Why is payroll important?

Payroll is often described as one of the most important business functions. Earning money to make a living is the primary reason and motivation why employees do their jobs. It’s therefore easy to imagine what would happen to a company that failed to deliver payroll accurately and on time.

Without pay, employees would quickly start to quit their jobs. And since businesses generally rely on their staff to generate revenue, it wouldn’t be long before business closure. Accurate and timely payroll processes and flawless payroll management are the only things protecting a company from losing its most valuable asset, namely their workforce.

But apart from its crucial role in ensuring that employees show up for work every day, what is it that makes payroll so important? What is the impact of payroll on employees and organizations? Let’s take a deep dive into the importance of payroll.

There are several different reasons why payroll is important for businesses of any size and industry. Payroll and the way it’s managed has a direct impact on: 

• Company reputation: Organizations that don’t succeed in managing their payroll processes correctly risk a bad reputation, which could put them on the radar of local labor and tax authorities as well as hurt their chances of attracting future talent.

• Compliance: Correct payroll processing is crucial to ensure compliance with tax laws and reporting obligations businesses have towards financial authorities, which helps avoid fines and penalties. 

• Talent retention and employee turnover: Paying employees accurately and on time keeps them happy and increases their loyalty towards the company.

• A business’s financial integrity: A well-managed payroll contributes towards a clean, transparent and accountable financial system within the organization. 

• Employee engagement, morale and productivity: A timely and accurate payroll creates trust between the employees and the company, which leads to more engagement and motivation and ensures financial stability, which is beneficial for employee morale and can ultimately even have a positive impact on their performance. Employee benefits are another key driver when it comes to engagement and performance.

Increasing employee engagement, morale and productivity is closely linked to creating a positive employee experience, which is what we’ll focus on in the next section. 

Payroll is about more than calculating wages and salaries and providing employees with paychecks. The payroll experience is an important part of an employee’s overall experience at the organization, which is the sum of all the touchpoints with the organization the employee runs through during the time spent working there. It determines how he or she feels about the company and, ultimately, how motivated he or she is to perform well and go the extra mile whenever it is necessary.

Accurate and timely wage and salary payments are crucial for a positive payroll experience which enhances the employee’s trust in the business as well as his or her job satisfaction and engagement. But there’s more to a positive payroll experience than paying employees correctly.

In the digital era, payroll technology has become a major contributor to creating a positive employee experience. With the right technology, businesses can achieve greater flexibility in the way they pay their employees by adding alternative pay methods such as digital wallets and even grant employees early access to their earned wages. Giving employees the choice of how and when they get paid can go a long way in increasing their loyalty, engagement, and financial well-being.

Another aspect to consider with regard to modern payroll technology is the use of employee self-service functions which allow workers to consult, update and access their personal payroll information such as bank details and payslips at any given moment and from wherever they are. 

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We’ve already touched on several aspects with regard to the importance of payroll for the organization, such as financial integrity and compliance. However, one crucial aspect of payroll is often overlooked, and that’s the strategic potential that lies in the enormous sets of payroll data that are generated every month. 

Businesses can use their payroll data to discover inequalities in their existing compensation structures, detect turnover and absenteeism patterns, increase the competitiveness of their salary and benefits packages, and take well-informed, data-driven business decisions that align with the overall company strategy. The only requirement for businesses to leverage the strategic potential of their payroll is to centralize all their payroll data in a single system that allows easy access and provides full data transparency. 

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