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Payroll Automation: How It Works and Why Companies Need It

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    Payroll automation works by completing the routine pieces of the process to reduce errors and free HR from many manual administrative tasks. But not all payroll automation works the same, and just because something is automated doesn’t mean it’s an ideal fit for your company. Read how the right payroll automation software works by putting employees first — and without completely cutting HR professionals out of the process.

    Accurate payroll is one of the most important things a company can give its people. But despite how undeniably important the process is, that doesn’t mean it has to be meticulously built by HR.

    In fact, sometimes too much human involvement — like transcribing and reentering data — can actually increase the likelihood of costly errors. However, by automating aspects of payroll, organizations protect the promise to their workforce and free HR to focus on value-adding work.

    Let’s examine how payroll automation:

    What is automation?

    Automation refers to a series of self-operating processes that complete tasks without the need for humans to facilitate it. Think of the robotic arms that attach doors and tires on an automotive assembly line or even a traffic light.

    Applied to HR, automation helps businesses efficiently manage employees and streamline operations. What we can automate in HR constantly evolves, but currently, technology exists to simplify:

    Essentially, if an HR task requires any amount of routine process, you can likely automate it.

    What is payroll automation?

    Payroll automation is tech that automatically completes different pieces of the payroll process. The best automated payroll software will pull live data from employees’:

    • hours worked
    • approved expenses
    • benefit selections
    • compensation changes

    This prevents HR from manually entering data into payroll, reducing the opportunity for human error. Taking this a step further, one form of payroll automation automatically flags errors, then guides employees to correct them before payroll submission.

    How does payroll automation work?

    In essence, automated payroll software automatically considers all data the tech has access to. That’s why HR automation that exists in a truly single software is vital since it can consider every aspect of an employee’s work life.

    While not all payroll automation works the same, an ideal approach will then take the predefined data and use it to self-start payroll each period. In turn, HR can focus on verifying payroll’s accuracy instead of calculating it from scratch. HR remains responsible for, and heavily involved in, payroll, but they don’t need to invest time into painstakingly assembling it.

    Consider these eight areas where payroll automation simplifies and streamlines business operations.

    1. Automated decision-making

    Perhaps more advanced than any other function is automation’s ability to answer straightforward questions. For example, a tool to automate time-off requests may automatically approve or deny time-off submissions based on available coverage or other employer-set parameters.

    Of course, decision-making, or simply choice, is heavily dependent on human guidance. Some may allow HR to interject and override an automated decision at any time, while others may require a stringent set of rules.

    Before we dive further into more specific aspects of payroll automation, keep in mind the following four ways human management works in tandem with tech to automate processes, according to Harvard Business Review.

    Human in the loop (HITL)

    With HITL, humans are still firmly in the “driver’s seat.” A person decides and tech only “weighs in on it” by offering partial automation or providing data that supports the overall outcome. In HR, you might encounter this in the form of a tool that organizes applications based on shared or desirable skills and characteristics.

    Human in the loop for exceptions (HITLFE)

    HITLFE allows tech to automate most decisions, whereas a human is only informed with exceptions or outlying cases. You could think of it as automated decision-making with significant guardrails.

    For example, software for automating decisions around time-off requests may approve all requests that fall within certain guidelines, but ultimately allow HR or a manager to approve or deny a request that falls outside those boundaries. (The key difference being the tool never, or rarely, has the final word in outright denying a time-off request.)

    Human on the loop (HOTL)

    HOTL gives automation more leeway in what it can approve and deny, but a human still reviews those decisions and adjusts the tool accordingly. Certain tech may even recommend changes that need to be implemented based on a recurring trend or problem.

    For example, applicant tracking software may “knock out” certain candidates based on a lack of qualifications, but HR may determine that this tech’s decisions are too rigid or limiting for the available talent pool. Thus they make an adjustment to allow for a wider range of candidates.

    Human out of the loop (HOOTL)

    In a HOOTL model, automation is almost entirely self-sufficient. It makes virtually all decisions for a specific process, and humans only provide instruction and constraints. While this may seem like HOTL, a HOOTL model even automates human feedback by determining the best way to implement it.

    2. Expense management

    For expense management, automation simplifies the reimbursement process, helping HR complete tasks related to submission, reporting and more. Advanced software even automatically allocates expenses imported into a general ledger. At the same time, all expenses approved for reimbursement automatically flow into payroll without the need for HR to manually enter them.

    3. Garnishment administration

    While garnishments and support orders should still be verified by HR, payroll automation can regularly deduct the amounts specified in a notice once entered. Granted, since a machine can’t assume liability for a failed or misconstrued order, it’s still best practice to let dedicated professionals handle certain calculations, payments and record-keeping.

    4. Payroll tax management

    Payroll automation also has the power to ease administrative burdens related to compliance. For example, once the tech is instructed on what specific tax laws affect certain individuals, it can automatically calculate the appropriate deductions. It may even be able to consider certain taxes based on the state(s) where a business operates and employee head count.

    Of course, like for garnishments, the tech should still be guided by an actual HR professional and informed by a licensed tax expert.

    5. Reporting and record-keeping

    Beyond processing payroll itself, automation also helps HR understand workforce trends by quickly assembling data in an easy-to-understand way. Likewise, payroll automation can also create a record of everything that enters payroll, giving companies an edge in the face of audits or other periodic reporting requirements.

    6. Time tracking

    While hourly employees may still clock in and out, automated time-tracking software helps eliminate the likelihood of missed punches and lost hours. Instead, automated payroll systems factor these hours into its calculations and can even flag clear discrepancies, like a 24-hour shift from an employee who forgot to clock out.

    Remember, this option generally isn’t available — at least not with seamless accuracy — if payroll doesn’t work in the same software as your time and attendance tools.

    7. Financial planning

    Since automated payroll can expedite the process, it also has the power to give employees a glimpse into their upcoming checks. By seeing their pay early, workers have a unique opportunity to prepare accordingly and make informed decisions around their money.

    And if the payroll automation allows employees to take part in the process, it can give them a chance to rectify errors before they’re harmed by an incorrect paycheck.

    8. Employee self-service

    At its best, payroll automation works because it relies on data provided by the people who know their HR info best: employees. Self-service software allows them to easily:

    In turn, this data automatically feeds into payroll and creates a more accurate — and less error-prone — process.

    8 benefits of payroll automation

    Implemented correctly, payroll automation can transform HR, bolster compliance and give companies a greater chance to focus on more than just foundational HR operations. Consider these eight ways automated payroll gives companies a clear advantage.

    1. Reduced errors

    We’re human, which means we tend to make mistakes. But payroll automation isn’t affected by the same drawback. Once data is entered, that’s it. The tech automatically factors in this data for each subsequent payroll, only fluctuating with necessary changes. That doesn’t mean HR assumes everything is right, but it does allow them to pull away from the minutia of the process and manage it from a higher, more efficient level.

    2. Less cost

    Because payroll automation is less likely to cause errors, that also means employers have less of a chance losing resources to:

    • rushed paper checks
    • reversals
    • wires
    • voids

    At the same time, companies can redirect the effort of a dedicated payroll employee to other areas, like benefits, recruitment and employee well-being.

    3. Accurate timekeeping

    When hours worked and time off flows directly into payroll, it also encourages employees to be more diligent with their time. In the same breadth, providing a clear visualization of a team’s time also makes it easier for HR to catch possible discrepancies. Payroll automation essentially tightens time-tracking practices and puts more accountability on the individual who enters their time.

    4. Reduced administrative work

    Payroll automation addresses the small details, so HR can invest its time elsewhere. It seems like a given perk, but for HR professionals, it may be the most advantageous. For many, payroll may be a process that typically takes days of reconciliation. With payroll automation, however, a single pro’s work may be reduced to just a few hours or less. While this opens the door for more impactful work, it also helps curb burnout, a phenomenon many in HR are unfortunately familiar with.

    5. Improved record-keeping

    As payroll automaion considers all data it has access to, it also makes it significantly easier to parse and find. HR can use automation to build reports around:

    • trends
    • pay grades
    • average salaries
    • demographics
    • and more

    Plus, if a company faces an audit, it can use its automated payroll system’s reporting tools to generate the exact information it may need.

    6. Fewer employee questions

    The right automated payroll software options empower employees to play a direct part in the process. This means they also understand payroll on a deeper level, eliminating the need for many questions around their compensation. Rather than ask, they can actually see the answers they need. In turn, HR isn’t stuck answering questions they’ve already answered.

    7. Timely payments

    Payroll automation can also help reduce the strain of paying taxes and employees on time. By automatically deducting needed amounts and relaying them to a trusted payroll provider, organizations streamline and improve the punctuality of their tax compliance.

    Internally, since payroll automation completes so much of the initial work involved with the process, HR doesn’t have to rush at the eleventh hour to ensure employees get paid on time. Think of automated payroll as a head start on a relay with HR only needing to ensure the baton crosses the finish line.

    8. Compliance

    Beyond supporting tax administration, payroll automation also helps HR maintain compliance with overtime and other local, state and federal laws. For example, payroll automation can calculate the required hours when employees work more than their full-time requirement or on holidays. Additionally, it can help ensure employees who qualify for a certain coverage or benefit receive it (with HR’s approval, of course). And for states that require PTO payout, automated payroll can even pay this as soon as an employee resigns or is terminated.

    Key features to look for in payroll automation

    Many payroll automation options exist. Even so, that doesn’t mean they all offer the same advantage or quality. In today’s evolving workplace, simply automating a process isn’t enough. Tech providers must also automate reliably.

    As you vet automated payroll software, consider options that:

    • support your business with a dedicated, human specialist
    • have an extensive and positive track record in the HR and payroll tech industry
    • maintain ISO and SOC certifications
    • offer 24/7/365 support and free training with their software
    • place employees at the forefront of payroll, ideally through an easy-to-use self-service experience

    Manual payroll vs. automated payroll

    By now, most companies use some form of payroll automation. Still, a few outliers may exist. Generally, smaller companies with tight budgets may at least use manual payroll to get by. However, that also means someone at that company is:

    • collecting all hours worked and approved time-off requests
    • entering in pay rates, bonuses, commission and more
    • calculating overtime and other pay changes by hand
    • keying in new employee data
    • vetting taxes, benefits and other deductions

    On top of all of these responsibilities, someone completing manual payroll may also be left verifying their own accuracy. Payroll automation, however, pulls HR pros out of these tasks, allowing them to manage payroll as opposed to entering and executing it themselves.

    The future of payroll automation

    Like all HR processes, payroll still has room to grow. It’s not entirely clear how payroll will evolve, but as it stands, Paycom is one of the only options that allows employees to verify their payroll and fix it before submission. The evolution of automated tech may give employees even more insight into their pay while proposing new ways for HR to manage, not execute, payroll.

    Perhaps in the near future, we’ll continue to see more employee-centric automation that advances a truly holistic approach to HR, like Paycom.

    Payroll automation case study

    For a Texas-based credit union, an outdated, manual payroll process created administrative headaches for HR and stress-inducing errors for its staff. The employer even saw some employees resign over inaccurate pay. However, the company saw a complete reduction in payroll mistakes when they implemented Paycom and Beti®, its automated payroll experience.

    Since Beti empowered the credit union’s employees to find and fix issues before submission, HR didn’t have to spend days checking for errors.

    “I spend zero time fixing errors now that we have Beti,” said one of the credit union’s branch managers.

    All in all, Paycom and Beti reduced the time the organizations spent processing payroll by a staggering 88%.

    Explore Paycom’s resources to learn more about payroll, HR automation and more.

    DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.