Avoid risks by getting the data right upon hire
Mistakes in data entry lead to inaccurate employee data capture, payroll errors, excessive administrative work and potential compliance breaches, and could affect offerings and benefits offered to employees. In our experience, upwards of 70% of payroll data issues stem from recruiting and onboarding entry.
Fortunately, there are simple steps that organizations can take to reduce and potentially eliminate pay-related data errors and discrepancies.
The road to payroll data accuracy starts with recruiting and onboarding from the time a candidate enters their information and HR processes relevant paperwork. A majority of payroll data issues have their roots in the recruiting and onboarding process. Those who are upstream of the payroll process often do not understand the use and impact of the data downstream (pay frequency, vacation leave, benefits eligibility, etc.). Another complication for recruiters and HR professionals is that the recruiting workload can vary dramatically between times of lengthy hiring freezes and occasions of mass hiring. If there are not reliable systems and data entry processes, high-peak recruiting times can make data accuracy a greater challenge.
Case study: 500 errant records
A call center client had recently bulk-hired 500 people, all with the same data elements based on a manual recruitment form. This included pay-related data (pay frequency, pay rate, start date, etc.), employee data (location, remote worker designation, employee type, job level, etc.) and one of three benefits plans.
Two days later, the recruiter received an email saying that the benefits options that were offered to employees were not available to them, affecting records. The recruiter tried to correct the record but teams had already layered their work onto that record. The error required significant manual effort to rectify, as the shared service center had to roll back individual changes per employee for all 500 of them. The experience left a negative first impression of the company and required additional dollars and hours to correct and minimize compliance risk.
Downstream data impacts from recruiting and onboarding can include:
- Data quality effects: How the job requisition is set up can determine what data is captured for a new hire and affect their compensation and benefit eligibility. This is compounded by clunky and manual onboarding processes with multiple systems, which may be paper-based or require manual entry or duplicate entry.
- Turnaround time lags: Inconsistency between HR, finance and the business on how they name and use data fields can significantly extend turnaround time during payroll setup and reconciliations.
- Compliance risks: Discrepancies in HR data can lead to incorrect paychecks or create payroll reconciliation issues, and not having accurate payroll data and records risks noncompliance with:
- The Fair Labor Standards Act and labor laws
- Workplace safety and workers’ compensation requirements
- Data security protocols
- HR policies and procedures
- Business expense policies
- Payroll tax reporting obligations
Tax and compliance for remote employees
Incorrect employee data, especially related to remote work locations and tax forms, poses a common challenge for employers. This affects the accuracy of payroll tax withholding and state and local tax compliance. Below are some examples of the challenges that inaccurate employee data can cause:
- Noncompliance with payroll tax reporting obligations
- Business tax and business licensing obligations in new jurisdictions where an employer previously did not have a physical presence
- Noncompliance with state and local labor laws
Simple strategies, substantial improvements
Employers can pursue simple strategies to reduce or eliminate payroll data errors and discrepancies. These include:
- Master data management: Simplify and drive alignment through finance and IT to create a single source of truth for all employee data (location, team, cost center, etc.)
- Follow the data: By outlining employee data flows, and gathering process documentation, you can highlight potential technological and process-related risks as data is gathered about each employee (highly manual steps, calculating error rates, etc.)
- Automation and process controls: Using automated processes, such as data transference from HR systems into payroll systems, will reduce the need for manual re-keying. When automation isn’t possible, implementing controls at each stage of the process, such as auditing and validation, can help catch manual errors early in the process.
- Break down silos through education: Developing a cross-functional governance model can promote a collective effort to maintain data integrity and educate stakeholders at every stage of employee onboarding on the impact and cost of poor data as well as the steps that need to be taken to create and maintain high-quality data.
By addressing the impact of recruiting and onboarding processes on payroll data, organizations can proactively identify areas for improvement, mitigate costly errors and ensure smooth payroll operations.
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