Challenges in Payroll Processing: How To Resolve Issues?

Challenges in payroll processing how to resolve issue

Payroll management is a complex process that expects your HR team to consistently stay aware of the employee attendance and financial flow of the office. However, whether you are just starting out or in the business for a long time, these processes can easily take your focus away from the core business procedures. The reason behind this is the challenges in payroll processes.

While it may seem like an easy job to calculate payroll and dispatch salaries, it is not. In reality, there are various challenges in the payroll processing system. For example, higher costs, inaccuracy, non-compliance, etc.

In this article, we will discuss the impact of challenges in payroll processing along with the solution to mitigate these issues. Read on to start exploring payroll solutions for SMEs.

Steps Involved in Payroll Processing

Payroll processing is a process of the company that involves calculating the salaries of employees. This also includes deductions, tax calculations, bonuses, etc. The entire compensation structure of employees is found in payroll processing.

Here are the steps involved in payroll solution for large companies and SMEs:

        1. The first step is to have a payroll policy. Define how your payroll processing will work, including leave, attendance, and pay policies.
        2. The second step is to keep track of the inputs from various departments. For instance, attendance data, tax requirements, leave data, etc.
        3. Once you have the input for the payroll processing, you need to validate this input for accuracy and authenticity. For example, knowing the accurate number of unpaid leaves taken by an employee.
        4. After collecting this data, you need to calculate the payroll, including deductions and taxes.
        5. The calculations of payroll management are followed by compliance or statutory compliance, such as TDS, EPF, etc.
        6. Once the payroll is prepared, you need to record everything in your books for accurate accounting and management.
        7. The second last step is to dispatch payroll to employees and offer them payslips. This step includes management of employees’ account details.
        8. Finally, reporting of the payroll processing to ensure the health of the finance department. Keeping track of inaccuracies and other errors help you improve your structure in the future.

We can’t deny the fact that the entire process of payroll management is hectic and troublesome. Let’s see some challenges in payroll processing.

Common Challenges in Payroll Processing

Since the starting of this discussion, we have been talking about the challenges in payroll processing. What are these challenges in payroll management exactly? In this section, we will find out issues that plague payroll processing systems.


There are so many laws and regulations, including labor laws, state regulations, and statutory compliance. Following these regulations is not a choice, it is mandatory. But, missing compliance is not always a choice, many people just don’t understand complicated rules. This leads to compliance issues and heavy fines.


If we consider the case of compliance only, sometimes errors are made due to human issues. When a single employee is working on the payroll of 30 employees, errors are common. These are simple mistakes that happen during manual calculations. These errors sometimes lead to penalties and fines.

Time Management

Since there are so many complications in payroll processing, it is common for HR to delay the payment. Manual processes, compliance, taxes, and everything else require time. Calculating the payroll of every employee by hand can exhaust the employee which can lead to delays. When these delays happen, employees start getting frustrated, and your turnover increases.

Avoiding Most Common Payroll Management Challenges

If you were to avoid global payroll challenges, what would you do? To receive guidance on avoiding or eliminating payroll management challenges, check some common solutions below:


Calculating the pay of every employee of the organization manually is difficult! We can’t really argue with that. Even when you have multiple employees working on this, manual processes invite errors. Humans can’t calculate payroll as effectively as machines. This is why you need automated payroll to mitigate this issue.

However, we understand that using the latest tech or payroll processing system may not be the most budget-friendly decision. This is why another solution to use payroll processing solution for SMEs. This outsourcing solution gives you access to experts as well as offers you the latest tech and automation. Your calculations are accurate and simpler.

Missed Deadlines

When only one person is calculating payroll, delays are expected. If the business owner is looking after the core business function and also making payroll, they can delay or end up working more than expected. While one month this pattern is acceptable to even employees, a habit of delay is not widely appreciated. This is because every employee has some responsibilities that timely payroll can fulfill.

To overcome this issue, you need quick payroll processing, which needs expert professionals and skills. You can get this with a payroll management service. Outsourcing payroll management helps you avoid missing deadlines and pay your employees on time even when you are stuck with an important project. After all, your employees should also be offered timely payments after a difficult week of work.

Compliance Issues

Compliance challenges are one of the most crucial and damaging challenges in payroll processing. This is because you lose a lot of things:

      • Penalties and fines take away a lot of money from you. It even becomes necessary to correct errors at the earliest.
      • The business faces a reputational risk, as employees start seeing you from a negative perspective.

Compliance is complicated no matter how much time you spend on it. You simply need skills, experience, and expertise for this task.

If you hire one employee for the payroll, even they can make mistakes in compliance without guidance. You need an experienced person who can keep track of payroll rules and regulations, state-wise and other rules. This person should also understand the complexity of every rule and regulation.

However, the issue is that hiring such a person requires money – a lot of it.

A simpler solution is to use a payroll outsourcing service. You need to pay for the services you acquire and still receive the expertise of multiple industry leaders. Amazing, right?

Selecting the Right Payroll Solution for SMEs

Till now, you may be convinced to utilize a payroll solution for SMEs. But, how can you choose the right one?

We have some tips and tricks for you. Read on:

    1. The first thing to check is whether the payroll solution for SMEs is user-friendly or not. Moving from a paper-based system of payroll management to an advanced version of the same type of processing is not what we need. We need automation and quick responses.
    2. How easy is it to set up the outsourced payroll solution? For instance, with Paysqaure, you get quick results, a simpler setup, and amazing support from the team. You won’t even remember about payroll; that’s how efficient Paysquare is.
    3. The process of handling data security. Of course, payroll processing involves important data of employees. How well it is being secured and managed matters! Check the security architecture of the payroll management service. Are they using encryption to secure your files?
    4. Your payroll processing provider should help you with tax compliance. If you are not getting this support, you should not pay for this service. Therefore, check if you are getting support for tax, payroll, and other related compliance structures.
    5. You need regular reports to analyze your efforts and make effective business decisions. Ensure that analysis and reporting are included in your payroll management package.
    6. Is the service affordable? Now here, you need to pay extra attention. The payment or affordability of payroll processing service is not judged by just the pricing. Compare various vendors offering similar prices with the services being offered. Add to this their reviews to make the right decision. We need affordability with efficiency!
    7. When you are stuck with some complicated issue, what type of support do you get? Your payroll processing service should help with payroll-related tasks.
    8. Before paying for any payroll management service, ask for a free trial. This will help you analyze the service of the payroll company.


Payroll processing for SMEs is not a simple task, which can be handled in-house by one person without any hassle. There are a series of challenges in payroll processing that impact your accuracy and compliance structure. As a result, non-compliance penalties become a common affair.

In the above article, we have explored the solution to challenges in payroll processing. These challenges can be mitigated easily with a payroll processing service. Check how you can find the right payroll service provider and eliminate the challenges faced by your organization.

To utilize the payroll outsourcing services of Paysquare, visit our website and explore more about our solution.