Manual Payroll System – The Real Cost of Payroll

Many of our clients who have moved from the traditional methods of accounting to the cloud using simple bookkeeping software solutions have been surprised at the positive impact on the bottom line.

When they look at their profit and loss statements, they can pinpoint cost savings to the month they made the switch from manual payroll system to streamlined software. Quite often they drill right down and discover the savings around time and money (and let’s face it time IS money) and its connection to payroll.

Here are some of the challenges payroll can throw up when processes and procedures are done manually, in spreadsheets or in cumbersome, desktop accounting software that isn’t exactly user-friendly.

• Miscalculations on PAYG
• Not having the correct tax tables set up
• Superannuation calculated incorrectly
• Not accruing annual leave properly or efficiently
• Confusion through not having proper or efficient record keeping processes
• Human error

If any of those things happen, an unhappy employee will call and suddenly accounts staff, a bookkeeper or YOU if you’re overseeing the financials may end up trying to fix it. So let’s look at a scenario here and the cost to a business of a simple payroll error:

Jay runs a landscaping business. Mark is one of his staff members. Mark has a few super accounts that he has been advised to roll into one so he has been collecting all the paperwork and checking the payments and balance of his super accounts when he notices an error in his super.

• Mark call Jay to tell him about suspected miscalculation of super wage calculation in his payslip. There goes 10 minutes!
• Jay calls his bookkeeper. She’s with a client – she’ll call him back. 2 minutes gone.
• Jay decides to do some investigating himself and looks around for paperwork but can’t find anything. 30 minutes of wasted time.
• The bookkeeper calls him back and chats to Jay on the phone about it. There goes another 10 minutes.
• A week later he still hasn’t heard back from his bookkeeper so Jay calls her again. 5 minutes.
• The bookkeeper is investigating the miscalculation and has spent time on the phone to the Australian Tax Office and to Mark asking him to forward all his documentation again. The bookkeeper has totted up 2 hours already trying to sort this out. Mark also came into the office when he should have been out on a job to sort it out. There’s one hour of wages not related to any revenue coming in.

The bookkeeper finally streamlines the payroll and gets to the bottom of it and discovers that all of Jay’s 10 staff members have been paid incorrectly. She estimates it will take her a day’s worth of work to fix the issue.

So, just from this scenario we’re looking at a day and half of wages on a payroll issue. That is money down the business drain! And we can only imagine the additional costs involved in the back pay of the miscalculated super. Ouch!

There is an opportunity cost attached to this. That day and a half Jay and his bookkeeper could have been doing what they’re meant to be doing. Jay could have been working on his marketing and getting new clients on board.

His bookkeeper could have been getting up to date and in front with payroll, instead her To Do list has moved the side as she works out the superannuation issue.

We’re not saying that simple bookkeeping software takes errors out of your business completely. What we are saying is that an automated approach, set up by cloud and accounting software experts with experience in this area, will minimise errors and allow business owners to be alerted to issues MUCH sooner than months later when the financial damage is bigger and harder to manage.

We all know the phrase ‘back pay’ strikes fear into the very heart of a business owner! Let’s keep that to a minimum, shall we?

Tiered of using your old manual payroll system? To discuss automation processes for your business please contact us! {{cta(‘a2ddcb89-d6d7-4007-b4c7-63220008fd27′,’justifycenter’)}}