Payroll management is a crucial aspect of any well-run organisation. It is an administrative function that is indirectly linked to the success of an organisation. When the importance of payroll management is overlooked or negatively impacted for some reasons, the short- and long-term effects on the organisation can be detrimental.

Let’s explore the risks associated with poor payroll management.

Poor employer reputation

Late salary payments to employees or mishandling of employees’ personal information and payroll details can undermine the trust between the employer and employees. This may leave the organisation’s reputation in tatters if these incidents become increasingly frequent. Given the proliferation of review sites such as Glassdoor, unhappy employees can easily voice their unhappiness or complaints. When word gets out that a particular organisation has consistently poor payroll management, they are likely to be perceived as unreliable.

Inability to motivate employees

Poor payroll processes can have a detrimental effect on employees’ morale. According to research by The Access Group, over a third of payroll managers (39%) today view payroll as a key driver of engagement and retention. And for a very good reason too. Late or inaccurate salary payments can result in employees questioning the robustness and effectiveness of their existing payroll process. Employees are likely to feel disengaged and even consider leaving the organisation if they are unable to be paid on time or accurately.

Difficulty in hiring and retaining talents

If organisations struggle to retain employees because of poor payroll management, this may in turn impact the organisation’s ability to hire and retain talent. When an organisation is unable to pay its employees timely and accurately, this creates a negative workplace environment and reputation for the organisation. Potential candidates certainly do not want to be part of an organisation that is unable to afford paying its employees on-time, much less be associated with an organisation with a poor reputation.

Waste of time, money and resources

Payroll is an organisation’s biggest expense. Having a poor payroll management system can be extremely costly to the organisation. After all, erroneous payments, late tax filings or non-compliance to payroll regulations can result in hefty fines on the organisation. Rectifying these payroll errors require a lot of time and resources, leading to increased workloads on the HR team. It can result in dissatisfaction among employees in the long-run.

Delivering timely payslips to employees is certainly no easy feat. Organisations definitely need to invest time and resources to train the payroll team to be able to handle and manage payroll processes effectively. An alternative solution is to outsource certain parts or the entire payroll function to an external payroll vendor. Leaving the organisation’s payroll function in the hands of a payroll specialist team can potentially reduce the likelihood and frequency of inaccurate and late salary payments. Ultimately, it is critical to review existing payroll processes from time to time to determine what works best for the organisation and its employees.

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