The time to rethink SME payroll management is now

The ability to accurately remunerate employees is a business function that is often taken for granted. But National Payroll Day (19th July) marks an opportunity to recognise all of the hard work it takes to ensure Australians get paid correctly and on time– whether that be from your finance or HR departments, or for many SMEs, the business owners.

This year feels particularly pertinent, particularly with a number of challenges thrown at business leaders who are already battling to stay up to date with Industrial Relations (IR) reforms. And with just one month until Closing Loopholes Act No.2 comes into force, if there is ever a time to pause and reflect on how we can better manage payroll, it’s today.

Our recent research shows that two-fifths of Australian SMEs have admitted payroll errors in the past two years. Major Australian organisations and universities have already faced hefty fines for wage theft under the first Closing Loopholes Act, but for SMEs, the financial and reputational damage can be particularly devastating. It is crucial for small business leaders to take proactive action to ensure compliance with the new regulations.

So, what are the challenges SMEs face with their current systems – and more crucially, how can they go about fixing them?

The problem of accidental wage theft

One of the primary reasons for accidental wage theft is the reliance on manual data entry. Almost half (48%) of Australian small businesses still manually input employee data into their payroll systems, which significantly increases the risk of human error, leading to incorrect data entry and ultimately, payroll errors. These accidents can have huge consequences for your workforce - leading to underpayment - as well as resulting in financial discrepancies and legal challenges.

This is then exacerbated by repeating the process across multiple siloed systems. The majority (63%) of Australian businesses use three or more solutions to handle their HR and payroll, with more than a third (37%) using at least five solutions. The risk of an error occurring is significantly increased when syndicating employee data across multiple systems, making it difficult to keep employee records consistent and opening the door to inaccurate input.

Moreover, the complexity of payroll processes and the need to handle various types of employee compensation, benefits, and deductions further complicate the situation. Small businesses often lack the resources and expertise to manage these complexities efficiently, making them more susceptible to payroll errors.

Impact of IR Reforms

The introduction of IR reforms has added another layer of complexity to payroll management for SMEs. These reforms include major changes to workplace laws, such as the 'Same Job Same Pay' initiative, which aims to ensure fair compensation for all employees performing the same job. While these changes are intended to protect workers' rights, they also impose additional compliance obligations on businesses.

Common pain points for SMEs in adapting to IR reforms include keeping up with legislation and compliance obligations (40%), the length of time it takes to process payroll (34%), the cost per employee (24%), and the overall complexity of the new regulations (23%). These challenges can overwhelm small businesses, especially those with limited HR and payroll resources.

With our data finding that over half (52%) of respondents believe IR changes will add more complexity and stress to the payroll function, it’s little wonder that the majority (54%) are reassessing how they manage payroll due to IR reforms.

How to prepare

To navigate the complexities of IR reforms and ensure compliance, SMEs need to adopt a proactive approach to rehauling their payroll management system:

• Automation is a crucial step in reducing reliance on manual data entry and outdated systems. By automating payroll processes, SMEs can minimise the risk of human error, ensure data consistency, and streamline administrative tasks. Automated systems can handle calculations, tax withholdings, and benefits administration accurately and efficiently, freeing up HR and payroll teams to focus on more strategic activities.

• Centralisng payroll and HR systems is essential for maintaining data consistency and accuracy. Consolidating payroll and HR operations into a single platform allows businesses to create a uniform record for all employee data. Any changes made in one area are automatically synchronised across all connected systems, reducing the likelihood of errors and ensuring compliance with regulations.

• Staying informed about legislative changes and ensuring that payroll systems are updated to comply with new regulations is critical. SMEs should invest in payroll solutions that offer regular updates and compliance support. This can help businesses avoid costly fines and penalties associated with non-compliance. Additionally, providing ongoing training and resources for HR and payroll teams can enhance their ability to navigate complex regulations and ensure that payroll processes align with the latest legal requirements.

• Leveraging technology can further enhance the efficiency and accuracy of payroll management for SMEs. Cloud-based payroll solutions, for example, offer real-time access to payroll data, enabling businesses to make timely and informed decisions. These solutions often come with built-in compliance features, reducing the administrative burden on HR teams and ensuring that payroll processes adhere to legal standards.

Ultimately, National Payroll Day is an opportunity to celebrate our payroll heroes, and to reflect on the importance of good payroll management to lift some of the weight off their shoulders. By adopting centralised and automated payroll solutions, SMEs can reduce stress and workload for payroll professionals, improve overall operational efficiency and ensure compliance with evolving legislations. . Centralised solutions and advanced technologies can ease administrative burden on payroll professionals, helping position the business for long-term success in an increasingly regulated corporate environment.

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