Categories
On Demand Payroll Payroll Trends

Common Payroll Errors and How They Can Be Addressed

  • It takes a payroll department an average of two days to resolve a payroll irregularity.
  • Payroll errors often start with other operations and processing, and payroll departments have to catch and fix them.
  • The many moving parts of payroll means more areas of exposure to mistakes.
  • Most errors start with mistakes and problems entering time and timekeeping.
  • Recent payroll technology, when applied, has a side-effect of reducing timekeeping errors.    

Making fixes and adjustments to pay, tax amounts or for other deductions or rewards after payday signifies something failed in the payroll process. We know this is the case, even though, many times, what ends up being labeled as a payroll error starts with other operations and not the payroll department. 

But, payroll is left to resolve the issue, after the fact. 

It takes an average of more than two days for payroll to resolve a payroll irregularity or error, according to a 2019 Bloomberg Tax & Accounting report of payroll issues. According to the 2020 Deloitte Payroll Benchmarking Survey, respondents named the payroll error rate as the number one key performance indicator for payroll operations. For example, just the process of issuing a payroll error or communication takes time and resources.

How Most Errors Begin

There are several areas of payroll that, without proper processes and oversight, can end up causing payroll professionals to stop, research, identify, resolve and then correct. 

The many moving parts of the payroll process means the practice often is exposed to mistakes. These include errors in calculations and in wage payments, and incorrect or delayed changes for employees, plus mistakes made in tax payments and withholding amounts.

The major area that always seems to come up centers on the timekeeping process. The Bloomberg Tax & Accounting report showed that only 83.35% of survey respondents reported having clean time collection runs. 

There are several reasons that accurate recording of work hours is more prone to problems than any other aspect of payroll.

First, there is an inherent reliance on the ability of employees to follow the proper procedures for recording their time. 

It’s great to have each person responsible for clocking in and out of each shift, or to have them ensure time off work is properly and timely reported. Employee self-service programs should make this easier as well. Yet so many — and this includes their supervisors, who often must sign off on time recorded — continue not to pay enough attention to do it right.

Second, time collection systems vary in their ability to keep track of real time worked. Often, in professional circles, those who have to report time using a computer interface have hours included by default, and it is up to them to make adjustments for any additional time worked or time off, and also to categorize those exceptions to the standard hours embedded in the system. 

Other self-service interfaces allow workers to input their daily time for each day at the end of the pay cycle, and, for many, this means no time worked is ever recorded until the last day of that cycle. The person has zero hours until they interface with the system and add them. 

Manual time clocks are now connected to systems that, in some cases, won’t allow a worker to clock in or out outside of the hours they are scheduled to work. Special permissions are needed to have those hours recorded. According to the Fair Labor Standards Act, employees are to be paid for all time they work, and employers have been in trouble with the Labor Department for allowing workers to perform duties “off-the-clock.”  

Finally, and again, primarily with manual time clocks, people can forget to clock out after a shift, or after a lunch break, they forget to clock back in. These anomalies occur frequently, making this initial part of the payroll experience for workers the most fraught for mistakes. Supervisors need to intervene, and payroll likely can get a record of time worked that is not accurate to start processing.

Because they occur before payroll can be processed, time-worked discrepancies, if identified, need to be resolved and this can slow the kick-off of what would otherwise be a smooth calculation and remittance process. 

So what can employers do to mitigate the challenges of collecting and accumulating actual time worked for employees? 

Recently, there have been reports of improved timekeeping due to the implementation of employer integrated earned wage access, or on-demand pay programs. This is because under some larger third-party on-demand pay programs, in order for workers to have amounts available to access prior to payday, they must complete the clock-in and -out process. 

If they fail to clock out, or clock back in, as noted above, there will be no amount recorded as earned for that day and nothing will be accessible to them on-demand, until it is resolved. 

Employers using such systems have seen a marked improvement in this area, with the payroll team noting these initial discrepancies have fallen off for those that use the earned wage access program. 

As technology improves, systems like those supporting on-demand pay are becoming more sophisticated, and some are now used for specific payment-related reporting that can catch not only the failure-to-clock-out issue, but others. Stay tuned.     

PYD

Resources: 

Bloomberg Tax & Accounting, 2019 Payroll Benchmarks Survey Report 

Deloitte Payroll Benchmarking Survey Sponsored by the American Payroll Association and the Global Payroll Management Institute, 2020 

DailyPay.com, Case Study, Starboard Management Group, 2021

Categories
On Demand Payroll

How Does the CFPB’s Earned Wage Access Guidance Impact Payroll?

  • Understanding on-demand pay/earned wage access for payroll purposes 
  • Why are employers and employees seeking this payment option?
  • New guidance distinguishes on-demand pay from loans
  • What does this have to do with payroll compliance?

Have you, in your role in payroll, been involved in some way in earned wage access (EWA) or on-demand pay? 

These are not advances in pay in the sense that we are used to, say, when an employee asks for and gets an advance on next week’s pay but has not worked the week yet. That’s an advance. 

I’m talking about access, on demand, to amounts already earned. That’s what an ever-growing number of third-party providers are claiming they do. They work with employers to get payroll data for employees to determine amounts accrued for working. This includes daily or even hourly feeds of timekeeping information and, for the most sophisticated programs, algorithms that can calculate prorated net pay.

Why Is On-Demand Pay/EWA Growing?

Employers are attracted to offering some sort of on-demand pay because of increases seen in retention, engagement and the ability to recruit workers. With reliance on accurate time accruals to determine amounts available, colleagues have told me they have noticed far fewer timeclock discrepancies. People are more conscientious about clocking in and out. Some of these third-party programs add tasks for payroll though, while some don’t.

Hourly workers, and those who live paycheck-to-paycheck, see a lot of benefit in being able to draw on their pay before payday to pay bills or to deal with unexpected expenses. Salaried workers also are benefiting from earned wage access tools.

Most of these programs generally are not considered loans or credit, but I’ve been told to beware of some of these outfits because they really are online payday loan operations, or they employ a lot of payday loan-like processes, especially to get their money back.

New Guidance Addresses Loan/Not Loan Question

At the end of 2020, the Consumer Financial Protection Bureau (CFPB) started to address this situation, releasing first an advisory opinion and, second, a temporary approval order for one of the providers allowing them to continue to operate not as a loan operation so long as they follow some strict guidelines. They will be reassessed in two years.

The CFPB EWA order could have gone one of two ways. The Bureau could have said their approach is credit, and then the outfit would have been considered a loan operator that has to meet all kinds of requirements under the consumer codes, and they would have to stop operating in several states (a number of states outlaw payday loan operations). But, the CFPB said this one approach to on-demand pay is excluded from being considered a credit or loan program for at least the next two years.

It was all about whether a particular on-demand pay company’s offering was considered credit. 

The order does not rule on the status of other third-party providers, instead speaking to their potential issues indirectly, laying out how other earned wage access provider programs also are not likely loan operations. That’s where the story ends here with this guidance.

Payroll Compliance and Burden

But for payroll, the story really ends with ensuring not whether some vehicle for providing earned wage access is a loan, but with protecting the employer from undue compliance exposure and burdensome, expensive processes when offering such programs.

Face it, just about all third-party providers of anything involving payroll say they are fully compliant. We all have to look into those claims. The issue the CFPB addressed had literally nothing to do with payroll compliance. 

In fact, wage deductions were the provider’s proposed repayment method in the CFPB application, but wage deductions as a way to repay amounts under an earned wage access program remain illegal in several states. 

Other on-demand pay providers do not use wage deductions to recoup on-demand amounts. 

As such, these providers don’t believe there is a need at this time to request a determination from the CFPB.

This is why we’ll see some on-demand pay providers scrambling to get the CFPB to state their particular programs are not credit, and others that are more secure in their particular existing on-demand pay solution, do not see that need.

Whatever the solution you are presented with, know that CFPB approval of an approach will not address the payroll angle on the employer’s side, so please remember to vet for payroll compliance and additional burden. PYD

Categories
On Demand Payroll

Top 3 Challenges of Off-Cycle Payments and How to Fix Them

Off-cycle payments are a bit of a necessary evil for payroll professionals. Whether you have to issue a bonus, provide termination pay or correct a payroll error, off-cycle payments are stressful, time-consuming and an all-around pain to deal with. Let’s explore the top three challenges that come along with these annoying little outliers and how best to handle them:

1) Off-cycle payments can create a lot of administrative burden.

You have your routines and processes in place. You live and breathe by deadlines, schedules and tight organization. And then off-cycle payments pop up along the way, totally disrupting your flow. It’s the worst! Sure, you want to make sure bonuses get into the hands of deserving employees and that you correct any errors you or your team may have made when processing payroll, but doing so off-cycle can grind your workflows to a screeching halt and add many tiny tasks to your to-do list.

 

So how can you ensure that employees get the money that’s owed to them in the most efficient way possible? Many companies have implemented policies to reduce the administrative burden of off-cycle payments. For example, a company policy might be that if a payroll error was only a certain small percentage of an employee’s paycheck, the remainder will simply be included in the next paycheck. Bonus checks may also be included within regular paychecks, as long as they are taxed carefully and correctly. See what works best for your team and your employees so you can create policies to make these processes as efficient as possible.

 

2) The costs of paper and overnight postage can really add up.

 

Since 93% of U.S. workers now receive their pay through direct deposit, so many of us forget how much paper and postage can cost, especially when you’re dealing with a large number of employees. One advantage of life in the digital age is that we are greatly reducing the amount of paper we consume as a culture. However, some off-cycle payments require you and your team to overnight checks via mail to employees or ex-employees.

 

Many states require termination pay to be submitted to the employee within 24 hours. Not only does that create a fire for you to put out, it also can be very expensive to mail, costing an average of $12-50 dollars per check. To cut down on these costs, which can easily be upwards of $50,000 annually, many companies are adopting digital payment solutions that have off-cycle payment technology built in. Not only do these new systems make it possible to send payments at the push of a button, they also eliminate the need for your employees to have to cash a paper check at their bank or check-cashing establishment, saving them time and money as well. You’ll also be saving a few trees in the process! These digital solutions are a win-win for you, your employees and the environment.

 

3) “Snail mail” leaves room for human error and other disasters.

Let’s face it. No matter how much we love and appreciate our mail carriers, there are still a lot of risks associated with sending off-cycle payments the old-fashioned way. We’ve all had those instances where we’ve mailed something and it was never received, or it came back to us with one of those frustrating “Return to Sender” stamps. Not only can things get lost in the mail, but the possibility of them being sent to the wrong address can cause even more issues. The last thing you want to worry about is re-issuing a payment that you’ve already sent out and having to pay for postage all over again!

 

A great solution to avoid this problem as much as possible is to send out periodic contact information requests to all employees. Having the most up-to-date information for their phone numbers, addresses and even emergency contacts can truly save the day in more ways than one. Keeping those records as meticulous as the hand-written address book your mom or grandma used can help you save time, issue off-cycle payments quickly and efficiently, and keep your processes as compliant as possible.

 

This year, the pandemic added another layer of worry, as paper mail is another thing that can potentially carry the COVID-19 virus. To avoid any potential risk associated with paper mail, discourage employees from interacting with their mail carriers up close, and encourage them to disinfect paper mail before opening it and to wash their hands afterwards. That way, you know you are helping them be as safe and germ-free as possible.

 

Do you have more “pro tips” on how to reduce the headaches associated with off-cycle payments? Please feel free to share your ideas below!

Categories
On Demand Payroll

How Full-Service On-Demand Pay Works for Our Payroll Team

By April Smith
Director of Payroll and Benefits, Senior Lifestyle

As a payroll professional considering an on-demand pay solution for the first time, my mind swam with thoughts of special deduction files, massive payroll system changes, funding issues, more pay reconciliations, and a lot more employee questions coming into our department. I was thinking ‘I don’t have the bandwidth to absorb this, and neither does my team.’ It was like a nightmare to me. But it was a critical need for our employees, so I took a deep breath and trudged on.

As we began the journey of vetting providers, we determined that the growing number of on-demand pay offerings can be grouped into two general categories: those who offer a comprehensive full-service approach and those who offer the technology and make you put resources toward it to make it run. 

Most of the vendors offering on-demand pay are self-service and require extra work from payroll and the employer for each transaction, validating those nightmarish thoughts I had initially, such as more pay reconciliations and the need to develop deduction files for employees using on-demand pay. In looking at those ‘solutions,’ I thought to myself: ‘I’m not going to turn into a bill collector’ and deal with collections and having to reconcile each transaction every pay period.

 

We opted for the fine-dining version, the full-service option. I consider us (the employer) to be the silent partner. It’s an employee benefit I don’t have to monitor. The most time I spend on the daily pay solution, which our employees are embracing by the thousands, is to verify employee accounts and follow up when the on-demand pay provider team sends me information. In the past six weeks, I’ve literally spent less than one hour thinking about our on-demand pay benefit. 

The provider’s call center, not my team, handles all employee inquiries, and they are very careful to continuously and accurately track earnings, making them accessible to employees and seamlessly accounting for the amounts, so my payroll team doesn’t have to take any action. That’s full-service.

  

But there was another issue we needed to consider. I also am concerned for our employees. Most self-serve vendors place arbitrary limits on amounts employees can access, when they can request on-demand payments and the payment methods they can use. While I understand the surface reasoning for doing this, I am troubled by it. 

We determined that any program we were going to choose needed to come with the maximum benefit to employees, meaning no arbitrary limits on amounts earned that employees can transfer or limits on their ability to draw whenever they choose. 

I also oversee benefits for my employer and we know that some workers take advantage of each benefit offered and some don’t take advantage of any of these benefits. This all is because each employee’s particular life circumstances are different. So when it comes to on-demand pay, who can dictate to these employees how much and when they can use their own earnings? 

We couldn’t accept a one-size-fits-all approach here because each employee has different circumstances. People’s work hours can vary, their home situations may have two incomes (or not), their stages in life and career are all at different points.

  

Early in my career, my focus was on our growing family, and a lot of my unexpected spending came from diapers, medical care and prescriptions for my children. I would have used an on-demand pay benefit to stay on top of these had it been offered. Now that my children have grown, my financial needs have changed, but the bills and unexpected expenses still come at times that don’t necessarily sync with payday. 

It’s not an employee’s fault that our society has adopted the practice of paying employees at set intervals, such as bi-weekly, or that bill due dates don’t always sync with the employee paydays.

 

We wanted the employees to have a customized solution for them, and the one-size-fits-all approach that most on-demand pay providers apply to available amounts and frequency of use was not going to do that. Our full-service daily pay provider offers up to 100% of anticipated net pay and does not limit the frequency of use.

As more payroll professionals, like me, are put in a position of considering an on-demand pay solution, know first that this is because of the clear upside to employers and HR this benefit brings:  a reduction in employee turnover, better employee engagement and easier recruitment, to name a few. But the impact each offering has on the payroll operation can vary widely. So be deliberate in your analysis and know the consequences of going with a provider that does not offer the full-service on-demand pay we have adopted.