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For most businesses, payroll is a tactical function. It’s transactional: You run payroll each period, hope for no mistakes, and do it again the next pay period. Sure, you have to deal with taxes, overtime, pay changes, etc. – but payroll is still largely a matter of inputting the right data, and letting the system do what it was designed to do.
But, just because this is how most companies approach payroll doesn’t mean this is the way it has to be. Companies that don’t look at payroll from a strategic planning mindset are missing out on a huge opportunity. This is because many businesses spend between 15% and 30% of their gross income on payroll; in the service industry, this number can reach 50%. It seems somewhat illogical to pay minimal attention to such a huge expense item, but payroll is only now starting to get the respect it deserves as a strategic imperative.
What does strategic payroll planning involve? These basics will get you started:
Budgeting:
Having more business than you anticipated is a good problem to have, but it can also invalidate your personnel budget. At the very least, growth projections should be shared with the payroll department so they can budget accordingly when it comes to headcount. Optimally, payroll will be involved with growth projections from the outset, offering insight into how growth targets will affect payroll, and setting a timeline for hiring.
Contingency planning:
Strategic payroll planning entails thinking through various “what if” issues: What if the weather or other impediments make it impossible for employees to get to work? If many of your employees live across national borders, what if political conditions make it difficult (or impossible) for them to cross? What if there is a labor strike? A solid business continuity plan has to address the question of how essential jobs will get done if employees can’t get to work.
Benchmarking:
One of the key differences between a tactical payroll department and a strategic one is a focus on continual improvement. Strategic payroll planning includes careful, deliberate benchmarking, and incorporates those best practices. The focus is on the future, not just the next pay period.
Legislative watch:
Another indicator of strategic payroll planning is the assignment of dedicated resources to monitoring, and planning for regulatory and legislative changes. This can include everything from tax withholding to data security requirements, and is a key component of strategic payroll planning.
On a tactical level, payroll is seamless, and usually goes unnoticed. As long as people get paid correctly and on time, no one worries much about how it happens. On a strategic level, however, payroll planning looks beyond the next pay period, and several years or more into the future. It anticipates the organization’s future needs – in terms of both headcount and skills – and prepares for environmental, and legislative changes that may affect the way payroll is processed. It’s proactive, not reactive. And, for what is the biggest cost center for many organizations, that’s the way it should be.
