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August 03, 2020

Seven Payroll Weaknesses Exposed by COVID-19 and How to Fix Them

By Kelley Rousayne, Global Time to Pay Advisory Practice Leader, The Hackett Group

Responding to the COVID-19 crisis has put organizations to the test, and payroll was no exception. World-class organizations with strong business continuity plans and a high level of automation have been able to react faster and more efficiently than their peers, who relied upon individual acts of heroism to get the job done.

The crisis exposed seven weaknesses that we can all learn from. If not addressed, these shortcomings could hinder efforts to fully restore operations and adapt to the new demands of next normal:

 

1. Outdated business continuity plans

Few organizations were fully prepared for the pandemic. Most business continuity plans (BCP) focused on a single site or application outage, not a worldwide crisis. As a result, many payroll organizations scrambled to implement the hardware, software and VPN bandwidth needed for remote working without pre-testing the execution. They also faced unanticipated tasks such as creating new leave, sick time and furlough codes and integrating this data with third-party systems.

Recommendations:

  • Update BCPs to include various incidents types and create scenario-based plans, including global pandemics, cyberattacks, regional closures and longer-term outages.
  • Have global payroll process owners evaluate the payroll BCP as a regular part of quarterly governance meetings to ensure that all processes are considered, including payroll processing, distribution, tax filings and payments.
  • Schedule an annual test of the BCP, including working remotely. Consider doing a companywide test to ensure the technology is fully vetted.
  • Review options to transfer data and processes to alternative centers or locations. Ensure the plan accounts for General Data Protection Regulation (GDPR) and Personal Identifiable Information (PII) guidelines.
  • Review work-from-home policies and ensure that employees have the right tools and technology to work remotely, such as laptops, dual monitors, VPN and internet bandwidth, and security software.
  • Review the BCPs of payroll and workforce management vendors to make sure any specific requirements are part of the statement of work, including the ability of vendor employees to work remotely.

 

2. No global payroll strategy

The lack of a well thought out strategy for managing payroll globally inhibited the ability to respond quickly to the sudden, worldwide emergence of COVID-19. Decision-making is slower when there is no single, global payroll process owner. Complex organizational structures and geographic dispersion of staff impeded information flows. Non-standardized and undocumented processes inhibited rapid action. Large numbers of vendors increased coordination complexity and the risk that BCPs are out of sync.

Recommendations:

  • Identify a global owner for payroll and workforce management.
  • Review global payroll management strategy to identify opportunities to move from local processing to regional shared service centers or global business services model.
  • Develop a business case to reduce the number of payroll vendors. Include BCP risks in consideration, not just cost.
  • Where possible, streamline processes so global teams can execute with consistent quality.
  • Create a global workforce management strategy to ensure that all employee punch and attendance data is stored in a centralized location.

 

3. Low level of process automation

Payroll organizations with manual processes found it difficult to work remotely, while those with documented processes and higher levels of automation were able to quickly adapt. Organizations with strategic vendor relationships were better positioned to leverage economies of scale, evaluate end-to-end payroll process improvement opportunities and enable technologies (e.g., robotic process automation and workflow management systems) to reduce manual processing, such as handling leave requests

Recommendations:

  • Identify where employee self-service, workflow technology and smart automation can transform manual transactional processes and create a road map to guide their implementation.
  • Consider all forms of smart automation for potential use in payroll, including optical character recognition (OCR), robotic process automation, chatbots and artificial intelligence (AI).
  • Use mobile-enabled self-service to allow employees to perform tasks such as requests for time off, timecard review, schedule updates and shift coverage.
  • Seek the help of payroll vendors to automate payroll calculation and distribution activities.
  • Partner with workforce management vendors to automate time collection, scheduling and approvals.

 

4. Lack of digitization

Payroll organizations processing high volumes of paper documentation and mail requiring on-premises staff found it difficult to shift to a remote working environment. For example, garnishment notices mailed to an office location must be collected and manually scanned or processed.

Recommendations:

  • Review processes that require paper forms, including tax filings, and digitize them via electronic workflows and smart automation.
  • Paper mail received from external sources, such as garnishments and other tax forms, should be considered when evaluating possible improvements to the end-to-end process. Consider OCR and other services to receive and digitize paper mailings.
  • Work with local and state agencies to submit tax payments and filings electronically.
  • Encourage employees to switch from paper to electronic payments, including pay cards, on-demand pay and pay stubs, where allowable by law.
  • Implement global workforce management tools to collect time and eliminate manual timesheets.

 

5. Slow response to compliance changes

Global payroll is complex, and systems need to be compliant with local, state and country regulations. Governments around the globe responded to the pandemic with new laws and revisions to existing policies to soften the impact of the crisis on the workforce. Payroll companies had to adjust pay policies and update their systems. Monitoring and testing these changes increased workloads and complexity.

Furthermore, payroll organizations had to address company initiatives (e.g., new coding for shift differential pay, hazard pay and furlough) through system updates and configuration. Changes to payroll and workforce management systems had to be made, requiring testing to ensure the accuracy of payroll.

Recommendations:

  • Document and map processes for changing compliance and completing configuration within payroll systems.
  • Review how payroll staff receive compliance changes through email communications, publications or information service subscriptions.
  • Review vendor processes for updating and maintaining system compliance.
  • Identify critical testing steps and review automated testing tools to decrease test time and documentation. Include number of pay cycles in the required testing.
  • Minimize the number of pay cycles and processes to be executed by the payroll operations team.
  • Create standard test scripts to ensure minimal testing requirements are met.

 

6. Poor data quality

Payroll leaders struggled to provide real-time employee data due to the lack of a global payroll data management strategy and disparate payroll systems. Low-quality, unharmonized data and manual data compilation processes prevented timely reporting. As a result, many executives were not able to react swiftly and make timely business decisions.

Recommendations:

  • Institute a global payroll and workforce data management process.
  • Create a global payroll reporting and analytics strategy to provide dashboards and critical reports.
  • Minimize the number of vendors and databases for payroll information and harmonize data across them.
  • Use existing analytics platforms and centers of excellence within the organization. If one does not exist, consider establishing a center of excellence to manage cross-functional global data and analytics so scarce skills can be leveraged companywide.
  • Review the policy and process for fulfilling data requests to ensure security, PII restrictions and GDPR requirements are met.
  • Use predictive analytics to develop workforce cost and productivity scenarios.

 

7. Single-person dependencies

The pandemic underscored how difficult it is to meet payroll execution deadlines amid scarcities of skills and coverage for key processes. For example, many organizations saw an increase in the volume of unemployment claims. Teams that did not have cross-trained staff or automation struggled to keep up. The lack of proper documentation in electronic format made it difficult for others to assist with volume fluctuations.

Recommendations:

  • Complete a coverage assessment to identify single-person dependencies and opportunities for cross training to benefit the overall payroll operation.
  • Create a plan to build subject matter expertise within the team.
  • Complete a skills assessment and identify payroll competencies and business skills needed.
  • Create customized training plans for employees.
  • Update virtual training capabilities.
  • Ensure all desktop procedures are available in electronic format and saved to a secure, shared location that can be accessed remotely.
  • Consider automation and digitization skills training as part of the overall global time-to-pay training strategy.

I hope you find these observations and recommendations helpful as your organization transitions into the next normal. For additional insights, visit our Coronavirus Response Center