Experience is a legitimate path to becoming a competent and reliable payroll professional. It also means each individual will develop their own idiosyncratic processes that help them perform the task as efficiently as possible.
However, payroll regulations aren’t idiosyncratic. And tax authorities won’t let an excuse of “that’s just how we do things here” protect a company found to be non-compliant.
This article highlights red flags that indicate whether or not your payroll is compliant.
1. Using manual or paper-based systems
If your payroll team insists on using paper or manual processes you should consider this a red flag. You might be presented with a variety of reasons why this is a good idea, such as “it’s what the payroll team is used to,” or “we have a ‘flow’ going”, to the old chestnut “there’s no budget for upgrading”.
Payroll software exists because manual processes are more likely to cause mistakes. That’s not to say that paper-based processes are guaranteed to fail. However, payroll software was designed to minimise human error, so choosing the best software that fits your company’s needs helps to ensure accurate results.
Manual systems can overload payroll and HR teams, and the extra work creates more chances of human error. Keeping up with changing payroll regulations also takes time, and technology can help keep your team across the latest rules.
Regularly miscalculating overtime or attendance can result in employees being paid incorrectly, and this can contribute to an overall sense of dissatisfaction in the workplace.
2. Not being aware of regulatory changes
It can be exhausting for businesses to comply with an ever-increasing wave of legislation — particularly when it comes to payroll.
Significant accounting regulatory changes don’t happen often, but payroll-relevant changes happen frequently.
If your payroll team isn’t keeping up with these changes, your organisation not only risks hefty back payments, but there may also be penalties. Payroll teams need to be aware of regulations that impact:
- Sick leave and family leave.
- Employee privacy.
- Hiring and terminations.
- Workplace health and safety.
- Overtime and bonuses.
- Anti-discrimination and anti-harassment.
In New Zealand, the Holidays Act 2003 has been especially tough for payroll teams. Using software to inform you about the basic requirements is a good start. But software doesn’t guarantee compliance; it only minimises the risk of non-compliance.
3. Classifying employees incorrectly
If your workforce has diverse contract types and work patterns, classifying employees becomes even more of a challenge. These differences make the payroll landscape more challenging, and reinforce the importance of checking — and double-checking — that employee information is correct and current.
A fast-growing business, with a number of contractors to help with its expansion, can be particularly vulnerable when classifying employees. The New Zealand government has rules for independent contractors that are different from employees. It may help to think of contractors as a one-person business selling their services to your company.
This is also why HR and payroll teams must be symbiotic. If the payroll team isn’t given the correct onboarding information about a new employee, then their classification may be incorrect, leading to issues with things like student loan repayments, ACC levies, and KiwiSaver.
Failure to keep adequate records can cause issues down the road. But it’s not always the employee’s fault if they don’t provide the correct documentation. Employers and payroll teams are responsible for asking the right questions to get the right information.
4. Missing tax filing deadlines and deposit dates
This is a great way to get the attention of auditors. Even if the reason is completely benign, tax authorities don’t know that, and could assume the worst — even prompting an investigation to figure out what’s happening.
Not hitting deadlines is also a signal to managers that something isn’t quite right with the payroll system. Payroll rules are supposed to inform what you should do and when you should comply.
5. Mixed messages from the top
It happens a lot. A manager is under pressure from their superiors to ‘get things done’. And, rather than dealing with that pressure, they push it onto the payroll team by asking them to fast-track a new hire. The payroll team gathers the basic information, assuming the rest will come later.
A few months pass, and everyone is caught up in other projects. The employee’s details are only now entered into the payroll system, creating a domino effect of non-compliance.
It may be hard to remember when the pressure is high, but managers should keep in mind that following the correct path of compliance from the very start — even if it takes a little longer — will save time and money later.
Ultimately, the solution for most non-compliance issues is accredited payroll experts using suitable payroll software. Having technology do the heavy lifting by remembering dates and deadlines, or by prompting the payroll team to ask for crucial information, can avoid a lot of heartbreak.
But, even with the best payroll software, there will always be a need for humans to double-check that everything is compliant. After all, the penalties for non-compliance will affect your company, not the software.
For over thirty years, Affinity has been a trusted partner for mid-market and enterprise businesses in Australia and New Zealand, empowering them to transform their payroll operations. With a focus on turning payroll from a cost into an asset, we have established ourselves as industry leaders in delivering innovative cloud-based payroll software and exceptional payroll services.