The ten payroll commandments for an efficient payroll function

Does your company find that you lack staff with specific expertise in payroll? Is the payroll process confusing and lacking transparency? Then you're not alone!

At KPMG, we often come across companies that lack the necessary competences required for a well-functioning payroll function. In Denmark, for example, there is no education specifically aimed at payroll - and therefore, for many companies, it often becomes "learning by doing", which creates challenges.

For smaller companies, it's also often the case that they don't need a full-time employee to prepare payroll - and therefore an employee in the accounting department is usually responsible for this part. The challenge is that important knowledge about legal regulations, collective agreements, reimbursements, etc. can be lost.

This can prove to be a major challenge for companies. For example, if data used for payroll, such as basic salary, bonuses, new hires, is incorrect or arrives too late, it can create more manual tasks which ultimately place even greater demands on the employees.

Based on our observations, we've developed the 10 payroll commandments for a well-functioning payroll function. These can be seen as a guide to what your organisation needs to be aware of when it comes to payroll. The payroll commandments are divided into three areas that are central to today's payroll function:

• Digitalisation
• Processes, compliance and controls
• Competences.

You can read more about each payroll commandment below.

4. Information must be exchanged between HR and Finance in digital processes with clear controls, roles and responsibilities
Information needs to be exchanged between HR and Finance in streamlined digital processes with clear controls, clearly defined roles and responsibilities. This not only eliminates the risk of losing important data, but it also ensures a more efficient and cohesive payroll process.

5. The payroll process is rule-based and needs to be automated in every organisation
Many payroll professionals spend a significant amount of time navigating between systems, manually entering and transferring data. With digital solutions, you can reduce the time spent on manual data transfer. A properly automated payroll process also minimises the risk of errors and ensures that all rules and calculations are applied consistently and accurately.

6. Your payroll system should match your business needs
This helps to ensure efficient payroll administration and accurate payments to your employees. Failure to customise the system can lead to an overload of manual actions, resulting in errors, unnecessary time consumption and missed deadlines.

7. You must document the results of controls throughout the year
Implementing a control isn't complicated - but setting up a process around controls so they're carried out when they're supposed to be and documenting them for audit and regulatory purposes can be difficult for many organisations.

8. Your payroll should follow a standard process in line with best practice
In a busy, ever-changing field, a well-documented payroll process can make it manageable to constantly test the process against best practice in the field.

9. You must document that no one has unnecessary access to personal data
Are your payroll processes GDPR compliant and can you document this? The payroll process is an important GDPR area as it contains a lot of sensitive private information about employees.

10. You must document compliance with good practice for segregation of duties
Do your payroll employees have the ability to change their own payroll information? Is there documentation that segregation of duties is taking place?  While segregation of duties is at the center of almost everything, in payroll it's a process primarily designed to safeguard against costly errors and fraud.