The Pitfalls of Manual Payroll Processing

November 4, 2019
The Pitfalls of Manual Payroll Processing

According to an online report, 25% of American organizations still rely on traditional paper and pencil methods when it comes to calculating and processing payroll. Payroll includes processes such as the maintenance of employee records and the calculation of salaries/ wages, processing taxes, and so on. Some organizations that have just started tend to go in for manual payroll process as a way of keeping costs down instead of looking at payroll outsourcing services.

Manual Payroll:

Manual payroll typically is seen in companies that want to keep operational costs to a minimum. After India gained independence, the payroll process in India was a tedious and sometimes harrowing process for many companies. Records had to be manually typed out with copies, records had to be verified, and there was potential for these records to get damaged. In a lot of cases, manual payroll’s effectiveness hinges on the accuracy and skill of the manager or executive in charge of the payroll process.

Steps Involved:

  • Time and Attendance: The manager or person in charge of payroll must calculate the time and attendance of all the employees in the organization. They must look at aspects such as paid leave, half days, medical leave, overtime, and so on.
  • Benefits: Benefits to employees are then factored in. This includes costs to a company such as travel allowances and phone recharges.
  • Tax Deductions: Tax deductions include the deduction of a certain sum from the salary as per government and state rules.
  • Record Maintenance: This includes collating and organizing records and documentation pertinent to employees and their transactions – their bank statements, vouchers, etc.
  • Crediting the Salary: Once the above tasks are completed, the manager must ensure that salaries are credited to individual accounts and that employees are notified.

Quite a few organizations still rely on manual processing methods. As stated before, more than anything, it is done to keep costs down. In companies with very few employees, managers might not want to go for payroll outsourcing services. They might also feel that there is a greater sense of surveillance and control over their employee data and transactions.

Disadvantages and Challenges of Manual Payroll Processes:

  • The biggest challenge or problem of manual payroll processing is human error. This puts additional stress on HR and finance teams to work together to deal with the error. Incorrect payments or calculations cost companies, especially small ones, dearly.
  • As the number of employees increases in an organization, tracking and maintenance of records, as well as calculation of payroll, becomes a time consuming and stressful task.
  • The manual process is a time-consuming process for both the organization and the employees to access the payroll records and documents.
  • Managers will face extra pressure to keep a check of all their employees’ transactions, which makes this even more problematic.
  • In the past, as everything was mostly recorded on paper, records and data took up a lot of space, making manual methods seem more and more impractical and not very environment-friendly.
  • Manual payroll processes will find that they cannot easily be customized or adapt to change. As organizations grow, specific key processes will also increase. Organizations with a manual payroll system might find it challenging to adapt to new protocols, policies, or laws, which might also hamper an organization’s overall growth.
  • Employee dissatisfaction might arise due to manual payroll systems and their lack of efficiency.

Many organizations have begun to look for payroll software solutions and payroll outsourcing services. They effectively eliminate all the challenges faced with manual payroll systems. There are even payroll services for small businesses that can tailor the range of their services for those organizations. These solutions are offered at competitive prices, as well.

Are you wondering how to streamline your HR and payroll processes? Call TalentPro today for a myriad range of HR services.

Share this post