Expertise Beyond the Numbers

Time is of the Essence: How Timekeeping Improves Payroll Operations and Efficiency

A payroll department is an essential function within any organization. Simply put, employees need to feel confident that they will be accurately paid on a consistent and timely basis. The main objective of the payroll department is to process employee compensation while maintaining compliance with applicable laws and regulations. However, so much of the payroll function relies on cooperation and internal compliance with regards to employee timekeeping, supervisor approvals, and payroll schedule timelines.

The payroll process repeats on a scheduled basis throughout the year, with each iteration requiring the time and efforts of assigned resources to ensure that precise payroll calculations occur prior to each deadline so that employees are paid the correct amount on time, every time. The traditional payroll process may involve no shortage of forms, calculations, and spreadsheets which can be tedious and time consuming when performed manually. To assist with the volume and demands of the workflow, and reduce the number of manual handoffs across departments, many organizations rely on payroll software. If utilized correctly, dependable payroll software can relieve valuable organizational resources so they can focus on other areas of business.

Our team highlights the importance and impact of department level timekeeping at the point of entry and its effect on the effectiveness and efficiency of payroll resources.

Quality of Timekeeping at the Point of Entry

Per the Fair Labor Standards Act (FLSA)[1], organizations must comply with specific record keeping practices. However, with information coming from multiple sources and departments, it can be easy for a business to overlook timekeeping errors that may have serious consequences to employees and the organization if they aren’t identified and corrected timely. The payroll process starts with an employee’s time being entered into a time entry record keeping system: this initial time entry is where there is the greatest risk that an error will occur. Common types of time entry errors that could adversely impact payroll processing could include:

  • Inadvertently entering the wrong number of hours worked in a given day: This could impact not only the total number of hours worked by the employee in a given week, but can also impact overtime calculations (non-exempt).
  • Improperly coding time: Depending on the organization and/or the type of work performed, time coding errors can impact project scheduling and timeliness, capitalization calculations, and resulting funding reimbursements or payments.
  • Coding time to the wrong location: For organizations that operate in multiple jurisdictions, it is important that employees accurately code their time to the specific location at which the work was performed. Failing to properly report the location can impact the organization’s tax reporting calculations.

Review and Approval of Employee Time Entries

Once an employee’s time has been recorded in the timekeeping system, an independent review to verify the completeness and accuracy of entries is necessary. Typically, an employee’s supervisor or manager is assigned to validate time and pay codes entered. However, in some organizations, a manager can have a large team directly under their review. In these situations, it is important for the timekeeping approval process to be appropriately delegated. It is not likely that a manager has the depth of knowledge and familiarity regarding personnel work schedules to properly review timecards (reconcile to an employee’s work schedule) at a detailed level for a large number of employees.

The approval process should be manageable to allow for timely, detailed, and accurate review to capture potential errors. Additionally, time entry approval should be evidenced by both the employee and the supervisor that approved the time submission. This evidence will help to prevent future discrepancies in which employees claim that they worked a number of hours that differs from the record of hours worked that can be provided by the organization.

Payroll Adjustments and Segregation of Duties

Part of the payroll process for every organization is the need for adjustments to be made to employee payroll entries to update or correct internal time entry errors or omissions – whether for the current pay period, or for a previous period. Each payroll adjustment should require the completion of a manual or electronic payroll adjustment form that is submitted by the employee, or otherwise includes the employee’s acknowledgement/approval. The payroll adjustment form is then reviewed and approved by the employee’s supervisor and others – based on the organization’s specific payroll policy. After the payroll adjustment form has been appropriately completed, reviewed, and approved, it is submitted to the payroll department for processing.

Once an approved adjustment has been submitted, a payroll employee enters the adjustment in the time entry and payroll software. Prior to the employee’s pay being adjusted up or down, an internal review and approval process should be in place to ensure the appropriateness and the accuracy of the adjustment. The payroll workflow should require a second level of review, conducted by a separate individual, to verify the adjustment was entered correctly. Further, to strengthen internal controls, the payroll policy should establish an approval hierarchy based on adjustment dollar amount to require increased levels of review and approval for adjustments prior to being paid.

The volume of timekeeping-related adjustments can significantly impact the efficiency of the payroll department. Depending on the volume, a significant amount of time could be needed each pay period to perform detailed reviews of manual paperwork and to enter adjustment activity into multiple systems. The payroll department should develop periodic reports that quantify the payroll adjustments by department and, if possible, identify the employees or supervisors who most frequently necessitate payroll adjustments. Payroll should then work with the departments on an ongoing basis to identify and address the causes of payroll adjustments, and to minimize the need for additional or recurring adjustments. Effectively reducing the need for payroll adjustments hopefully allows assigned resources more time to focus on other tasks and responsibilities.

SC&H Group’s Risk Management team can help organizations assess their payroll processes to identify manual pain points.  Further, SC&H can perform payroll audits to assess the effectiveness of internal controls, evaluate the process design for ease, alignment to business needs, and identify opportunities for improvement.

Contact us today to learn more about best practices that could strengthen your organization’s payroll department, and how we can assist you in meeting your organizational goals.

[1] https://www.dol.gov/whd/regs/compliance/whdfs21.htm