5 Ways Tech’s Improving Payroll Accuracy, Yet It Can Still be a Challenge

Even if payroll at your company is mostly handled by the finance department, it’s still up to HR to provide some oversight. After all, getting the required data right — such as employee salaries, hours worked and benefits deductions — each pay period requires input from multiple teams and alignment across systems.

John Pearce, the chief customer officer at global payroll provider CloudPay, said HR shouldn’t take the impact payroll can have on employee experience for granted. “Providing employees with a really top-notch pay experience can be a great business advantage. The opposite is paying people late or inaccurately, and that can really damage employee engagement and get you in all sorts of trouble and bring reputational damage,” he said.

No doubt, you’ve seen firsthand the increasing role that technology has been playing in improving the process of paying employees — reducing errors and therefore benefitting HR teams. Here’s some data to back that up: Problems with pay slips have fallen for the second consecutive year and the rate is now 35% lower than five years ago, according to the latest CloudPay Global Payroll Efficiency Index.

In addition, data input issues — the proportion of issues caused by mistakes in data input to all payroll issues — is down 1.1% year-over-year.

Here’s some of what tech is doing to make that all happen:

1. Automation of manual tasks: Modern payroll software reduces errors by automating manual processes, ensuring that employee information is always accurate and up-to-date.
2. Regular payroll audits: Conducting audits helps identify discrepancies and ensures compliance with tax laws, providing insights for continuous improvement in payroll processes.
3. A unified database: Using a single, secure database for payroll information reduces the risk of errors and provides a reliable source of truth for all payroll-related data.
4. Real-time data tracking: Automated time-tracking systems improve accuracy by eliminating manual errors and providing real-time updates on employee hours worked.
5. Self-service features: Employee self-service options allow staff to access their own payroll information, reducing inquiries and potential errors related to time tracking and pay discrepancies

Now the Bad News

While overall pay data accuracy is good, it could be better. The report found that almost two-thirds (63%) of all captured and corrected issues are caused by data input mistakes.

Commenting on workflow issues involving manual data entry, Grant Tasker, CloudPay’s senior director of global payroll, said in a press release, “It’s clear that more organizations need to automate their payroll processes. Leveraging the right technology will help companies obtain the accurate and timely pay processing they are looking for.”

In the U.S. specifically, payroll runs that are correct the first time, and don’t require any changes, happen 69% of the time. But compared to the 74% global average of first-time approvals, that’s behind the efficiency curve.

Part of that’s because the U.S. “is one of the most complex countries to run payroll in because you’re really running it in 50 different countries,” Pearce said, referring to the varying state tax regulations.

“You get this conundrum, where [in] some states you have to pay people on their last working day, and if you don’t, you’re going to get taken to court. So there’s a lot of instances where you have to go and correct something last-minute,” he said.

The Impact of AI

The report suggests that it may be difficult to make significant improvements in pay efficiency without further innovation. While AI is just starting to be adopted in the payroll tech space, it has the potential to elevate payroll to a strategic part of the business, supporting objectives related to employee retention and engagement.

Pearce said the latest HR tech on the market has come a long way because of HCM-payroll system integration and sophisticated pay anomaly detection that flags possible errors in advance and explains what’s wrong.

“HR systems, they like to be open to input and changes at any time. … A payroll system, at some point in time, has to freeze its data set and go into calculation mode. So what you need are those HR systems to constantly flow the data across as it’s being put in. But you need … a payroll system to allow in data that needs to be processed now [and] to hold in data that can wait for the next payroll run,” he said.

AI chatbots that are able to securely respond to employee questions about their pay can also make life easier for HR.

New Payroll Cycles

Another area where the technology is changing is mobile app-integrated, fluid pay cycles thanks to the growing popularity of earned wage access (especially among Gen Z workers), which grants workers access to their pay as it’s earned.

“I think on-demand pay is going to be the future of work. … In the whole employee benefits space, that’s going to be a must-have,” Pearce said.

What HR Can Do Right Now to Mitigate Pay Errors

Pearce recommended that HR pros strive for a stronger, transparent collaboration with their payroll team. If pay errors are becoming a problem, it’s time for a root-cause analysis of the process, technology and people involved.

If you’re not sure whether your payroll’s good, bad or in the middle, the CloudPay report contains some benchmarks.

He said it’s also important for HR to push back if senior leadership or employees suggest something that will add friction to the payroll process. “If they can be stronger at … explaining why it’s not a great idea to go and dump a load of new data into the payroll system an hour before we send the payment files out, then that helps the team focus on quality and timely delivery,” said Pearce.

Choosing a Software Partner

If your company is considering a new payroll software provider, several critical things must be taken into account:

1. Assessing current and future business needs. Consider the company’s growth trajectory and whether the new system can scale accordingly. For instance, if the business is expanding or diversifying its workforce, the payroll solution should be adaptable to handle increased complexity, such as varying compensation structures and compliance with different state regulations.
2. Integration capabilities. Ensure that the solution can integrate smoothly with existing HR, accounting and time-tracking systems. Disconnected systems can lead to manual data entry errors and inefficiencies. A platform that combines payroll with other HR functions can significantly enhance operational efficiency.
3. Compliance and security. The payroll provider should automatically update to reflect changes in tax laws and ensure compliance with federal, state and local regulations. This is crucial to avoid penalties and legal issues. Additionally, the security of sensitive employee data must be a priority, with robust measures in place to protect against breaches.
4. User experience and support. The software should be user-friendly, allowing for easy navigation. Good, responsive customer support is essential for resolving issues quickly and minimizing disruptions to payroll processing.
5. Features. Identify which features are non-negotiable, such as automated tax calculations, direct deposit capabilities, or the ability to manage various payment types (salaries, hourly wages, bonuses, etc.). Automation of repetitive tasks can save time and reduce errors, making it a critical factor in the selection process.
6. Cost considerations. Analyze the pricing structure of potential providers. Some may offer tiered pricing based on features, while others might charge a flat fee. Ensure that the chosen solution fits within the budget while still meeting the necessary requirements.
7. Vendor reputation and reviews. Look into the reputation of potential vendor partners by checking customer reviews and ratings (we recommend BetterBuys.com). This can provide insights into the reliability and performance of the software, as well as the quality of customer service offered.
8. Testing and feedback. Request demonstrations of the software and, if possible, trial periods to evaluate its functionality in real-world scenarios. Gather feedback from the HR team and other stakeholders involved in payroll processing to ensure it meets their needs.
9. Considering the long-term relationship with the provider. A good tech vendor should be able to provide updates and new features that enhance payroll processing capabilities over time.