Why computerise your payroll?
Since the amendments to the Holiday Act 2003, the introduction of the KiwiSaver Act 2006, and the need to Pay Day File (2019), more businesses have converted from manual to computerised payroll. They have done so to simplify and speed up the processing of pays which would otherwise require lots of manual work and detailed calculations.
Mistakes made affect people's livelihood and severe penalties are in place for those employers who get it wrong! There are more labour inspectors out now than ever before. Having said that there is, surprisingly more small businesses employing < 5 people using paper-based systems (such as a pay books) or a spreadsheet to calculate employees pays than a computerised payroll.
The purpose of this article is to compare the advantages and benefits of a computerised payroll system to a manual payroll to help you decide which is most suitable for you. We also list the benefits of using a payroll bureau which means your company is outsourced to a specialist company who take the set up and processing off your hands.
Advantages & benefits of a computerised payroll
Computerised payroll helps achieve best practice
The main advantage is that a system helps ensure that pay clerks do things ‘right’. A computerised system calculates hourly rate x no. of hours worked to give the gross wage, then automatically calculates deductions such as PAYE (Pay as you earn tax). A computerised payroll forces the user to follow steps and includes checks and balances to ensure things are done right. A computerised system can be (relatively) learned by a person who has no previous payroll knowledge.
Most people would agree that payroll is easy using a program and takes minutes from start to finish (for a small number of employees)
Computerised payroll take less time than manual
Once a payroll system is set up, the time taken to process a pay is less. You set up 'standard' pays for people so that all allowances and deductions are processed without one thinking about it. Time is saved preparing pays and running the payroll so the employer saves money. All payroll records are held in one central place on the desktop or in the cloud. It’s still necessary to keep leave requests and have access to reports. Most people would agree that payroll is easy using a program and takes minutes from start to finish (for a small number of employees).
Leave calculations done for you
The most complicated area of payroll is working out the holiday pays (i.e annual leave payments). Again, provided the set-up is correct, processing holiday pays is easy compared to working them out manually. In NZ we are required to pay the higher of the average rate over the past 12 months or the normal (current) rate when an employee takes annual leave. Imagine working the 12 month average rate out manually!
Pay day files created automatically
Every business with an employee, must file every pay day to the IRD. A payroll will electronically file while a manual payroll requires manual entering. Surprisingly, according to the IRD, more than half of all NZ businesses complete and file these reports manually.
Payslips and reports are printed or emailed
Payslips contain more information (leave due and leave accrued) than handwritten payslips which relates to happier employees. Generally employers who run manual payroll don't create pay slips.
Electronic direct crediting of pays
This is faster and less time consuming than any other method. Once the pay is finalised a direct credit file is created. This is uploaded to the bank as a ‘batch’ and everyone is paid. Employees (in the main) expect pays to be direct credited to their bank accounts.
Tax tables are kept up-to-date
No need to look up the tax tables as the programme contains the rates for PAYE, student loans and KiwiSaver. The program also calculates any tax credits (from IRD to employer).
Improved management reporting
Any payroll programme should come with a range of management reports such as costing reports so management can see wage costs over different areas of the business. ACC levy reports, sick leave, annual leave reports and others can be produced.
Back-ups are easy
It is easy to back-up the payroll file for safe keeping. Paper based systems are not backed up, so if the pay book was lost or destroyed then the business could face big problems. Cloud payrolls cannot be backed up. Generally, you can delete a pay created in error. This is not best practice but necessary if you can’t make a backup before the pay is ‘finalised’.
Often wages are the largest single cost a business has. Payroll software enables you to job cost or apply costs to departments within a business. This enables owners to control payroll expenses.
Integration to accounting
You finalise a pay and the pay journal is posted to the general ledger. This updates your financial reports (Profit & Loss and Balance Sheet).
Advantages & benefits of a manual payroll
Less training needed
No computer skills are needed as none needed – less training is required to run a manual system.
Advantages of using a payroll bureau
Responsibility for payroll with professionals
You outsource payroll to people with the expertise to do it. You don’t need to invest in hardware, software or training. Payroll is complicated - there are 50 pieces of legislation impacting NZ payroll.
Security and confidentiality
No chance of confidential papers or payslips lying around. Sensitive information is protected by others. Backups are guaranteed.
Many bureau’s have the added advantage of web based systems. Employee can access payslips, manage leave, read memos, and update their own information from anywhere using their own login and password.
Employers separated from their own payroll
Smaller employers prefer to out-source as it keeps them at arms length of their employees and possibly less likely to suffer from a personal grievance case against them.