20 Payroll Issues for the Manufacturing Industry


For every industry, there are different pay scales for various roles. The manufacturing sector has many different sections in organizations like machine operators, management, packers, shippers, and many others who have different pay scales. Based on the varying rate calculations, the expertise of the workers under the same group and expertise required to produce a certain component in the manufacturing industry can bring many different pay scales that are not easy to tackle at a human level. To establish a working payroll system in the manufacturing industry, it is essential first to understand the main challenges or payroll issues faced by the industry. 

20 payroll issues for the manufacturing industry

Payroll Issues

The following is the list of challenges faced by the organizations in manufacturing industries

  1. Compliance:

    The first and foremost issue faced by any manufacturing organization is that the payroll system it adopts should comply with the laws of the land. Also, they should incorporate the requirements of the employees for long term association with them. In today’s time, Good Corporate Governance has become one of the top priorities for any organization. The department that handles the payroll in any organization, especially in manufacturing, has to keep an eye on the regulations and legislation that often change. The payroll process that a company adopts should have a system to incorporate any minor or major change in the legislation to ensure compliance.

  2. Accuracy:

    There are so many factors that affect the pay scale of the employees, even in the same department in the manufacturing sector, that there are chances of errors. In the case of manual payroll management, the chances of errors are higher than in an automated system.

  3. Costing of a payroll system and its up-grades :

    When a company adopts a payroll system or upgrades the current payroll system, the cost involved is one of the major payroll issues faced in the process. The company has to keep in mind that the cost of the payroll system is affordable, and the upgrades are available at a fraction of the cost.

  4. Security and privacy:

    A leak in the payroll database can cause dearly for the company. It can affect the value of the whole business. It is crucial to choose a payroll system that has robust security.

  5. Taxation:

    It is the responsibility of the companies in the manufacturing industry to deduct any taxes before making any payments to the employees. The tax department makes regular changes to ensure the better economic health of the nation. Such changes need to be incorporated in the payroll system before the deadline to ensure compliance with the laws to avoid any penalties and additional work.

  6. Payroll burden distribution in small and medium enterprises:

    When it comes to small and medium-sized enterprises, there is no designated department to manage the payroll, and the responsibility is often on the shoulders of the HR or finance department. Such responsibilities can put a lot of pressure on these departments, which need to be avoided for better productivity. The best solution here is to outsource the payroll process or use advanced technology for payroll. The main issue even with an automated system is that the system still needs people to enter basic information and then double-check for accuracy manually.

  7. Union payments:

    There are unions in every manufacturing industry that need to be reported regularly about the payroll. This additional layer of reporting is one of the significant payroll issues faced by the companies as they have the generate reports based on the requirements of these unions as decided under the contract between the unions and the company.

  8. Access to self-service:

    Some services take a lot of time for the payroll department to manage, such as pay-slips. As the regulations related to payroll and taxation frequently change in the manufacturing industry, pay-slips’ information change with them. Thus, every time an employee needs to check the pay-slip, he has to contact the payroll department. A self-service option dedicated to such needs can reduce the burden on the payroll department. Choosing one of the top payroll companies can provide you the much-needed self-service section in payroll management.

  9. Real-time reporting:

    With changing norms and fast-growing industries, the need for real-time reporting has baffled the industry’s payroll experts. Without a specialized payroll department, it is next to impossible to comply with such demands.

  10. Optimizing payroll, according to state-level regulations:

    Different states demand different regulations as well. These regulations can disrupt the payroll system, especially when a manufacturing unit starts to send products from one state to another. Based on the location, the minimum wages are different. For example, the salary of a manager in tier-1 city will be different from the manager in tier-2 or tier-3 city. 

  11. Compliance with international norms:

    Export is an important part of the manufacturing industry. It is essential for the payroll system to have compliance with the international taxation norms imposed by the country of operations.

  12. Keeping up-to-date with the norms in terms of employment:

    Every country of operations has its import and export laws, which make payroll management a nightmare for large organizations. Many manufacturing industries have their local offices in other countries where they have to incorporate the bylaws of the land related to import and export in the payroll system. If you are sending someone to manage the office from your base country, it will affect the pay scale drastically. Also, when you send teams for training to other countries, they have to be paid for travel, accommodation and other facilities which again needs to be incorporated in the payroll system.

  13. Software limitations:

    If you are using payroll software, it can become one of your major payroll issues because of its limitations. When a company starts its manufacturing unit, the growth mainly depends on the demand for the product in the market. With time, when the company grows or starts to export the products to other countries, the software has to be capable of incorporating multiple legislations and regulations. Depending on the capabilities, the cost varies drastically, and in general, the companies opt for low-cost software if they have no plans to go international any time soon in the future. However, if the company starts to get international orders, the low-cost software becomes valueless.

  14. Overtime calculations:

    In both local and international payroll systems, the amount that you need to pay the employees for overtime has to incorporated carefully. In some locations, while moonlighting pays as much as the regular working hours, you have to pay almost 1.5 times the regular amount you pay per hour. Thus the payroll system should be capable of recording and managing overtime accordingly.

  15. Allowances:

    Every company in the manufacturing industry pays allowance based on the regulations set by the government and by the management of the company. The amount varies depending on the profits and government regulations, and it can be different for one manufacturing unit in one city from the manufacturing group in another town in the same company. The payroll system should be capable of calculating the allowances based on the location.

  16. Selecting more than one payroll service:

    Relying on only one system can become an overload, or in case of a disaster that can be natural, technical, or man-made, the whole payroll management can crumble down quickly. Thus it is generally advised to have at least two payroll management locations intact. Such disasters are one of the significant payroll issues faced by the manufacturing units and can be stabilized by outsourcing the payroll system.

  17. Undervaluing the payroll department:

    One of the most common misconceptions about payroll management in India is that it is just about making the payments. Your whole business can fall just because you fail to comply with one single regulation, which can result in the imposition of huge penalties on your company. In many companies, payroll managers are not well trained and do not have the required knowledge about the regulations and legislation for local manufacturing units and international offices. To make sure you comply with all the norms, it is essential to have a dedicated team for payroll management, which can be achieved by option for payroll services. 

  18. Analyzing and optimizing payrolls:

    In many cases, the manufacturing units end up paying much more than it should have been because of the regular overtime the employees are doing. The payroll system should be able to track such inconsistencies and alert the management. If the payroll system can report a higher amount of overtime payments, the management can decide on hiring new employees on a contract basis for the additional working hours. Such reporting can have a massive impact on the profits of the company.

  19. Getting the right Key Performance Indicators or KPIs:

    If we compare the local and global payroll operations, they have the same structure in most of the cases. The main difference between the payroll management at the local and international levels is the reporting inclusive of country and region-based factors. While the manufacturing companies that have to deal only with the local regulations can opt for a simpler KPIs, the manufacturing companies that export the products to different countries should have the KPIs incorporated in the payroll system that can track the performance by including every country and region.

  20. Outsourcing:

    There are a lot of payroll issues that need attention in every manufacturing industry. The in-house payroll departments can create a whole new level of chaos, especially when the people you have hired do not have the appropriate knowledge about the regulations. Thus several companies have now started to opt for outsourcing the services for managing complex payroll operations. While choosing one of the top payroll companies to outsource your payroll system, you have to be very careful and should prefer to choose an industry-specific expert that has specialization in manufacturing services. The company of your choice should be able to track job hours, calculate compensations, issue payroll certificates, comply with the local and international laws, and able to manage taxes at the base level. 

Addressing the issues is important 

Although the payroll management in India is almost similar to the local and international levels for manufacturing units, there are some key factors that make them different from other industries. Every state and country has some specific regulations in terms of minimum wages, employee contracts, benefits, taxes, and other regulations. The payroll system should be able to incorporate applicable legislation and adopt the new regulations as soon as they come into effect. 

In many cases, the in-house payroll departments are not qualified enough to manage all the burden and workload. A lot of companies nowadays prefer to outsource payroll management to expert companies. It is essential to choose the payroll service providers who specialize in the industry your company belongs to so that it is much easier to comply with every law applicable on the payrolls.