A guide to procuring payroll services in a compliance environment

Imagine you were about to buy a car but you found out this particular model has a history of brakes failing. Nobody wants to push the brake pedal at a high speed corner, and have the pedal go all the way to the floor. You might even ask the salesperson “I hear these cars have a lot of problems with brakes”

Imagine your surprise to hear: “Brakes continue to be a challenge. But this car is simple to drive”.

If that car crashed for reasons that - you reckoned - looked suspiciously like brake failure, should that be your fault? Well in the payroll world, if you bought that car, odds are it’s your mess to clean up. Plenty of the country’s biggest employers have faced that reality in Holiday Pay debts.

Crashing a part of your business through seemingly no fault of your own is a scenario most employers would like to avoid. So what are you supposed to look out for, when it comes to choosing the many facets of a payroll solution?

The Business Case.

The biggest question is: what are the needs of the business? For all the simple and beautiful payroll software in the world, you have better things to do with your organisation’s valuable time than get stuck doing this task week-in week-out. The entire issue may boil down to: In-house versus Outsource. Outsource providers want to protect your time from this potentially-difficult task. By comparison, the self-service vendors are out to prove it wasn’t that difficult in the first place.

A lot of Kiwi businesses will use self-service in one way or another. A lot of those employers don’t properly scope their own internal costs to start with, so any potential move to an outsource provider seems like a huge jump in cost. “What does your payroll cost?” Most people’s knee-jerk reaction to that question would be to recite their subscription fee. Easy example: “$10 per person = $250 per month". Whilst that’s a part of it, most of what’s involved is the opportunity cost. If an employee's time should be billing at a (conservative) $100 an hour (or the investment in their salary should net a similar outcome for the business) then two hours a week spent doing payroll is nearly of $1,000 a month in lost revenue opportunity. Tack your $250 monthly payroll software subscription on that figure.

Unfortunately the business case for the alternative - outsourcing - hasn’t historically been very strong. They’re probably using one of the same tools you could get access to (with its’ many limitations), but just operating it faster than you can. The sales pitch often revolves around the fact that you’re “saving time”. But what you’re really doing is shifting time: like a kid pushing their veges around the plate, you’re not actually making the commitment disappear. You’re simply swapping three hours worth of wages and opportunity cost, for two hours worth of invoices.

The biggest upside to outsourcing is you don’t need to carry this payroll expertise in your organisation, which is especially valid given the upskilling required with imminent changes to the Holidays Act. Why be awesome at something for two hours a week? Give it to someone else who takes care of your work and simply ‘passes the hat around’ other clients, so that they can monetise that expertise.

Payroll Intelligence has broken that outsourcing stalemate, with Tempus Payroll, but that’s discussed as an appendix to this article.

The Groundwork.

When it comes to the Holidays Act, it’s almost impossible for any new payroll tool to instantly work, regardless of who’s driving it. Any employer will have to invest time, money, or simply run the risk that they’re starting off on the wrong foot. So what are you watching out for, in procurement?

Step Two (that’s right, Step Two): On-boarding:

We're explaining it back-to-front, because the logical step you leapt to, actually comes second. From day one of a new payroll tool you’re going to need huge volumes of information in order to pay staff correctly. Most of that important data is about the prior 12 months, and if the necessary information is trapped in your prior software then you’re stuck. Any new payroll tool is going to ask (or at least, it should ask) hundreds of questions and collect thousands of data points just to get you off to the right start. You can see why a lot of employers put this in the ‘too hard basket’ and accept the risk that comes with such a decision.

Even if you did that all that diligence: all you’ve done is feed your new system potentially poisoned data.

Step One: Assess the position.

The Holidays Act is all about momentum and it’s entirely plausible that your business is carrying some bad momentum right now: six years worth of microscopic cracks, sitting as-yet undiagnosed in your business. There’s no shame in that scenario - the same issues tripped up the largest and smartest employers in the country.

So before you even begin thinking about handover of data, are you sure your last 12 months of payroll were even executed correctly? Something as simple as leave balances; an employee can’t have “80 hours of Annual Leave” because that’s not how it gets measured. Your new payroll tool should reject that data, and you now have a strong sign that other historical things could be misaligned too. You need to verify where you’re meant to be, make the appropriate correction and then hand the corrected data over.

At Payroll Intelligence we extract just enough data to find that original ‘flight path’. It’s not about measuring how far off course you’ve gotten, we simply reset you to where you should be and point your nose in the right direction. Once you’ve gotten yourself on the right path, we then transfer that correct data across to your new environment.

It actually makes a lot of sense, when you think about it.

"Compliance".

You’re going to hear a lot about “Compliance”. Forgive us at Payroll Intelligence when we say that promises of compliance don’t count for much. We’ve attended too many payroll car crashes where supposedly-compliant software has left innocent employers scrambling for cash in order to top up their employees.

It could be argued it's simply a marketing buzzword that implies a tool ticks some arbitrary boxes, and it probably does. But does it tick all the boxes, or are there certain items “which continue to be a challenge”? You don’t care if the car is “simple to drive”, you want to know that the brakes work!

Here are five basics to watch out for, to make sure you’re not moving from one potentially-dud product to another.

Annual Holiday is managed in weeks. The balance of Entitlement down in the corner of any payslip should be in weeks. Don’t ever buckle on this. No matter how complex you think your requirements are, the software should be up to it.
Annual Leave doesn’t increase every payslip, it increases once a year. In units of weeks (probably four of them!). Ask to see a couple of payslips to make sure it’s not climbing payslip-on-payslip, giving you and your employees bogus data.
While you’re on the subject of Annual Holidays, have them show you how it’s calculating the rates of pay under the hood. What you’re looking for are two rates of pay. We won’t explain the acronyms right now, but it’s AWE and OWP. If they’re actually doing it, it should only be a click away.
Similarly, FBAPS (Family Violence Leave, Bereavement Leave, Alternative Holidays, Public Holidays, Sick Leave) are all legislated in days. No employee can ever take ‘8 hours’ of sick leave under the 2003 Holidays Act.
Get a look at Average Daily Pay: it’s a part of the 2003 Act and is an option for how you can pay those FBAPS days. You may not end up using ADP and for that reason many softwares don’t bother building it properly (or at all). But if you have got variable rosters (hospitality, healthcare, shift work etc.) or variable payments (commissions, overtime, penal rates etc) you’re probably going to need it!

If you see 5/5, you can feel comfortable in continuing to evaluate that tool for your business.

Conclusion.

The whole arena of payroll can be pretty unexciting to most Managers, but if you’re going to make a procurement decision you may as well make an informed one. Is it in the best interest of your business to keep this as an internal process, or is there an outsource option which can now genuinely add value?

You need to be aware of the momentum-based implications of historical pay, when rolling over to a new payroll provider: carrying out the arduous handover process is only any good if you are actually ingesting accurate data.

Be ruthless when it comes to “compliance”. If a payroll provider (software being sold to you, or an outsource partner showcasing their wares) is switched on to topics like Holiday Pay, they will be proud to explain how they met those standards. By comparison, if you hear a professional payroll entity saying “the Holidays Act continues to be a challenge” walking away now is a lot safer than reaching for the faulty brakes later.

Further Thoughts on Your Procurement Project.

Payroll Intelligence has released our own solution - Tempus Payroll. A solution that is such a quantum leap from anything else in the market, think of it as outsourcing the critical parts of your payroll activity. You - the employer - can keep your finger on the pulse, but you have the support of leading expertise and analytical technology.

It has been born out of payroll remediation: when an organisation’s efforts have gone so far off track, specialist intervention is required. We were those specialists. We thought “We’re only cleaning up these messes because the payroll technology and the users didn’t combine as they probably should have. There needs to be a better option.” So we sorted it.

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