Set Up Processes, Controls to Maintain Organization, Compliance

As managers, leaders, and payroll specialists, we all understand the importance of compliance checks in payroll processes and departments. But how do we craft a systematic, auditable approach to the tasks at hand?

If you are a one- or two-person payroll department, it is important that you are managed no differently than a larger payroll department serving potentially tens of thousands of employees. You still need to have consistent processes and controls in place to eliminate fraud and ensure compliance with regulations. That can be hard when you don’t have the luxury of organizing your own data and days to get payroll done accurately and timely.

So, what do we do? How should our departments and processes be set up to ensure we are payroll compliant no matter the size of the payroll department?

Standardize Processes

A well-run payroll department will balance efficiency, accuracy, and legal compliance in its day-to-day operations. Standardize your processes by doing the following:

• Document workflows for every task. Only when you have consistent processes can you uncover the root cause of a breakdown and mitigate the resulting errors. Document every task you perform as a flow chart. Identifying decision trees will quickly alert you to potential holes in your process or identify redundant processes. Review your workflows annually to ensure they account for changes you made in your processes or systems.
• Define clear roles and responsibilities. Identify which team member is responsible for the various parts of the process and communicate who is responsible for what so that everyone is on the same page. Set deliverables as to when various steps are to be completed and where the data moves to next in the process chain. Don’t forget to include in the workflow what happens if that chain is broken, the rules of responsibility, and how you recover.
• Have SOPs for all functions. Be sure to design and use standard operating procedures (SOPs) for audits, banking updates, corrections, employee self-service, garnishment, onboarding, offboarding, timesheet approvals, and so on.

Centralize Data Management

Where does your employee data reside? Who is responsible for maintaining that data and who is responsible for auditing its accuracy? Centralize your data management by following these steps:

• Maintain a sole source of truth for the employee data
• Ensure all members of the team understand and utilize filing, sharing, and naming procedures in common
• Archive and review payroll records retention rules so you can complete audits to ensure your team is in compliance with where and how to store the data

Improve Technology, Automation

Technological improvements in payroll systems can enhance accuracy and enable your department to concentrate on strategic tasks. Implement technological shortcuts by doing the following:

• Set up application programming interfaces (API) to move data through various stages of the payroll processes, enabling employee self-service (ESS), time tracking software, benefits, and garnishments systems to communicate
• Automate calculations for taxes and their resulting filings, and remember to audit January 1 changes to ensure your calculations are correct
• Set up alerts for compliance changes or missing data
• Roll out electronic pay statements and Forms W-2, where possible; create software “nudges” or alerts to remind your team to review employee contact information before sending

Set Up Internal Controls

Strong internal controls are your best tool for preserving process integrity and your best defense against fraud. Reinforce your internal controls by doing the following:

• Control your payroll narrative by reviewing the tools auditors will use to audit your department. Highlight processes and control steps in the documentation they will read. Have everything reviewed by your controller or finance leader for an internal audit before your external auditors review it and find deficiencies.
• Institute segregation of duties. The person entering the data should not be the person auditing and approving the data.
• Require multiple approvals for payroll runs. Senior leaders should have the final approval; however, that review is not the same as the detailed review a supervisor or manager would necessarily perform. Define what steps are completed at each stage of payroll approval, who is responsible, and require sign-off and acknowledgement when each step is completed.
• Create and use audit logs to track changes for positions, rates, hours, other income, etc. Leverage this in the audit process to ensure no changes were missed.

Best Practices for a High-Performing Payroll Department

High-performing payroll teams become that way by remaining vigilant. Review the following to ensure you’re using all available best practices:

• Run a pre-payroll audit validating hours worked and classification of hours, new hires, terminations, and rate changes. Perhaps review benefit changes and garnishments, too.
• Compare historical payroll results from the last pay cycle to this one. Identify swings in totals; look for reasonableness.
• Review for ghost employees, banking changes that may not be legitimate, and identical social security numbers or addresses
• Compare payroll results to general ledger (GL) entries. Validate GL account balances to identify missing payments or potential overpayments.
• Audit tax filings and deposits. If using a tax preparer, validate the returns and request proof of deposits from an agency—not a preparer.

Payroll Compliance

In this era of fast-paced change and increased worker mobility, stay on top of compliance by doing the following:

• Review minimum wage laws by state and locality. Ensure your overtime calculations include the correct regular rate of pay both at federal and state level. Review exempt and nonexempt classifications, state pay frequency and lag time rules, and meal and rest period requirements at the state level.
• Hand calculate tax withholding periodically to ensure systems are working as anticipated. Verify the timeliness of deposits with the agency. Make sure annual returns are filed accurately and timely. Confirm that your systems have updated tax tables, as changes happen throughout the year.
• Protect sensitive employee information such as social security numbers, date of birth, and banking information. Follow data security standards regarding protection, encryption, and multifactor authentication (MFA). Comply with privacy laws—such as the California Consumer Privacy Act (CCPA) and the European Union’s General Data Protection Regulation (GDPR)—where applicable.

Continuing Education

Finally, continuing education will keep your team prepared for the future. Consider the following ways to proactively grow your team’s knowledge:

• Join PayrollOrg and participate with your local chapter to keep abreast of changes in legislation
• Attend payroll classes to fine-tune your skills and grow your career
• Partner with other payroll professionals to share thoughts and ideas on how to achieve your department’s goals and deliverables

Improving payroll organization and compliance is not a one-time task—it is an ongoing commitment. Start by tightening processes and enhancing internal controls.

Ensure you are using the right technology to support your operational needs. With a thoughtful approach, your payroll team, regardless of how big or small, can build a system that remains accurate, secure, and adaptable as your company grows.

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Cari Breitinger, CPP, is Director of HRIS and Payroll at BELFOR Property Restoration. She is Co-Chair of PayrollOrg’s Strategic Payroll Leadership Task Force (SPLTF) Best Practices and Emerging Technologies Subcommittees, has been a guest on PayrollOrg’s “PayTalk” Podcast®, and is a member of the Board of Contributing Writers, the Government Relations Task Force (GRTF) Child Support and Garnishments Subcommittees, and the SPLTF Global Payroll and Shared Services Subcommittees.