In today’s generation, we have a lot of companies and business firms in the market. This increases the competition among them. However, the companies will be successful only when the employees work diligently to earn profits. So, how do you motivate the employees to do their jobs correctly? The simple answer is to manage the payroll processing steps or payment structure in the favor of the employees. The employees mainly work in a company or business firm for money, which they get in terms of money or other allowances. Therefore, the employees must get what they deserve to work to fulfill the company’s needs.
Today’s world is driven by technology. One of the significant breakthroughs in technology is AI or Artificial intelligence. You must be thinking, how is AI related to all these business firms and payrolls? Well, the data generated by the business firms or the companies are stacked in a considerable amount. It leads to manual errors and is a tedious and time-consuming task. So, using artificial intelligence software in the company can significantly reduce the workload. Moreover, the data interpretation would be more accurate. We will discuss all these aspects in this article.
What is the Payroll process?
If we want to understand it in simpler terms, then payroll is the salary credited to the employees working for the company. It may sound like a simple process, but it is not as simple as it seems. There are several steps involved in payroll processing. The payroll process in India is structured in each company differently, but all of them abide by the laws that are the employment and labor laws.
The payroll management process involves several steps. If any department or member of a department wants to calculate the payroll and handle payroll processing, then the following steps must be followed:
- Giving unique ID – It is essential to give the employees unique identification numbers to keep track of their credited salaries or hourly work. The hourly work is mainly calculated in the case of workers. The hours need to be monitored in case of both employees and workers to give them compensation for their overtime work.
- Time estimation- The next step in this process is to collect the time information of the employees. The companies can record the number of hours the employees work. These days, many companies use biometrics systems to take the attendance of their employees and track their time of work so that addition or deduction from their salary can be done accurately.
- Gross pay calculation- After collecting the information on the time of employee’s working hours, the gross pay is computed. It includes the total salary or wages without any reduction. However, any person or department doing this calculation must remember that the calculation for hourly workers and other “salaried” employees is done differently. The bonuses, reimbursements, etc., must also be added to this.
- Deducting the taxes- The following process is calculating and deducting the taxes from the gross pay. Several taxes are involved, such as the Social Security tax, which is about 6.2%, state income tax, local income tax, region-specific tax, medicare tax, etc. It may include some other taxes depending on the state or changes in laws made by the central government.
- Employee deductions- The tax deduction is not the only deduction to be done. There are several other employment-related deductions, known as the “employee deductions.” It may include life insurance, health insurance, retirement plans, etc.
- Net pay calculations- The final step is to formulate an employee’s net pay. Calculating an employee’s net pay is straightforward by deducting the payroll taxes and other costs from the gross pay.
Net pay = Gross pay – (deductions such as taxes, insurance, job-related expenses, etc.)
- Approving the payroll- The next step in the payroll management process is to approve the payroll. The person or department managing the payroll must double-check the calculations before approving the payroll. Once the payroll is approved, the salaries will be credited, and payroll errors will lead to overpayment and underpayment of employees. This will reduce the trust of employees in the company.
- Payment –The next step is to pay the employees via a suitable payment method. It may be through cash, direct deposit, cheques, etc.
The Role of HR in the Payroll Management Process
In a company, several departments are involved, and all of the departments work in harmony for the company’s development. The departments may be involved in technical jobs, production jobs, designing jobs, etc. One such department which is mandatory in every company is the HR department. The HR department or the human resources department deals with the manpower of the company. The main job is to hire employees, take care of the requirements of the employees, do payroll management, etc.
The HR department has a significant role in the payroll management system. The employees in the HR department have the sole responsibility of calculating the payroll. It may be easier for the smaller companies to calculate the payroll manually. However, for larger firms, it becomes challenging. Bigger companies produce a considerable amount of data, which is difficult to manage manually.
Therefore, it becomes prone to human errors and, thus, increases the chance of payroll errors. This breaks the trust among the employees in case of errors, and the employees are the primary sufferers. Medium-sized, significant, and even small companies must manage their payroll data efficiently. This job can be done more efficiently by Artificial intelligence software. AI technology is imprinted in every aspect of our lives in today’s generation. Starting from smartwatches and smart TVs to smartphones. Therefore, the higher officials must think wisely and invest in AI software for payroll management.
What is Payroll automation and integration?
An integrated or automated payroll system is a constructive and more straightforward approach to managing a company’s payroll. When companies cannot manage a vast amount of data, including payroll, they opt for outsourcing. Outsourcing may involve the hiring of payroll processing services or payroll processing companies. It is an easier option to outsource, but it has many risks. First of all, employees’ sensitive data is given to external sources. Secondly, these outsourced services are costlier. Therefore, the best way to manage payroll inside the company with the help of existing resources is to opt for automation and integration of payroll.
The question here arises: what is automation, and how is it helpful? We can define automation as using software to calculate all the payments to be made to the employees. In today’s generation, we all are highly dependent on artificial intelligence. Artificial intelligence is software that makes your job easy as it calculates all the results based on the inputs.
Automated payroll software is designed to calculate and give you the required output. The output is based on input and data analysis. This reduces the burden on the company by eliminating the tasks to be done manually. The various steps involved in payroll processing can be automated by using software. Moreover, the need for manpower gets reduced for calculating the payroll. This workforce can be utilized in more operational and technical activities, thus benefiting the company or business.
The companies will raise the question of why to use software and its benefits. Also, they bring out some of the risks involved in using AI software, such as data privacy or hacking of the system. So, before adopting the software and making the payroll an automated and integrated system, it is essential to look at the pros and cons of manual methods and the same for the automated system.
Common errors made in the Payroll system
Before knowing about the benefits of the automated payroll system, let us discuss the common errors made in the manual handling of the payroll system.
- Mismanagement of data – As a large number of data is involved in the payroll system, the mismanagement of data is one of the most common mistakes. The files with the payroll system records may get misplaced, or the data of two different employees may get exchanged. This hampers payroll accuracy, and the employees don’t get the payment they deserve. Even if the errors are corrected before paying the employees, the salary may be credited later than the scheduled time. This discourages the employees and breaks their trust in the company.
- Miscalculations- Payroll contains a considerable amount of calculations. It includes several steps, as mentioned earlier in this article. The gross pay is calculated based on the type of employee in the company, their overtime hours, their bonuses or reimbursements, etc. Then, the required deductions are made, such as the various taxes, including income tax, state tax, central tax, etc. After that, the insurance money is also deducted, and finally, the net pay calculated is credited to the employee. If the employees do not get the desired money as they expect, they will get discouraged and won’t be able to give their hundred percent towards the company’s development.
- Errors in tracking time – The overtime money given to the workers or the employees to compensate for their hard work and a reward for contributing towards earning profits for the company. However, the overtime pay is based on the extra hours the employee has worked. Therefore, it becomes highly crucial to keep the accurate track of time. But if it is done manually, then errors are bound to happen. This will lead to overpayment or underpayment to the employees or the workers.
- Mismanagement of records – A record is maintained and kept in the office whenever a payment is made to the employee. Also, a receipt or proof of payment is given to the employee either online or offline. However, these records are prone to mishandling when done manually. Therefore, it is always advisable to use software to handle these types of errors efficiently.
- Higher costs – It may seem that the manual method of payroll automation is cheaper. Still, the truth is that if we consider all the factors, then it is comparatively expensive. Then, why do people still use the manual methods? It is because the people are more acquainted with the manual methods. They require proper training to adapt to the artificial methods.
- Risk of theft – The sensitive information stored in the paper records may be stolen or misplaced. However, if they are stored in the software or kept secure in an automated system with privacy lock features, such mishappenings can be prevented.
Benefits of Payroll Automation
As we have seen before, the manual method of payroll calculation has several disadvantages. Therefore, the companies are now more interested in investing in other options for payroll. They search for cheaper, more accessible options, take less time, and secure sensitive data more efficiently. The best answer to all these questions is payroll automation systems. If it becomes difficult to train the employees or there is a lack of resources, then payroll management companies provide several payroll management services. Outsourcing the payroll management system becomes the best option when there is a lack of resources for proper training or instalment of such software.
Before adopting any new technology, it is essential to understand the pros and cons of a particular technology. There are several software providing automated services. However, this software may often be used by people to steal sensitive information. Therefore, it is essential to understand the software and take the services from a renowned and trustworthy institution only
- Increase in efficiency – Software is more efficient in managing the data in size and accuracy. Whenever a considerable amount of data is generated, it becomes a big hassle to collect it manually. There are several cons of managing it manually, and the main drawbacks are human errors in calculation and mismanaging of data. The better option is to automate the payroll services and use data analysis to enter the data and get the output accordingly. The various predictive analytics are used by the software to calculate the data and provide the payroll services as required. It eliminates the risk of human errors. The output is more precise. It reduces the burden on the individual person to calculate the data manually. Moreover, it reduces administrative bias and increases overall efficiency.
- Comparatively cheaper – It is a common misconception among people that installing software and using software to manage payroll services is more expensive. However, in the long run, the use of AI is cheaper than using manpower for payroll management services. These costs can be redirected to other operational costs and benefit the company in the long run. However, it is very important to train the individuals before using software, or there is a risk of mismanagement of data. If a company pays the employees Rs. 40,000 per month to manage the HR payroll process, then payroll automation will comparatively reduce this cost. This is because the manpower required to handle the payroll process in HR is diminished. Only 2-3 trained individuals are required to operate the software and manage the payroll automation. In this way, the manpower could be used elsewhere.
- Accuracy – The genuineness of payroll services is based on accuracy. All the employees in a company desire to get the salary that they deserve based on their hard work and technical skills. Therefore, companies must understand the importance of payroll accuracy. It is known that errors are bound to happen when calculations are done manually. However, automated software will significantly reduce the risk of errors. It ensures precise calculations of payroll involving the estimation of gross pay, deducting taxes, etc. Also, the software can be set up so that payroll management is done by following the labor and employment laws. For example, calculating overtime pay depends on the laws given by the central or state government. The American Payroll Association’s research has shown that payroll error by automated systems is less than 2% as compared to manual errors i.e. 44%
- Faster approach – In an automated system, you must enter the details, and the output will be calculated automatically within a few seconds. You can also set up the software to show you the details of payments made to the employees. Also, the automated system keeps a record of all the payments made to the employees.
- Time tracking –We all know that the salary is credited to the employees depending on the number of hours they work. In the payroll process in HR, where every step is done manually, time tracking is also done manually. Another employee overlooks the number of hours worked by an employee. However, the person tracking the time may get distracted and put the wrong information about the working hours. This ultimately will lead to overpayment or underpayment to the employees. This causes losses both to the employees and the company. However, the integrated payroll automated system helps track the employees’ working hours correctly and calculate the compensation payment for the individuals.
- Flexibility- Automated systems for payroll provide flexibility to the companies to manage the data according to the number of employees. They can increase or ramp up the storage of data even in cases when there is a rapid rise in employees. For example, many software use cloud storage or any other DBMS (Database management system) to store the data. Whenever it is required to increase the storage, it’s just a matter of buying new licenses or more storage. This process is straightforward, unlike the manual methods where you have to look for more resources, such as record books, to maintain the records.
- Pay transparency – The persons involved in payroll services in the company may sometimes become biased and make wrong deductions that may act in favour of certain employees. However, if other employees know about this, they lose faith in the company. It would be unfair to the employees. However, when automated systems are used to calculate payroll services, money is distributed fairly, and fair compensation is given to all employees. This is known as pay transparency, which is being fair to all employees.
- Centralized database management system – An automated system is often a centralized database management system. This helps in creating a centralized database. It provides easy access to the database by the concerned individuals. All the operations can be handled on a single window or single software. It also helps in producing dashboards for individual employees. The AI software involved in the payroll services can also analyse forecasting of future costs. It also helps generate or formulate the increments for the employees in a particular month. It also helps to optimize the payouts for the employees.
- Data privacy – The payroll-related data and the employee-related data are very sensitive. Therefore, it becomes the company’s responsibility to provide complete security and confidentiality to such data. Using the centralized database and automated systems for payroll, we can ensure that only limited employees can access the data by proper authentication. Only the members in charge of managing the data can access the information.
Possible concerns about Payroll automated systems
We have so far discussed several benefits of using an automated payroll system. It proves that AI software and digitized systems are much more authentic and better than the manual method. However, some possible concerns are involved while using automated and integrated systems. They are discussed below:
- Hacking – The software provides the required security to all the data. Sometimes, ill people trying to harm the company or for their benefit may hack the system and get sensitive information. However, the techs have also come up with a solution for this. They have created safety features that provide double protection to the data and need authentication for access. It is difficult to hack or illegally get the information by crossing these protection measures. Even if someone can break through the layers of security, the company members are alarmed before any damage is caused to the information. Many times, the data gets self-deleted when tried to access through illegal methods.
- Impact on the manpower – As mentioned earlier, payroll service automation reduces manual tasks. So, what to do now with the manpower involved in the payroll system? This becomes a bit problematic for the company. Then, the company has to plan to train the people to work on different tasks. The training should be done correctly to adapt well to newer tasks.
- Technical training – As it includes software and digitized systems, it requires some training for the individuals to work with it. It is essential to helping the employees understand the basics of this automated system. However, if the employees start working with the software without proper training, it will lead to mishandling of data.
Automation and integration of data analysis
We have discussed before the importance of automation in the payroll process. The actual potential of an automated system is enhanced several times when integrated with data analysis. Data analysis or predictive analysis brings out the outputs based on the algorithms of the inputs. This is useful in understanding various trends of salaries based on the employees’ absenteeism, overtime, etc., which is based on real-time data. Moreover, such integrated systems can predict or forecast the money that is required to manage a particular workforce. The companies can relocate the workforce based on these forecasts to manage the economy of the company.
Automation and integration go hand in hand in enhancing the potential of each other. Integration with data analytics or predictive analytics improves the potential of automated systems in forecasting various future trends from historical data. In the same way, the real-time data that is entered into the system through integrated systems helps the data analysis to be more exact. Therefore, it is better to have both of them to improve the efficiency of payroll systems.
How to choose an automated system for the company?
Different companies have different demands depending on the employees of the company. Therefore, they can choose the automated system for their company based on their requirement. There are several software available in the market and several payroll management services provided by payroll management companies. However, there are some common facts that everyone must keep in mind before getting an automated system.
- Easier integration – it would be beneficial to choose an automated payroll system that can be easily integrated with a centralized database management system. It makes the job of keeping records easier. Moreover, all the data becomes available on a centralized database system.
- Customization – All the companies want a DBMS or automated payroll system, which is in favor of the company. Therefore, the companies choose a software or database management system that is easier to customize according to their needs. For example, if an automated system is suitable for a smaller number of employees and suddenly there is an upsurge in the employment of the company, then the storage can be increased by buying more licenses or buying more storage for the newer employees.
- Easier to use – No one wants to deal with complicated systems when it comes to the process of payroll. The payroll process is itself a complicated process; therefore, it is important that the automated system is easier to use. Otherwise, the automated system will produce more burdens instead of reducing them.
- Rules and regulation- The automated system must be featured or customized such that it complies with the local regulations and rules regarding wages, overtime compensation, taxes, etc. The software must be configured beforehand, abiding by these regulations.
- Security of data – The automated systems get sensitive data from the employees. Therefore, it is important to safeguard all this information. So, the automated system must have at least three layers of security and must require authentication to access the private data.
Frequently Asked Questions:
What is payroll processing in HR?
The working population has definitely come across the word payroll. In simple terms, it is defined as the salary credited to the employees working for the employee. The salary is first approved by the people in charge of calculating the payroll. The final payroll is paid after lots of calculations, including all the overtime compensation for the employees and the deduction of various taxes and insurance money, etc.
What is the advantage of adopting automated systems for payroll?
Payroll processing done in HR is not a very simple or easy task. The process is quite complicated, involving all types of calculations before deducing the final pay. When everything is done manually, errors are bound to happen. An automated system reduces the risk of errors and increases payroll accuracy. Moreover, payroll transparency and privacy are maintained. A huge amount of data is stored and managed effectively.
What are the future trends in payroll automation?
The following are some of the future trends that may be followed for payroll automation:
- Digital wallets – These are the new trend in the market. Integration of payroll automation with digital wallets would be helpful for secure transactions.
- Blockchain technology – It provides a platform to store the records of employees, calculate their taxes and reduce the risk of fraud or illegal access to sensitive information. It is a transparent platform, therefore, reduces biasness.
- AI and ML- Artificial intelligence and machine learning are the newer technologies in the market and are helpful in several tasks of the company, including payroll automation.
The future of a company lies in its technical backbone. Any company would require employees to function normally. Whenever employees are involved, a payroll system is needed. Normally, the HR department manages the payroll system, but there are several drawbacks to getting things done manually. It is important to strengthen the payroll system of a company to reduce errors and maintain payroll accuracy and compliance with rules and regulations. As everything in today’s generation is getting smarter these days using technology, why leave the payroll system behind bars? The best way to sort out all the problems regarding the manual tasks in the payroll system can be easily managed through automated payroll systems and predictive analysis. This technology is the future of payroll systems in the market, and it is always a smart choice to adopt it for the betterment of the company.