Payroll accuracy: how to prevent data errors in global payroll

Payroll accuracy is essential for ensuring compliance and avoiding incorrect employee payments. Using payroll software allows businesses to eliminate the risk of miscalculations in payroll. For the software to deliver accurately calculated wages and salaries, the data input needs to be flawless.

The problem is, however, that many businesses still manage their payroll data input in a very rudimentary way, i. e. based on manual, non-standardized processes. Manual data handling and lack of standardization pave the way for errors that decrease the accuracy of the payroll. One of the main priorities for businesses that want to increase their payroll accuracy should be to eliminate potential sources of data errors along the entire payroll process.

We’ll show you how to get there in this blog post. At the end, you will know:

• What the consequences of low payroll accuracy are,

• How data errors in global payroll happen, and

• What strategies businesses can adopt to improve the accuracy of their global payroll.

Payroll accuracy is highly dependent on the quality of the source data. If the data needed for payroll is incorrect, then it is impossible for the payroll engine to deliver accurate results. In other words, inaccurate data input jeopardizes the accuracy of the payroll. 

While miscalculations in payroll can lead to higher costs for the business (e. g. when employees are overpaid), the consequences become a lot more severe when payroll errors are recorded in the business’s official payroll tax reports. Incorrect statutory reporting in payroll can lead to fines and other financial penalties.

But payroll errors can trigger even more consequences:

• Wrongful payroll calculations can lead to severe compliance issues in the long run. 

• If payroll mistakes happen on a regular basis, it will have a negative impact on employee satisfaction and trust.

• Low payroll accuracy can cause damage to a business’s reputation.

Inaccurate payroll data input will, without a doubt, lead to inaccurate payroll results. What are potential sources of error in global payroll data processing? What processes and practices put payroll data accuracy at risk?

• Manual data entry: Very often, the data needed for payroll is entered into the payroll system manually. Since manual processes are prone to error (e. g. typos or double entries), this data input practice lowers source data quality and is very likely to lead to frequent data errors.

• Lack of data management expertise: Employees need special data management skills when handling global payroll data streams. If they lack the necessary skills, this can lead to data errors in payroll that can turn out very costly for the business.

• No standardized data collection processes: Many businesses don't have standardized data collection processes in payroll. Without clear rules on where to access and input which data, the payroll team is likely to end up making mistakes. For instance, if there are no clear policies regarding when and how often to check for payroll changes, it is common that changes are not implemented in the payroll system on time.

• Communication issues: When processing payroll for a global team, language barriers can become a real issue. In order to answer any open questions regarding certain data sets, payroll team members need to be able to communicate properly. When the team is distributed across different countries, however, this is not always a given.

• Different data formats and payroll components: Standard payroll components differ from country to country, which makes it hard to create a consistent data input for global payroll. When payroll employees are not familiar with the different payroll components of every country, it’s very likely that they input information in the wrong place.

Knowing the root causes for data errors in payroll is the first step towards improving payroll accuracy. The next step is to take action and create policies and processes that will actually deliver results. Here are seven strategies to implement immediately.

1. Automating data input and other data-related processes

The first question businesses usually ask when trying to improve their payroll accuracy is: How does one ensure accuracy when entering payroll data? Since manual data input is by far the most common cause for data errors, the easiest way of eliminating payroll errors is to automate the data input collection process.

Payroll automation can further be leveraged to reduce the need for human intervention in other data-related processes. This includes data transfers between different systems, data format standardization, and payroll data validation.

2. Leveraging technology for data validation

Improving source data quality through automation is only one way of improving payroll accuracy, but the process also works the other way round. Checking global payroll results can reveal potential problems and errors in data input. If the payroll output is off, then it’s almost certain that a mistake has occurred during data input.

Instead of having the payroll team spend hours double-checking payroll outputs, businesses should leverage smart technologies that can spot and highlight anomalies or inconsistencies in the payroll run. This way, payroll managers only need to check the detected inconsistencies. This not only saves a lot of time, but also ensures that no anomalies are overlooked.

3. Using data analytics tools

Payroll data can provide valuable insights that can be used to inform business decisions. Both payroll analytics and people analytics tools can help businesses analyze and interpret their global workforce data and draw the necessary conclusions.

The data analysis results can not only be used to support data-driven decision-making, but also to uncover recurring payroll errors and other data-related problems. Leveraging data analytics is hence another strategy to prevent data errors in payroll.

4. Continuous monitoring and regular auditing of payroll data

Regular payroll audits are yet another way to improve payroll accuracy. Checking over all of the organization’s payroll data is a central part of any payroll audit, especially in cases where there is a payroll data accuracy issue. Carrying out additional audits that focus solely on data accuracy checks can help prevent headaches further down the line.

Auditing payroll data from time to time is often not enough. Instead of waiting for the payroll audit to uncover any errors and inconsistencies, businesses should be monitoring their data input and output on an ongoing basis. After all, preventing errors before they happen is better than fixing them afterwards.

5. Developing clear data management policies

As mentioned before, a lack of expertise in data management is a common root cause for data errors in global payroll. Businesses hence have no choice but to provide their employees with the necessary tools and guidance to improve their data management skills.

Efficient data management requires clear policies, standards, and procedures for handling global payroll data. All this information can be provided in a data management framework. A data management framework should outline all the processes and standards related to data governance, data quality, data integration, and data security.

6. Implementing manager self-service functions

When employees join or leave the company or when an existing employee receives a pay raise, the changes have to be implemented in the business’s payroll system. Usually, it’s the responsibility of the HR department to manage payroll changes and make sure that the changes are implemented in time for the next payroll run.

Yet if communication between HR and managerial staff in the different departments is slow, it can happen that payroll changes aren’t processed in time for the next payroll run. A more efficient way of managing payroll changes is to implement self-service functions for managers, so they can update vital payroll information for their teams directly.

7. Defining clear roles and responsibilities

Accountability is an important factor for ensuring payroll accuracy. It’s only when responsibilities are clearly defined that it is possible to hold people accountable for data errors in payroll. For organizations, this means there needs to be clear ownership of global payroll data. Possible data owners can either be the payroll or the HR department.

That being said, payroll accuracy doesn’t have to be on the shoulders of a single business function. Very often, payroll and HR need to work together to enable end-to-end data accuracy. As long as each department knows who is responsible for which data-related processes, data errors can usually be prevented.

Data errors in global payroll can have a severe negative impact on businesses on a financial, reputational and legal level. Payroll accuracy should be a top priority in order to avoid issues with social security and tax authorities and make sure that employees receive their correct wages and salaries.

Strategies to prevent data errors include the implementation of clear data management policies and the use of payroll automation to replace error-prone manual processes. Advanced global payroll software can not only automate data streams and help spot inconsistencies in both source data and data output, but it can also be leveraged for consolidating global payroll data.

This is where global payroll solutions like Lano come into play. Lano’s Payroll Consolidation Platform allows businesses to effortlessly manage all their payrolls via one single system and ensure payroll accuracy from start to finish. Automate payroll changes by enabling data synchronization between Lano and your HRIS and save time on validating payroll outputs thanks to automated payroll checks that detect and highlight payroll anomalies. 

Get access to consolidated global payroll reports without having to go through the lengthy process of manually putting it all together, and use the integrated payroll analytics tools to slice and dice payroll data for different countries, entities, and criteria. Book a demo with one of our experts to learn more.