September 21, 2016

Buying a New Payroll System? Don’t Forget These Items!

Buying a New Payroll System? Don’t Forget These Items!

By Kit Dickinson on September 21, 2016

man's hand with reminder ribbon tied around his index finger

When selecting a payroll system, you need to make sure the basics are covered—correct pay stubs, tax compliance, deductions, reporting, etc. But many companies realize after their new system is installed that they failed to consider significant aspects of their HCM system.

There are several items that can easily get overlooked during the early stages of the purchasing process. If you forget to consider them while selecting a new system, you could end up regretting the solution you opt for.

Here are some of the most common overlooked items in a payroll system.

Automation of Legacy Pay Policies

Many organizations have incentive policies, bonuses, job rates, production pay, or other business rules that are unique to their company and are an important part of their culture. In the past, payroll systems (and time-and-attendance) focused on basic rules for calculating different pay or wage rates.

Today, many HCM companies have evolved their wage assignment engines. Before you purchase a new system, share your spreadsheets or other methods for determining these important pay policies. Confirm that the vendor can accommodate, or find out how close they can get.

Integration with Other Systems

Make sure all of your systems that impact, or are impacted by, employee pay can talk with a payroll system. Take inventory of your different existing systems that share data with payroll to make sure the vendor can accommodate. For example:

  • Exporting payroll data to your Accounting/Financial System (GL)
  • Importing financial data (loans, deferrals, stock options) from your 401(k) system
  • Importing employee expenses from your expense management system
  • Exporting employee new hire and Masterfile changes to other systems

All Flavors of FLSA

In the past, the Fair Labor Standards Act (FLSA) only impacted your hourly, time clock-punching employees. Now FLSA also governs how your bonuses, commissions, and other non-discretionary payments must be paid against prior pay periods. It also regulates how the blended overtime rate is to be calculated for a pay period, among other rules.

Further, with the new legislation effective on December 1, even more of your employees may be affected by FLSA.

Be sure to communicate all of your different employee types (hourly, salary non-exempt, OT-eligible employees that get commissions, etc.) and pay frequencies (weekly, biweekly, semi-monthly) to the vendors you’re evaluating so they can keep you in compliance with this ever-changing law.

Managing Salaried Employee Labor and Non-Labor Costs

Payroll systems historically handled salaried employees by lumping all of the salary for a pay period to a single department, job, or cost center—and that was okay. These employees got the same pay every period, so it didn’t matter where they actually worked. The same was true for assigning non-labor costs to departments/jobs/cost centers.

But today, government and clients scrutinize how their dollars are being charged. You need to be able to track and justify how your exempt employees’ labor and non-labor costs are allocated. If you don’t have this information, or if you assign artificial “fixed” estimates, that’s a huge audit flag for funding sources and clients. The people paying your bills won’t trust a report that says John Smith spent exactly 50% of his time every day for the last six months on the same project or grant.

Ask your vendor how they allocate salary hours and earnings accurately and proportionately to clients, projects, and grants.

Next Steps

Professional Services Video