How to create a payroll disaster recovery plan

There are many things that can disrupt business operations. While disruptions always end up costing businesses money, there is one business function that is particularly sensitive to disruptions, and that is payroll.

Business disruption, no matter what causes it, can affect payroll operations, which is why payroll should be part of any business continuity planning. Because when disaster strikes in payroll, the consequences can be severe. Payroll professionals therefore have to make sure that payroll can continue as usual even in times of disaster and disruption. This is where a payroll disaster recovery plan comes into play.

What should a back-up and recovery plan for payroll include? What does successful disaster recovery in payroll look like? What are the most important payroll disaster recovery procedures every business should implement?

A disaster recovery plan for payroll outlines how to manage payroll during a disaster and ensures the continuity of your payroll operations during minor and major disruptions. Having a solid payroll disaster recovery plan in place allows you to prepare for all eventualities, whether they are caused by humans, nature, or glitches on the tech side.

Possible ‘payroll disasters’ could be:

• Global pandemic,

• Natural disasters,

• Terrorist attack,

• Key payroll staff falling sick or leaving on short notice,

• Cyber attack (e. g. payroll data breach),

• Power and/or system outage, or

• Major payroll errors.

Identifying potential causes of disruption in your processes is the first step towards developing disaster recovery procedures for your payroll system.

Whether it’s a small and insignificant or a major incident, payroll glitches always have an impact on your business and your employees. What constitutes a payroll disaster is different for every company, but when a disaster happens in payroll, it’s crucial to recover as quickly as possible. This is where a disaster recovery plan for payroll comes into play.

Depending on the nature of the payroll incident, having a solid recovery strategy in place allows you to:

• Keep payroll up and running despite power outages,

• Prevent payroll data loss,

• Secure tax documents,

• Ensure employee financial wellbeing even in times of crisis,

• Avoid penalties and fines for late salary payments, failure to secure sensitive data, or late reporting of payroll taxes, and

• Prevent smaller incidents from turning into a full-scale disaster.

In order to create an effective payroll disaster recovery plan, you first need to know what to include in the actual document. Here is an overview of the key elements that shouldn’t be missing in your emergency plan:

• Statement of intent: The statement of intent outlines the direction of your disaster recovery plan for payroll and defines its purpose.

• Policy statement: The policy statement describes the basic guiding principles and details what is to be done in the case of a payroll disaster.

• Overview and objectives: This is where you list the key components of the plan and define the main goals of your payroll disaster recovery procedures.

• Involved parties: Your disaster recovery plan should include the contact details of key members of the payroll departments and other important parties that are involved in your payroll operations.

• Emergency response and following steps: What steps need to be taken immediately after a payroll emergency? What are the next steps (alerting key players, activating the right people, etc.)?

• Distribution of roles: Effective payroll disaster recovery requires a clear distribution of roles. Define who is part of the emergency response team and who belongs to the disaster recovery team. Each team member needs to have distinct responsibilities.

• Mitigation of legal and financial repercussions: This is where you describe the procedures that need to be taken to minimize the financial and legal impact of the payroll incident on your business.

• Data recovery procedures: How can data that is lost during a disaster be recovered? What are the necessary steps to prepare for and successfully recover data in an actual emergency?

What actions you need to take in order to deal with a payroll disaster depends on the nature of the incident. Here is an overview of the most important back-up and disaster recovery procedures for payroll:

• Identifying critical payroll processes,

• Backing up payroll data and systems regularly (either to the cloud or a file-sharing service),

• Switching to paperless payroll recordkeeping,

• Checking in with payroll service providers to see if they have fiduciary bonds in place to protect the business if the provider defaults,

• Creating back-up communication channels with employees, customers and others,

• Ensuring remote accessibility of systems and tools, and

• Documenting all your payroll policies.

During the payroll disaster itself, the most important steps include:

• Restoring or regaining control of the payroll system,

• Assessing which processes, data sets, and employees are concerned,

• Keeping employees in the loop,

• Following the procedures outlined in the payroll contingency plan,

• Keeping in close touch with tax authorities, and

• Ensuring the continuity of operations in all cases.

Having a detailed and well-practiced payroll continuity plan in place is the most important prerequisite for a quick recovery after a payroll disaster. Additionally, you should take the following steps to prepare for all eventualities:

• Revise your payroll disaster recovery plan regularly: Regular revision of your payroll contingency plan ensures that your procedures are up to date at all times. Also, make sure to keep track of the version history that shows the different changes you made to the document. This can be done by including a revision table in your disaster recovery template.

• Practice your emergency plan for payroll: Having a detailed back-up and disaster recovery plan for payroll operations won’t help you in an emergency if people in your organization are not familiar with the procedures. When disaster strikes, it’s important to be quick. Therefore, it’s crucial to practice the plan beforehand.

• Use cloud-based payroll software: Payroll software can either be self-hosted or cloud-based. The problem with on-premises software or desktop software that is downloaded to a specific computer is that it is not resilient in times of disaster. Cloud-based solutions, on the other hand, ensure that no data is lost during a disaster and can be accessed remotely from anywhere.

• Invest in alternative payment methods: Traditional methods for paying employees, such as direct deposit, might fall through during a disaster. To ensure employees will still get paid, you should have at least one back-up option for issuing payments. Alternative payment methods that also work in a remote set-up include digital wallets and payroll cards.

• Educate your employees: Payroll disaster recovery primarily concerns the payroll department. But that doesn’t mean that you should leave the rest of your staff in the dark about what happens to their pay in the case of a disaster. Informing your employees about your business continuity strategy for payroll can help them stay calmer during an emergency, knowing that their payroll is secured.

• Carry out regular payroll audits: Payroll audits allow you to verify and check every aspect of your payroll, from payroll data to payroll processes to payroll records. Checking that everything is in order can help prevent major incidents further down the line.

• Outsource payroll: Outsourcing payroll to a third party takes the burden of dealing with payroll disasters off your shoulders. In order to guarantee that your payroll is in good hands, though, you have to be thorough when choosing a payroll service provider. A detailed payroll RFP can help here.