People & Payroll Propositions - Five areas of risk

As a large payroll outsourcing provider, BDO’s National Payroll team handles the processing of almost 1,000 clients' payrolls across all sectors, with staff numbers ranging from one person to tens of thousands.

To ensure our team of over fifty qualified payroll professionals deliver this large volume of payrolls accurately and on time every week or month, we regularly review our central set of processes and procedures. We also use a variety of tools to help drive efficiencies and optimise our payroll processing.

With a strong process structure, centralised approaches to managing work, and a wide array of technology tools, we achieve high levels of accuracy in payroll processing. Typically, we achieve an average accuracy rate of 99.75% across our client base. We provide fast processing turnarounds and, more importantly, mitigate the high levels of risk typically associated with payroll processing, enabling our clients to focus on their core business.

Given the sensitive nature of the data we handle, including bank details, addresses, National Insurance numbers, and dates of birth, we place a strong emphasis on data protection. We ensure robust data security across all our systems, provide secure data portals for safe data exchange, and have rigorous disaster recovery and contingency plans in place.

As part of our People and Payroll services, we have assisted many clients who manage their payroll processing in-house. We conduct full reviews of clients’ payroll systems, processes, and benefits structures to identify areas of risk and suggest improvements. Particularly among our charity and NFP clients, we have identified common risk areas that, if not addressed, could lead to staff not being paid accurately and on time or data breaches.

Five trending areas of risk for in-house payroll processing include:

1.              Task management

Processing a payroll involves over 20 different steps, from collating data changes and uploading tax code updates to processing the payroll, checking it, producing reports, and handling HMRC reporting. Pay and reward teams also manage reporting for pensions and other third parties, produce payslips, and ensure payment to individuals.

Reviews of our clients' in-house payroll management often reveal that tasks are managed manually, typically on spreadsheets or through diary notes in Outlook. This method has a high risk of failure when the responsible individual is absent. Most task failures occur when a key person is on holiday or sick, therefore, it's crucial to have a centralised approach to managing these tasks.

At BDO, we use an electronic task management system that both our payroll team and clients can access. This system shows the exact stage of the payroll process, provides prompts for key actions, ensures the safe exchange of data, and retains a full audit log of all tasks.

2.              Processes

Our client reviews often reveal that in-house payroll processes are not documented. This results in team members working without a consistent approach. More importantly, it introduces a high level of risk that not all processes will be followed, especially when key individuals are absent.

Our National Payroll Team at BDO operates from four locations. To ensure all clients receive a consistently high level of service, we have centralised and documented all payroll processes. This means our team works the same way, whether they are in our London or Glasgow office.

3.              Minimising manual data transfer

Payroll errors often occur during data transfer. For many clients, a large proportion of payroll data changes are still manually entered into the payroll system each month. This exposes them to the risk of data being incorrectly transposed and extends the payroll processing time, increasing costs.

Capturing data at the source and reducing manual intervention can significantly improve payroll accuracy.

At BDO, we work with clients to identify the origins of their payroll data changes. Often, data is collected in internal HR and finance systems and then sent to payroll for processing. We help clients obtain electronic payroll data files from these systems and build import mapping processes into the payroll system. This eliminates the need for data to be rekeyed, ensuring high accuracy every time. We also use software like Alteryx to assist with data checking, allowing our team to focus only on discrepancies, saving hundreds of hours each month.

4.              Contingency and disaster recovery planning

Often, we find that our clients lack contingency or disaster recovery plans for their payroll processing or have never reviewed this area. This creates a significant risk for the business, with staff potentially not being paid on time. Over the past two years, several cyber-attacks on payroll and associated cloud-based systems have left many firms unable to pay their staff on time or accurately for months.

Contingency and disaster recovery planning is a key priority across our firm, and this includes our payroll systems and tools. We ensure regular testing is carried out. All systems used to deliver our clients' payroll services and make BACS payments to staff and third parties are given a P1 status. This ensures they can be up and running within an hour if they go down.

We also have contingency BACS and Faster Payment systems in place. This provides a backup for BACS and allows us to make same-day payments to staff and third parties, ensuring deadlines are met.

5.              Segregation of duties

Often, reviews of in-house payroll functions often reveal a lack of segregation of duties. This is a significant risk, as key elements of the process can be missed if the responsible individual is unavailable.

At BDO, we ensure that all payroll processes are double-checked by another team member. This helps address any issues before payroll is finalised. Additionally, we assign different people to  process areas, including BACS. This ensures we are never dependent on one individual for the successful completion of payroll and associated tasks each period.

Since 2020 and the Covid-19 pandemic, we’ve seen a sharp rise in the complexity and breadth of social and economic challenges that businesses are facing. Increasingly, our clients are turning to real-time people, pay and reward data — provided by their payroll function — to aid their decision making across many of these areas of risk and opportunity.

As a result, the profile of the pay and reward discipline has been elevated among our clients. We've observed a rise in the adoption of integrated HR and workforce management solutions, as well as an increase in outsourcing payroll processing. These comprehensive solutions allow clients to capture staff information at the source and track staffing costs on an hourly, daily, or weekly basis. This enables immediate adjustments and significantly reduces payroll processing risks, especially concerning staff absence. Additionally, it eliminates the need for expensive in-house payroll systems and training.

These changes have also led our clients who manage payroll in-house to bring in experienced payroll advisors. These advisors review processes, identify areas of risk, and provide suggestions and feedback. They also help build process maps and introduce tools and software to streamline the process.

How can we help?

Our People & Payroll Services teams are here to assist with all aspects of your people, pay and reward framework. For more information about how we can support you and your business, please contact Maria Mason

Maria Mason

National Payroll Partner, BDO LLP

Maria.Mason@bdo.co.uk