This article was written by Mark Paraskeva, CEO of the SME Division at IRIS Software Group.

Payroll is often seen as a cog within the wheel of business. However, it’s rarely glitch-free. It’s complex and fraught with challenges but although it does not contribute directly to the bottom line, it is also indispensable. For any organisation, understanding the key challenges and ensuring it is properly geared to deal with them is vital.

The following are seven of the most common challenges that a modern payroll department may face, as well as some tips on how to overcome these issues. These issues range from changing perceptions of the payroll function and reducing costs to keeping up with changing legislation and getting the most out of your payroll software.

1) Payroll is undervalued in today’s organisations

Payroll is often taken for granted and viewed as no more than a commodity in many companies today. Most employees will have limited knowledge of payroll and the important function that it plays – it may be seen as an administrative burden that is necessary but provides no real added value to the business.

It is a constant battle for payroll professionals to change the perceptions and pre-conceived ideas of their role in a business. If you suffer from this issue, ask yourself the following questions:

• What are the core elements and characteristics of your service?
• What do other departments need to know about your service, its benefits and how best to use it?
• What is the most effective communication media for distributing this message?

2) Making the move from a reactive to proactive function

Part of the reason that payroll may be undervalued in your company could be that it is often seen as reactive. Employees need to be paid so payroll arrange wages. Management require certain information so payroll provides a report.

With commercial payroll software there is a huge range of different, often customised reports which can be created. More often than not though, these reports are pulled as a force of habit but the data is not properly analysed.

There is a huge opportunity for payroll to have a hand in influencing company strategy, providing they can provide adequate information to the relevant decision makers.

For example: a business may be employing staff members to do an increasing amount of overtime, which pays a higher rate than usual. Payroll could analyse the long term costs of this and offer alternative, more sustainable options such as bringing in a new employee to work part time.

3) Keeping up to date in a constantly changing world

The world is constantly changing, but in recent years these changes have been occurring at an ever increasing pace.

These changes can fall into a variety of different categories:

• Technology – smartphones, tablets, cloud computing, digital payslips etc.
• Legislation – Real Time Information, automatic enrolment etc.
• Work habits – increased career mobility, telecommuting, field based jobs etc.
• Environmental – increase in corporate social responsibility, “green initiatives” etc.

In order to remain competitive and successful, you need to be adaptable and willing to embrace change. Payroll can be viewed as an old fashioned, out-dated business function but this doesn’t have to be true!
Don’t be afraid of change, more often than not by welcoming change you can actually cut costs, save time and improve efficiency!

4) Dealing with Real Time Information

In April 2013 HMRC introduced the biggest change to payroll since PAYE was implemented almost 70 years ago.

Real Time Information (RTI) requires employers to submit PAYE records to HMRC on or before each time they pay employees, rather than annually at year end.

Despite RTI being compulsory for almost every employer in the UK, a recent study found that almost 600,000 PAYE schemes had still not switched to the new process and could face penalties from HMRC.

There are two key things that businesses need to ensure they are prepared for in order to operate their payroll in Real Time:

• Make sure you have RTI compliant payroll software or use an RTI compliant outsourcing partner.
• Make sure your provider has a range of RTI support options to help you through the transition and give you the best possible advantage.

5) Preparing for automatic enrolment

Automatic enrolment is one of the main components of workplace pension reform, which is being introduced to counter the issue that people are living longer but saving less for retirement. Automatic enrolment is being rolled out in stages, called staging dates, with some of the largest companies staging in October 2012.

Leading industry experts suggest that businesses should start preparing for automatic enrolment 18 months before their staging date, so you should already be beginning to think about the next steps you need to take.

Payroll will play a major role in ensuring compliance with automatic enrolment so it is vital that your department is educated on the changes and the new processes you will need to follow.

6) Software limitations

When it comes to using commercial payroll software there are two issues which you may encounter.

1) Your payroll software has limited functionality and therefore cannot perform certain tasks.
2) Your payroll software has the functionality to perform the tasks you need, but your knowledge of the software is limited so you cannot use it to its full potential.

These issues are both very easy to overcome with a couple of simple steps.

Firstly, when choosing your payroll software, work out exactly what functionality you need and try to anticipate any functionality you may need in the future. Obviously you can’t predict exactly what will happen, but trying to “future proof” your systems can be a huge benefit in the long run.

Secondly, make sure you remain up-to-date with the latest software and any changes to legislation. This will not only save time in future, but will enable you to use your software to its full potential while remaining compliant.

7) Costs

Running an effective payroll department can involve a number of different costs: purchasing your software, spending time learning how to use it, and employing people to run your payroll.

Although there is free payroll software available, sometimes paying for software can be a better option in the long term, as you may receive inclusive support and upgrades as part of your subscription.

Having the right payroll software in place can actually save you time and money, as once the software is installed and your staff is trained, submitting records to HMRC or paying employees can be done with a few clicks of a button. You can also have access to a range of custom reports, allowing you to gather and analyse huge amounts of data with ease.