What Is Payroll Leakage and How to Minimize It?
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A significant portion of an enterprise’s revenue goes into payroll, sometimes rising to even 50% if we talk about industries that are more labor-driven. Growth is a natural progression, and as businesses expand, there is a need for a larger workforce. However, this is where it starts to get challenging.
An increased workforce means an increase in labor and admin costs, and this is when inefficiencies and wastage can start to sneak in. It is important for an organization to maintain accurate personnel data, especially related to payroll to avoid payroll leakage.
What Is Payroll Leakage?
This is a catchphrase used to identify accidental and unexpected spends caused due to incorrect or improper handling of employee data. The reasons for this could be many.Common causes include incorrect time tracking, outdated technology, failure to follow compliance guidelines, and human errors..
If you’re serious about growing your business, you need to look at decreasing, if not eliminating, any unnecessary expenses. And understanding payroll leakage and finding ways to stem this outflow is the first step to correct the system.
How Can You Avoid Payroll Leakage?
The challenge is finding the leak, however tricky the payroll process is. There are a few places that you can look at to understand if you need to plug the gap.
Many enterprises face payroll leakage because of incorrect timesheet data – extra hours added either intentionally or unintentionally by employees. These lead to excess payments and the overall project cost can balloon up.
Sometimes the mistakes are genuine and not deliberate. Several organizations have yet not moved to automated timesheet software. When data is entered manually, not only is it time-consuming, but it is also prone to human errors, leading to erroneous calculations at the end of the day.
Let’s say you have moved over to data collection and analysis software. How long has it been? Has it kept pace with the changes in your organization and the industry? Using the latest and configurable software brings a greater level of accuracy and efficiency to payroll data gathering and calculations. Some of the new technology allows you to track different sets of payroll metrics and generate predictive charts.
Does your industry have specific rules that have been put in place to safeguard employee and employer interests? These rules can change over time, and unless you keep up with them, you might be losing out on some benefits. Worse, if your organization isn’t compliant with the latest rules, it can throw your billing and payroll system off the track. Furthermore, you might incur penalties and legal costs, adding to the leak.
Another area that many businesses tend to be lax is work-related employee expenses. If your people need to travel for work, you need to cover them for food, travel, lodging, etc. If there’s no upper limit on this, some employees are likely to take advantage of it and cause payroll leakage. Find ways to track legitimate receipts versus inaccurate ones to keep a tight rein over expenses.
You want to meet deadlines and hire additional staff to meet your targets. This is where budget planning and estimation get critical. Ask yourself whether you have budgeted accurately. Ensure all tasks associated with the project are tracked correctly and costs are maintained accurately. This can take care of issues like overpayments and underbilling to a large extent.
Now that you have understood the many ways your organization might be suffering from payroll leakage, let’s look at ways to fix these gaps.
Tips to Minimize Employee Payroll Leakage
The capital that you save can be well utilized in other parts of your business and add to your growth plans. The ideal way to go about achieving this is by embracing technology, providing proper training to your people, enforcing rules and staying a step ahead of changes in the industry.
When you integrate automation into your enterprise’s payroll system, you can:
- Put in place defined standards and practices to monitor time and employee expenses.
- Include multi-level validations to identify and highlight data inconsistencies before payroll is processed.
- Establish an approval mechanism to authorize employee overtime hours to keep a check on misuse of the system.
- Identify and eliminate unnecessary expenditures by setting limits on overspending during work-related travel.
- Budget and plan for projects accurately, including job costs, project budgets, hiring estimates.
- Align reporting with the latest guidelines to simplify audits and inspections.
- Be compliant with region- country-specific labor policies and avoid paying hefty penalties and legal fees.
- Incorporate advanced time-tracking software in your operations to prevent fraud and add an additional layer of security.
- Get instant one-point access to all the relevant data and generate reports to understand spends in real time.
Also Read: What is Payroll Management and How to Manage Payroll?
Over To You
As businesses grow, payroll systems might not be able to keep pace with decisions made, oftentimes in haste. Manual assessments and supervision methods can only go so far and are not always accurate in identifying and preventing revenue leaks. Also, the additional time and effort spent in manually rectifying payroll leakage is a waste of resources, which could be utilized elsewhere.
Switching to a fully automated time-tracking solution can help reduce errors significantly, save money, and increase overall business efficiency. The transition can be laborious, to begin with, and also tricky. However, the benefits far outweigh the initial challenges of the undertaking. A scalable solution can automate all your processes, require very little to no human observation, and also grow with you as your business needs expand.
