the lack of payroll knowledge from both shortlisted candidates. Candidates that on paper looked like they had all the skills, competencies and experience needed to perform the role. They had both interviewed well, but until she formally tested their knowledge she didn’t realise that neither candidate came close to being suitable for her position. 

Payroll legislation, regulations and best practice are a moving target and continuous improvement needs to be high on the agenda of every payroll operation. 

Formal qualifications, functional payroll training and regular process and compliance reviews are essential to ensure an efficient and compliant payroll department. 

One of the key things that organisations are looking for from their payroll professionals is an assurance of competencies that relate to the payroll function and their job descriptions. Until recently there were no nationally accredited payroll qualifications as part of the Australian Qualifications Framework. This changed in January 2013 with the release of a Certificate IV in Payroll Administration and Diploma of Payroll Management, the first competency based payroll qualifications for Australian payroll professionals. 

We are now seeing those payroll professionals from entry level to those with over 35 years experience complete these qualifications to support their future careers. These students are those who take their careers seriously, and understand the value they can bring to an organisation’s payroll operation. 

Case study – How not understanding your payroll team capability can impact your bottom line 

To understand what damage payroll professionals that are unskilled and incompetent can do to an organisation, you only need to look to a medium sized community based organisation in Sydney. This organisation operates seven days a week and has approximately 400 employees working in the community. Approximately half the employees are casual.

Problem 

Sometimes it takes a change of internal personnel to realise a payroll operation has problems. This was the case at this organisation when an incoming human resources manager was concerned that her payroll manager was unable to provide accurate information about staffing levels and payroll costs. 

Although the HR manager didn’t have an in-depth understanding of the payroll function, she knew enough to understand that the more questions she asked, the more issues arose. She also found that her payroll manager either didn’t have in-depth payroll knowledge or was unable or unwilling to share it. 

The organisation’s payroll software provider could only provide advice regarding the setup of their payroll, not on the underlying regulations, legislation and industrial instruments they were working with. 

Action 

The HR manager decided that to identify where the issues were in payroll required a full Payroll Compliance Audit. This audit covered three main topics: 

1. Payroll compliance in relation to government legislation and industrial instruments used in the organisation; 
2. Ascertain knowledge base, capability and competency of payroll team of two; 
3. Put together an action plan to ensure payroll best practice going forward. 

Audit 

The payroll compliance audit identified errors in setup, calculations and processes and documented these along with steps to remediate them. Of course payroll is a discipline that involves humans, therefore even the best payroll teams can have errors in a payroll setup or process that cause overpayments. 

You’ll always be notified of underpayments, but employees will assume that any suspected overpayment is correct and therefore won’t bring it to payroll’s attention. 

Knowledge 

Both people in the payroll team completed an online Payroll Knowledge Assessment, which identifies payroll knowledge and capability across five key areas of payroll. It was determined that the payroll manager had a substandard level of knowledge and was unwilling to work to increase this. Therefore she was transferred out of the payroll department. 

Recruitment

This meant that the payroll team had no manager, so the HR manager enlisted the assistance of a specialist payroll recruitment service that worked with a select group of qualified candidates and provided a replacement that not only had the required capability, but was also culturally suitable for the organisation. 

Remediation 

The report which followed the payroll compliance audit outlined all the issues and steps to fix them that was needed in the payroll operation. The new payroll manager completed these tasks and the organisation has a fully compliant payroll operation. 

Savings 

With 200 casuals, even a relatively small error can add up to a huge saving. The payroll team had been incorrectly calculating the way that some casual payments were being paid when they worked on the weekends. This along with other errors that were fixed contributed to a saving of over $500,000 per annum. 

The CFO reported that as soon as the report was actioned, he saw an immediate reduction in staffing costs. 

These funds are now dedicated to providing respite and support services to those who need them in the community. 

It’s easy to see payroll as a function that just repeats itself each week, fortnight or month. Always delivered the same way as last payroll and the one before that. But there are many changes that happen in payroll every year, many minor but often making a material difference. 

The former payroll manager had been in her position for over 14 years. At over $500,000 overpayments per annum, this has added up to a material cost of overpayments that was totally unnecessary and made only because of the capability issue in the payroll team. 

If you don’t keep up to date with these changes and reflect them in your payroll processing, you may be needlessly spending money on administration that would be much better served on the problems that your organisation solves. 

To avoid such a situation in your organisation, what are the specific things you need to know in order to assess a payroll professional’s capability? 

Qualifications and training

 You wouldn’t visit a doctor that wasn’t qualified. So don’t risk the health of your payroll. 

At the very least, your payroll team need to have up to date knowledge of payroll legislation and regulations. The only way to determine this is to do a payroll knowledge assessment. 

Even if a payroll professional knows the ‘rules’, it’s often a case of assessing their ability to interpret a situation based on a combination of industrial agreements, the Fair Work Act and other Federal or State based considerations. 

There are many options for formal and informal payroll training. 

There are competency based qualifications available at Certificate IV and Diploma level as well as functional payroll training in both a classroom and online environment. 

Your team may also be in need of legislative or technical training. It’s important not to get these mixed up. Legislative training is more along the lines of functional or operational training that is about making the decisions required before you get to entering data into a payroll system. Technical training is gaining an understanding of how your payroll software works, what reporting you can get with it, how the setup is managed and other back end implications. Technical training is typically delivered by the software vendors. 

It’s important to stay close to your payroll software vendor as often updates and changes are made to the software without the clients realising. It’s very common for organisations to think that their software doesn’t have a particular functionality when it actually does, but it was hidden in a release note document that wasn’t read by the payroll team. 

Another form of informal training that I’ve seen to be very effective in the payroll industry is mentoring. This is a process of finding two people, matched perhaps by industry or location, who can learn from each other. The mentor learning leadership skills and the mentee getting a better understanding of all things payroll from the mentor. 

There are many forms of professional development available in the payroll industry to enable payroll professionals to network and learn from each other and the wider industry. 

These include annual conferences where delegates have access not only to a large range of speakers on technical and strategic payroll topics, but also to software vendors and other suppliers to the payroll industry. 

Many payroll software suppliers hold regular user group meetings which are also a very useful tool for continuous improvement and networking, all enhancing the capability of your payroll team. 

Not understanding the capability of your payroll team can be costly. Recently I worked with a large organisation that had come to the attention of Fair Work. They had underpaid a number of employees and following a Fair Work Audit were in line for a six figure fine. Because the payroll team were unskilled, they were genuinely unaware of the underpayments, so when it came to the attention of management it was a shock to all involved. 

The organisation wasn’t fined in the end, but it did cost them in time as well as consulting fees for my team to fix the problems and calculate the complicated backpays that were due. 

It’s important not only to have a continuous improvement program for your payroll process, but a continuous education program for your payroll team. Legislation changes at least annually, so at the very least you need to have third party support for your payroll function keeping you up to date as things change. 

Communication skills 

An often underestimated capability of a payroll professional is their ability to communicate. The best payroll professionals have strong communication skills and use these to work well with employees, leaving them with a belief that their pay is correct and in good hands. 

They can also communicate well with senior management and other stakeholders, understanding what information they require and delivering to those expectations. 

To do this well, payroll professionals need to be highly capable of communicating in both written and oral environments and have a good use of business English. In a blue collar environment, communicating with employees can be challenging, so being patient is also an important part of communication skills. 

Key points

Longevity of payroll experience isn’t always a good indicator of capability; 

Communication skills are key; 

There are many types of training options, choose a combination of those that work best for your team. 

Checklist

Understand the knowledge gaps in your payroll team; 

If you don’t have a continuous education program, put one in place for your payroll team; 

Talk to your payroll software supplier and make sure you have the notes for the latest software release.

Author note:

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