Keys to a Successful Payroll System at the Office

Judah Hirsch
jhirsch@salarium.com
Founder & CEO

Most HR People in the Philippines spend about half of their lives in the office doing payroll. Because of this, it is quite logical to put a robust and effective payroll process in place. After all, payroll is one of the core processes any organization needs to function correctly. Here are some tips to create and manage a payroll system.

  1. Transparency: make the Payroll System known to all employees
    A solid Payroll Policy and Procedure rolled out and physically signed by every employee is an absolute must. Companies often forget to lay this out properly. Usually, payroll is just a small portion of the Employee Handbook, which is often overlooked. There should therefore be a separate Payroll Policy and Procedure document. The Payroll Policy must include all the relevant rules, deadlines and guidelines that every employee must follow for a seamless Payroll Process. A good Payroll Policy and Procedure document often includes Classification of Employees; Approvals and Authorizations; Time and Attendance Reporting; Payroll Adjustment and Changes; Paycheck and Payday Procedures and Reconciliation. Other topics it must cover are reimbursements, taxes, exemptions, mandatory contributions such as SSS, Pag-ibig and Philhealth, deadline on submission of pay requirements, promotion and appraisal, and government compliance.
  2. Automate Processes as Much as Possible
    Scientific calculators must never be used when doing payroll. Even Excel spreadsheets do not get the job done right. Statistics show that manual Payroll Processes such as these result in error 25% of the time. In addition, companies with manual Payroll Processes lose 13% more of their cash flow to payroll. The secret to a good Payroll Process is to rely very little on human input, as this is quite prone to error.In order to address this problem, it is advisable to get Payroll Software or a Payroll Service Provider. Payroll Software can be a very good investment. Payroll Software can be costly, but the overall impact to the business, especially with regard to time saved and mistakes avoided, usually makes up for it in the long run. Payroll Software can automate either specific, or all of the processes within the payroll cycle. It is then up to the company as to which Payroll Software to go for depending on the company’s needs and budget. Good Payroll Software typically charges on a monthly basis per employee and module. Payroll Service Providers, on the other hand, are usually consulting firms who do everything for you. They charge service fees depending on company size.
  3. Revisit and Improve Your Processes Often
    Checking and modifying processes is a very good practice in any line of business. Payroll Process is no exception to this rule. Payroll Process is a complex set of smaller processes, hence there are many variables that can go wrong all the time. Whether you use an automated or a manual process, processes must be thoroughly inspected and improved all the time. Even automated processes can have errors when human input is wrong. This may result in financial loss and even remittance mistakes.
  4. Be Strict on Execution
    Any good company Policy or Process must be strictly implemented. Payroll Policy is no different. The company must follow through with the execution of its policies. There must be no leniency or tolerance towards indifference or ignorance of Payroll Policy as this will kill the flow of the process and give HR a difficult time during paydays. In addition, being strict on execution will prevent time theft, which is a common occurrence in companies in the Philippines. This is when employees fake their hours, take unexplainable long breaks, spend hours on Facebook or the internet, or even do buddy punching, which is clocking in for a friend.
  5. Always be Informed
    Philippine Laws change all the time. It is very crucial for HR people doing payroll to be familiar with labor laws, especially those dealing with compensation, taxes, government contributions, fringe benefits and others. Also, it is quite important to note holidays in the Philippines. Holidays have different pay schemes, which can affect an employee’s pay if they are asked to work on that day. Also, best practices are usually shared by payroll experts on the internet, and it would not hurt to research these best practices.

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