The Role of Payroll in Employee Retention and Satisfaction

The Role of Payroll in Employee Retention and Satisfaction

Employees are the foundation stone for any company or business. The payroll procedure of a company is essential to retain employees. The HR department in a company plays a significant role in hiring employees. Employees are hired based on their talents and skills, which will benefit the company. As the employees are very carefully selected and hired by the HR department, it becomes crucial that the employees are willing to stay in the company for a long time. The payroll procedure must be perfect to ensure that the employees choose to stay in the company. The employees will work for the company only when it pays them handsomely. Therefore, the HR department must maintain a proper payroll system to check the salaries and credit them to the employees.

What is Payroll?

If we want to understand the importance of Payroll in the retention of employees, then we should first know the exact meaning of payroll. Payroll is the process of crediting salaries to the employees of a company via the HR department or any other group in charge of paying the employees. It may seem like a single-step process, but it includes multiple steps like tracking employees’ working hours, including their overtime, salary reduction for unpaid leaves, and many more.

Employee payroll is significant for employee retention. New employees may be hired if old ones leave. However, there are many demerits included in this process. Therefore, it becomes essential to deal appropriately with the employees so they don’t leave their jobs and diligently work for the company.

employee retention

Why is employee retention necessary?

As mentioned earlier, employee retention is integral to the company’s development. Employee satisfaction is the first step for the employees to work correctly for the company. Following are some of the points which highlight the importance of employee retention in the company:

Annual employee turnover –

If the current employees remain satisfied and perform their duties ideally, then the burden on the HR department for hiring new individuals decreases. However, if employees start to leave their jobs, then the HR department would be required to hire new people. The hiring of new individuals is a very tedious and lengthy job. In the current competitive situation among companies, skilled employees will choose the better option. Therefore, the company needs to ensure that this company is the best option for them by managing payroll. This reduces annual employee turnover. According to studies, in a 100-person organization, the average salary is Rs.1 lakh-2 lakh per person. Replacing the employees will result in a cost of 208 million for the company.

Comfortable with the work environment –

The employees already working in the environment know the company’s condition accurately. They understand the work environment better. However, if the experienced employees leave their jobs, freshers will be hired. The freshers would require some time to cope with the work environment. This may hamper the overall development of the company, primarily when a more significant mass of new individuals are recruited.

Better teamwork –

The experienced employees who have worked in the company for a long time have better teamwork. This improves the quality of project work.

Reduction of costs –

Hiring new individuals costs the company more money. The cost of hiring is inversely proportional to employee retention. Hiring costs will be reduced if more employees stay in the company. It gives a boost to the operational costs such as machinery, new projects, etc.

The Payroll Connection- Building trust and emotional aspect of payroll

Employee satisfaction is essential to making the employees stay in the company. Payroll is significant in keeping the employees interested in the work field. The payroll management is vital and must be adequately done by the HR department. If, in any case, the company cannot manage the payroll system, then the out-sourcing of payroll can also be done. However, outsourcing can be expensive.

Trust is crucial among the employees and the company for a better outcome for the company. This trust is mainly built up through the process of salary crediting. Therefore, the management of payroll becomes a very crucial task. It involves three significant steps:

  • Pre–payroll procedure: This includes giving an employee a unique identification code to avoid confusion among the employees and their salaries. Also, working hours and unpaid leaves are calculated. Moreover, the tax deduction is also calculated depending on the employee’s salary.
  • Actual payroll procedure: The salaries after all the deductions or additions are credited to the employees in the suitable payment method.
  • Post–payroll: The post-payroll procedure involves keeping records and giving receipts to the employees as proof of their payment.

It is essential to give the correct salaries to the employees. It acts as the driving factor and encourages them to work. If they are not credited sufficiently for their hard work, it will bring down their morale. They will not be able to work as efficiently as before. This will ultimately bring down the companies as the employees would be demotivated.


How to improve the Payroll Process?

As discussed earlier, payroll is the process of crediting salaries to the employees after the deduction or addition of all the relevant costs. In many companies, the payroll process is handled manually. However, the payroll management process becomes more efficient if AI software is used. It will reduce the burden on the HR department and do faster and more accurate calculations. Moreover, record-keeping is easier. You have to gather information and get a lot of data about a particular credit, person, or the number of credits done in that day, month, or year.

Following are some more tips for a proper management process that will help in employee satisfaction:

Accuracy of the payroll

Payroll accuracy is essential to determine the correct amount of salaries to be credited to the individuals. Small or medium-sized companies can set up a different group of people for maintaining the calculations, record of taxes, etc., for the employees. However, in larger business firms, it becomes a tedious task to maintain payroll accuracy, especially when it is done manually. Keeping in mind the importance of payroll accuracy, it becomes essential to hire an outsourcing agency to maintain payroll accuracy. However, the experts suggest that for more significant firms, it is better to adopt AI technology.

There are several advantages of using AI technology. Firstly, the records are maintained properly and accurately, avoiding all the mistakes that are prone to be caused by humans. Secondly, payroll transparency exists, and all the employees are treated equally.

Maintain records for everything –

Before or after crediting any salary, there should be proof or documentation of that transaction. It also helps to keep in check the payment status of all the employees. Also, the record must be maintained stating which employees are currently doing the job and which have left the job.

Outsourcing of payroll services –

The maintenance of records is a very tedious and time-consuming task. Therefore, it is suggested most of the time to use payroll software. If the management currently involved in the payroll services in the company is unable to deal with payroll software, then it is suggested to hire outsourcing for payroll services.

Train the HR department –

HR’s role in Payroll is crucial. However, the calculations done by the team members are very much susceptible to human errors. Often, these errors are caused by improper training or misunderstanding of the subject by the personnel. Therefore, training the HR department or the people in charge of payroll becomes essential to understand the concepts clearly. As HR’s role in payroll is vital, this training will help them to provide employee satisfaction.

Legal updates –

One of the essential HR roles in payroll is to remain updated on significant changes in tax or any legal updates in the labor or employment laws.

Payroll’s Impact on Employee Satisfaction

The input and output of a company are the two sides of the same coin. Therefore, it becomes essential to maintain a balance between both of them. The net profit of the company and the salaries credited to the employees must be such that the company gains an excellent net profit. But the main question is how does the payroll impact Employee satisfaction?

The simple answer to this question is that the salary credited to the employees is a driving force and encourages them to work further for the company. However, the payroll system is not appropriately maintained, and employees are not paid according to their hard work. In that case, employees will remain unsatisfied and leave the company whenever they get a better chance. Therefore, for employee retention in the company, employee satisfaction plays a key role.

Following are some of the points highlighting the relationship between payroll and employee satisfaction:

Payroll accuracy

The employees require payroll accuracy, which is possible only by an accurate payroll management process. According to studies, older employees may be slightly more tolerant of errors, but the younger generation does not want any errors. According to surveys, about 49% of employees leave the company after 2 or 3 payroll errors. The payroll errors may include late payment or lower payment. These payroll errors can lead to financial crises for the employees.

As a result, they may leave the job. If this happens in a large mass, the annual turnover costs will increase as there would be a need to replace the old employees with new freshers.

Payroll transparency

Payroll transparency is essential for maintaining a fair basis of crediting salary. In a clear sense, transparency means the laws or rules for overtime, paid leaves, etc., must be applicable equally to all employees. If there are unfair means of payroll practices, it will result in disputes among the employees, employees, and the HR department.

Timely salary credit

Many of the employees need to repay a variety of loans on time. Therefore, even little errors leading to late salary credit will lead to unsatisfied employees. The employees may face a financial crisis because of this and may ultimately leave the job if they get a better opportunity. Therefore, timely paying the employees is one of the most essential HR roles in payroll.

Rewards and competitive packages

If an employee or a worker does overtime, they deserve a reward. These rewards in the form of bonuses boost employee performance. It encourages the worker or employees to work harder and earn these bonuses. Also, it creates a positive competitive atmosphere among the employees in a company, and they start working harder to prove their ability. This results in the overall development of the company. The skilled workers and other employees are happy to stay in the company, which values their hard work and skills and rewards them.

Proper calculations of the payroll

All the calculations regarding payroll must be done carefully. It includes calculations such as base pay, overtime pay, reduction for unpaid leaves, compensation for maternity leaves, etc. Moreover, the taxes must also be deducted carefully from the salaries. However, these are very critical and, therefore, must be done carefully. Any error in such types of calculations may result in overpayment or underpayment of the employees. This will break the trust among the employees. Also, overpayment of employees will lead to loss in the company itself.

Building Employee loyalty through payroll practices

The companies will function normally and make a profit only when the employees are diligent in their work and loyal towards the work field. They must do their jobs with honesty and intelligence so that the company can gain profits. For example, suppose a person in the general manager post does not manage production and quality effectively. In that case, the products or services will have to undergo a downfall in either of them. The customers don’t want a product with lower quality. On the other hand, if quality is checked very strictly, then production decreases. As a result, the company would not be able to manage the loss and cope with the increase in demand.

From the above example, we can imply that the employees must do their jobs wisely and intelligently, showing their full potential towards work. To encourage the employees to work to their full potential towards the company, it is essential to build their trust. One of the best ways to build trust among the employees for the company is through payroll services. Paying the salary at the scheduled time is very important to motivate employees or workers. Moreover, the employees or workers must be given compensation for their overtime according to labor or employment laws. There are several ways to build employee trust and loyalty through payroll services. They are as follows:-

Communication :

The manager is the main link between the employees and the higher officials. Therefore, the manager must know how to communicate with the employees or workers and gain their trust so that they can convey the actual problems faced by them. These problems are then conveyed to the higher officials. They can tackle the issues and deal with them so that there is improvement in the work. If the company wants to gain the trust of its employees, then communication is the primary key to this. Moreover, trust is a two-way process. Once the company shows that the employees can trust them, then employees will also prove their trustworthiness to the company.

Clearly mention the rules and regulations :

In any company or business firm, there are some rules and regulations. These rules and regulations are based on several employment laws and labor laws. Also, the company may add some restrictions to maintain discipline in the work field. The employees must be made clear about the rules and regulations. This not only builds the trust of the workers or employees but also prevents future disputes regarding the various laws and the payroll process. Transparency and fairness are essential tools to build the trust of the employees.

Encouraging the employees :

Many times, it is observed that the higher officials show their superiority and try to suppress their juniors. It not only discourages them from working but also creates a tense atmosphere. They are not able to properly open up about the problems, and the problems gradually become more extensive. In the long run, these affect the outcomes of different projects. The boss should motivate the employees rather than suppress them. Teamwork is essential to bring maximum profits to the company. The superiors must also give their employees some challenges to fulfill. This will push the employees to work harder towards the goals.

Treat everyone equally :

One of the most common mistakes that superiors make in a company or a business firm is that they give preference to certain individuals. This game of playing “favorites” creates a negative impact on the employees. They get demotivated and lose faith in the company and other officials in the higher position. Therefore, equal opportunities must be given to everyone to show their talent and skills. In any case, if there is a fault in any project, then the whole group must be held responsible rather than scolding just one person. All these cases must be treated professionally rather than treating them personally. The superiors must not scold or badmouth their juniors. Instead, they must teach them how to tackle the problems and solve them strategically.

Get trained and learn good skills :

Before directing other employees to do their jobs, you must be thorough in your job. You must have a good idea about the various concepts of your department. For example, in a company that manufactures electrical appliances such as fans, there are three major departments: design, production, and quality. The people working in different departments must be thorough in their concepts and have a good knowledge of the various aspects involved in their department.

The general manager acting as head of all three departments must have general knowledge of handling each of these departments so that he can guide the junior employees accordingly. Moreover, the employees must be given training at regular intervals. It will improve their skills and make them acquainted with new technologies, rules or regulations. It will boost their confidence, and they can provide good quality work.

Transparency and Trust – Pillars of Employee Satisfaction

Why transparency and trust are very important for employee satisfaction? The main reason is that it builds employee satisfaction. As a result, it causes employee retention in the company and reduces overall employee turnover. This ultimately saves the cost of replacing the employees. This money can be utilized for the operational costs and also used in the training of the individuals.

As we know, trust is very important among a company’s employees or juniors and seniors. We have seen the significance of trust in the previous paragraphs. Therefore, we know the importance of trust. It motivates the employees to work. Motivation leads to discovering new paths to solve greater difficulties. Moreover, it helps the employees to work as a team to solve a particular problem. Different people have different skills; therefore, teamwork brings out an effective outcome. However, if there is no trust, then the project work becomes next to impossible. As we are already acquainted with the significance of trust, let us discuss transparency.

In simple terms, transparency means the fairness to be shown towards the employees. It means that all the employees or workers must be treated equally. Equal treatment or transparency involves many factors, such as faith in them in completing a task. The superiors must now show favoritism to a particular junior or colleague. It will result in a negative impact on other coworkers or junior employees. Also, the payroll services must be given with full transparency. The bonuses and benefits must be awarded equally to whoever does overtime and contributes towards a particular achievement in the company.

Strategies for enhancing payroll-related employment satisfaction

The most basic thing for employee retention is employee satisfaction. The most common way for employee satisfaction is by improving and scheduling a stable payroll management system. However, only focusing on payroll does not mean the monetary aspect only. It involves other reasons and facts that must be studied properly for employee retention and satisfaction. Some of the points which can be followed by the employers and the company staff for employee satisfaction are as follows:

Knowing the employees’ demands :

The first step in making profits and making the projects successful is understanding what the employees want. To make a project work successfully, several resources are required. It may be monetary help or manual help. Every project requires efficient teamwork and diligent team members. The group members must be skilled in various skills required to make the project a success.

For example, if a new type of fashionable cloth is to be introduced by a start-up company in the market, then several things are required. First is the good quality textile source, a person with a good understanding of quality, a designer, an economist to dot down all the points regarding efficient use of money, etc. Therefore, the employers or the company must understand the employee’s needs and provide them with the resources that they require so that they can do their jobs more efficiently.

Respect the employees:

All the companies pay their employees a good amount according to their work. However, the employees would choose a company to work where their talents and skills are respected. Getting praised by their seniors and colleagues would boost their confidence, and they can work more efficiently for the company. Sometimes, the seniors badmouth their juniors, which negatively impacts their will to work. They may not leave the job due to their financial condition, but they would not be willing to work, reducing their potential. Therefore, respecting the employees is essential to their willingness to work.

Payroll review :

As discussed earlier in this article, payroll is crucial to keep employees motivated. In many cases, it may happen that the employees are not happy with their payment and show discontent. The payroll structure and management system must be reviewed regularly in such a situation. It is important to take the feedback from the employees and review and reset the payroll system accordingly.

Payroll accuracy :

Studies show that errors in payroll discourage employees. About 49% of the young generation of employees tend to leave their jobs after two or three errors in payroll. Therefore, it becomes crucial to handle the payroll system more efficiently. It highlights the weak points of the company and shows organizational instability. This breaks the trust of employees, and they tend to leave their jobs as soon as possible. It is common in larger firms as such a huge amount of data is managed. It is prone to manual errors as maintaining the record and calculations is lengthy and tedious. One of the best solutions is investing in AI software for payroll management. Also, the companies can hire an outsource to manage such type of data.

Acknowledging even small successes :

One achieves success with great dedication and hard work. Therefore, if someone praises them or acknowledges their hard work and success, it will motivate them to work further. It creates a positive and motivated work environment for the individuals. They strive to work even better for the company, and as a result, the company gets higher profits and success in several project works.

Provide new opportunities :

The different individuals in a company must be given different goals according to their skill and technical knowledge. Newer opportunities will challenge their technical skills and push them forward to create new solutions to persistent problems in the market.

Provide Job security :

The employees must feel secure about their jobs. They must not live in the fear of losing their jobs randomly. If they feel more secure about their jobs, they will invest their time, skills, and technical knowledge in a more efficient way to reap benefits from the current resources.

Frequently Asked Questions

Ques – How can payroll be structured to meet individual needs?

Ans – Payroll means the payment or salary credited to the employees or the workers based on their jobs. The Payroll is calculated based on several factors, such as leaves taken by the individual, overtime done by the individual, etc. These are calculated depending on individual employees and thus keep in mind the individual needs.

Ques – How does payroll play an important role in retaining employees?

Ans – The main factor involved in employee retention is the way they are treated in the company and their payroll. Suppose the individuals get the money that they deserve based on their hard work, skills, and technical knowledge. In that case, it will lead to employee satisfaction, and they will be willing to work for the company for a longer duration.

Ques – Why is it essential for payroll to be accurate and consistent?

Ans – Payroll, in simple terms, means the salary. The salary is the driving force that keeps the employees motivated to do their jobs. What if they don’t get their salaries on time or get underpaid? The answer is that they will leave their jobs and search for new companies with better opportunities. Therefore, it is important to keep the payroll accurate and consistent to build the trust of the employees.

Ques – What is the connection between job satisfaction and compensation?

Ans – Employee compensation mainly emphasizes the rewards and bonuses that the employees

deserve. It is important to acknowledge the successes earned by the employees. They should be rewarded with bonuses for their overtime work. Also, they must be rewarded for their hard work and success in a newer project. This keeps the employees motivated to continue their work with sincerity and showcase their talents and skills for the company’s development.


Workers and employees are the foundation stones for any company or business firm. Therefore, it is very important to keep their interest in mind and help them to realize their potential. They will be encouraged to work for the company only when they get a safe workplace and are assured about the payroll services. Employee retention is very important to prevent a higher annual employee turnover rate. This is possible only when the employees are satisfied and work to their full potential for the company.