Use Analytics to Improve Your Company’s Year-End Approach

While most people consider the end of the year as one of the most wonderful times of the year because of the holiday season, for payroll professionals, it’s the most stressful time of the year. Payroll ‘s year-end can create anxiety and require extra-long hours of work. It will also be the most criticized time of the year and impact the most employees if not done correctly.

Payroll professionals are focused on finishing the year-end payroll, processing the first payroll of the new year, and completing Forms W-2. If your first reaction is to shudder at the thought, then it may also be time to look at how your organization approaches its year-end payroll process. Taking the time to evaluate your experience with year-end as it's happening will be a critical part in continuing to improve your organization's payroll approach.

To help you even while you're in the thick of all these activities, let’s address key analytical items to look for while you’re going through the year-end process. By doing this, you can determine what changes can be made to the process in the future, making for a more streamlined payroll year-end that sets the tone for continuous improvement each new year.

Why Payroll Analytics Are Critical

Payroll analytics play a crucial role in streamlining cash flow and improving a business’s profitability. The ill-conceived notion that payroll analytics are only for large corporations is far from the truth. Small businesses can also embrace payroll analytics to propel them to greater heights.

The basic idea is that an in-depth analysis of various aspects of payroll can help plan a future course, identify areas that are contributing an inordinate percentage of indirect labor costs, and tie company performance to individual groups or shifts. You cannot control all your payroll costs, but there are many that you can affect. The most important payroll analytics, therefore, are those that are within your ability to limit.

Payroll professionals do more than pay employees. They interact with other departments or supervisors; keep track of pay, benefits, and deductions; and keep management informed regarding pay-related statistics. The payroll professional is almost considered a “payroll technician” because they have the important role of understanding every line that appears on a pay statement and must be able to deconstruct it. Evaluating payroll operations requires measuring how well these diverse operations are carried out, but also making sure the indicators chosen for evaluation are specific and measurable. This way you can tell how well payroll is performing and can make improvements if necessary. Some of the specific, measurable indicators may include the following:

• Alignment: This is the process of matching payroll costs to company goals. If you operate a customer service center, or you are part of a HR shared service area and your goal is customer satisfaction, you must ensure staffing is sufficient to handle volume. Relating payroll costs to call volume, or identifying a particular shift with quality control problems, can help you make the adjustments needed to keep customers happy.
• Compliance: The federal government enforces strict guidelines regarding minimum wage and overtime. Some employees are exempt from these laws—primarily managers and professionals. If your payroll analysis shows that an electrician, for example, is classified as exempt and is not receiving overtime pay, you will need to question if the employee is set up in your time and attendance system properly as well as is classified correctly. Blue collar workers are rarely classified as exempt. The analysis you do may also show the reverse, such as a manager who regularly receives overtime pay. Naturally, you want to control your labor costs, but misclassifying and paying incorrect wages to an employee can be costly because of penalties.
• Keeping Records: Companies need internal records showing how much they have paid, how much they have withheld in taxes, and how much they deducted for each benefit. Payroll must have internal controls that reconcile the amounts deducted and the amounts paid out. For example, amounts deducted for taxes must equal the amounts reported to and paid to the respective governments. The goal is for these amounts to match exactly. Evaluate performance by checking the internal payroll reconciliation records to ensure they always match.
• Management Reporting: An important payroll function for management is to generate data for payroll statistics. While the accounting system can generally assemble the financial reports you need, the information related to salaries depends on data from payroll. The goal is to have such data be available quickly.
• Automation Opportunities: Are your HR, payroll, talent, time, and scheduling processes automated? Is it automated via a single system or via multiple systems? If you’re finding yourself manually checking your information, running reports by hand, or having to calculate a lot of the required formulas yourself, this may be an indication that it’s time to reevaluate your processes. Not only can these extra manual steps take the bulk of your time during year-end, but this could also lead to costly errors. While going through your manual processes, keep track of the following to see whether there are opportunities to automate based on your organization’s structure:

• Access to Other Data: The year-end process requires you to reach out to different departments that handle other aspects of the organization’s data required for year-end, like HR for benefits, that need to be incorporated. As you gather various pieces of information, such as PTO, health coverage, employee information, and other key areas, keep track of what data is readily available and what items were a little harder to find to add to your year-end processes.
• Length of Time: In addition to tracking down all of the information, also keep track of how long it takes to incorporate this information into your payroll records. Do you have a way of easily matching it up for each employee, or are you finding yourself having to create spreadsheets of your own? Having everything in one, easily accessible location can not only save you time, but also avoid errors that may need to be fixed later in the process.

Questions That Help Build Your Set of Analytics

Using payroll analytics as well as data analytic tools gives much needed insight into what payroll data is being processed, the time and efficiency measures being taken, and how to apply the data to streamline overall operations. Ask yourself these questions to help build the data you want your analytic tools to measure:

• How much time are you spending on each step of the payroll year-end process?
• How many tasks require you to manually enter information, or even consult paper resources, to get to the right results?
• Are you currently using any payroll technology tools to assist with your year-end processes, and are they helping or hindering you?
• Are you confident in the compliance status of your processes?

Use Analytics to Evaluate Compliance

Staying compliant throughout your entire year-end process will be crucial to saving time as well as avoiding costly errors. The IRS fines employers’ large penalties due to miscalculation or missing payments on tax documents. 

Between the simultaneous internal and external changes, it can be a lot to keep up with. In addition to evaluating the compliance of your year-end process, this is also a good time to evaluate your reoccurring payroll process as well. By having a seamless and automated payroll process all year, you’ll have less reconciliations to make during year-end. Many organizations have found that reducing the burden of regulatory compliance can be accomplished with the right payroll technology supporting your efforts and helping you track the ever-accelerating changes in this area.

PayrollOrg’s The Payroll Source^® and its other compliance publications, such as Guide to State Payroll Laws, are great tools to have on hand to refer to. In addition, while going through compliance-related steps, keep a close eye on the following questions when processing year-end and assisting in best practices:

• Are you easily able to access the forms you need? How much time is it taking to find them?
• Are you unsure of whether specific forms apply to your organization?
• How many errors, if any, are you encountering during year-end and throughout the year that require reconciliations?
• How are you keeping track of these errors through key performance indicators (KPIs) to ensure the correct reconciliations are being made? Do you need to report on them?
• Do you have all the information about your organization in one place that can then be imported into the forms you need as well as pay policies to refer to or union contracts?
• Do you have any supporting technology that can alert you when an error is made, or are there self-checks done along the way such as “warning pop-ups” and audit reports?

Automation, compliance, organization, and employee self-service—as well as support throughout the process—are all accessible through payroll technology. Investing in payroll technology that provides a seamless process can lead to more productivity and help you add greater value to the overall organization. Allowing your employees to have access to their information and the power to update it themselves will save you time and ensure accuracy. As you're going through your year-end process, make note of areas where you can save time by having your employees input their information through employee self-service.

Data Analytics Makes Year-End Less Stressful

Payroll year-end can be one of the most important times of the year, but it doesn’t need to be stressful (and certainly shouldn’t be handled alone). Ask yourself if you are leveraging the right data partnerships to succeed? Are you evaluating where optimizations can be made and using new advancements to provide you with the opportunity to streamline your year-end process? Make sure you're building the right data partnerships with other departments within your organization like HR, benefits, and operations, and outside your organization with technology providers to get the job done more efficiently, so you can focus on high-impact improvements.

It’s important that companies recognize the importance of payroll services, which must be led by a specialized team that not only processes salaries but knows all the legislation applicable and has resources to comply completely with the labor obligations. This also includes ensuring the correct information is reported to various agencies, such as the SSA and the IRS. This will be the moment you know you can provide an excellent service and not just be responsible for executing numbers.

Marie Esposito, CPP, is Director of Enterprise Payroll at The Heritage Group. She is also a member of PAYO’s Board of Contributing Writers.