Why is a unified HR and payroll process better than multiple separate ones?
As the old saying goes, do not put all your eggs in one basket. This was probably very true in the agrarian society of yesteryear, but it does not apply with modern system environments. It is in many ways smarter to combine at least HR and payroll functionalities under the same process, instead of having multiple separate ones.
To support our claim, we conducted a comparison that clearly indicates the pros and cons of integrated and decentralised systems.
What does it mean in practice if HR and payroll systems are not linked to the same data?
At many companies, HR management and payroll processing involve separate systems that are in no way connected and do not share the same data.
Nearly as many companies have found themselves saddled with a multi-system arrangement almost by accident: as business has grown, various separate systems have been acquired to meet the acute needs at hand.
Entirely separate systems can serve their purpose well at the time of acquisition, but the situation will change rapidly as the number of employees increases. The more data to process there is, the larger the role of system compatibility and functionality will be.
Pros of separate HR and payroll systems
This might end up being one of the shortest paragraphs in the entire blog post, but here goes. When considering HR and payroll systems, it is difficult to identify any actual benefit for having the data in separate systems:
As such, the list is concise:
+ You have at least some kinds of systems to replace old-fashioned paper pushing.
+ A specific HR function is business critical enough to warrant an entirely separate system. Training and recruitment systems are examples of this. In this context, too, the management of employment relationships must have a fixed link to payroll processing.
Cons of separate HR and payroll systems
When the HR and payroll data is located in separate systems and there is no access between the functions, the data must be transferred manually between the systems. In practice, this means the following:
1) A supervisor or HR sends working hour data to payroll processing (in the worst case scenario, shift planning can be in one separate system and actual working hour monitoring in another, but that is a different story altogether).
2) Payroll processing calculates the wages and forwards them for payment.
3) An employee notices that their pay raise has not been taken into account and notifies payroll processing of the matter.
4) Payroll processing checks with HR, which may then confirm the matter with the employee’s supervisor (at least if the company does not have a joint system to present the information).
5) HR reports the correct pay to payroll processing.
6) Payroll processing calculates the correct pay and makes the necessary changes.
7) Finally, the employee makes sure that the pay has been calculated correctly.
The pay raise in the example above is interchangeable with any other factor that impacts the wage amount or how it is recorded, such as a holiday, new employment agreement, paid leave, changes to the collective agreement, a bonus, overtime and so on.
Unfortunately, there is much more to say about the cons of separate systems than there is about their pros.
– The necessity for intermittent manual measures increases the risk of human errors. Even the slightest slip-ups in payroll calculation will have a direct impact on the employee’s bottom line, and rectifying the situation will require extra efforts from employees, supervisors, HR and payroll processing.
– Changes to an employee’s employment contract, cost unit, supervisor details or other information are not conveyed to payroll processing or the delivery is mistimed.
– Extra rounds of corrections and manual work deteriorate work efficiency.
– The tedious routines, manual tasks and additional correction needs in HR and payroll processes may impact the occupational well-being and motivation of the staff.
– Supervisors are unable to focus on what is important, i.e. management, and are instead forced to spend much of their time on transferring and checking information and handling similar administrative tasks.
– Persistent and recurring problems in payroll processing impact the employee experience and, in the worst case scenario, taint the employer image. In these cases, it may even be challenging to draw new employees to the company.
This may result in the organisation struggling under the requirements of decentralised HR and payroll systems to also have to tackle issues such as inefficiency and poor work well-being. There are few things as inefficient as an employee who is prevented from performing their work tasks properly.
A unified HR and payroll process benefits the entire organisation
What, then, is a unified HR and payroll process?
The starting point is that all data is shared and everyone has real-time access to each other’s data (within the limitations of their own roles): Payroll processing does not need to wait for information about holidays and pay raises since the system contains the up-to-date information. HR can prepare for management team meetings by searching the payroll data for details on the number of employees and actual salary costs, for example. Employees can check their own details and the basis of their salary or wage at any time.
Separate functions can still have their own systems, but they are integrated, meaning that data does not need to be transferred between systems. In terms of integration, it is important to remember any possible practical differences in the systems, such as the effective dates and logging of certain information.
A unified HR and payroll process can provide a wide range of benefits
In conclusion, data sharing is beneficial in many ways:
+ Supervisors, payroll processing and HR have access to the same data. The information can be used and approved immediately without unnecessary steps and confirmations in between.
+ The joint master data is accurate and up to date, and it can be easily used for the needs of various business areas.
+ Since the system does not make calculation errors, the need for repeated checking and verification is eliminated. The arrangement also minimises the risk of human errors, as the systems communicate automatically.
+ Automated electronic notification processes ensure the accuracy of the information in the context of various changes. This means that the payroll administrator does not need to engage in the time-consuming task of saving and interpreting the information.
+ Employees can independently check information related to their employment relationship, such as details on holidays, absences and pay.
+ Automated routines provide supervisors with the opportunity to focus on management and payroll processing tasks that require more special expertise. Ideally, this frees up time for tasks that impact the company’s business directly.
+ Smooth routines and processes improve well-being in HR and payroll processing, which reduces employee turnover and the number of sick days.
+ There is no need for integration, which simplifies the overall architecture and infrastructure of the entire company.
Cons of a unified HR and payroll process
To avoid giving the impression that life with centralised systems is all roses and sunshine, we should also go over the cons of the unified process.
– There are always costs connected to the acquisition of new capabilities. These costs are related to the system acquisition directly and to the training of employees and even the possible recruitment of new experts.
– Modern systems expose dated processes to closer scrutiny. At times, processes and operating models need to be changed radically.
– The commissioning of new technologies and systems requires employees to have the right attitude and the willingness to learn.
– The management’s example and support in the context of system projects is irreplaceable. The situation also requires strong change management.
As you may have noticed, the cons are actually not directly related to the unified process. This is no surprise since, from the perspective of the project, there are no cons.
In practice, around 50% of the data used by payroll and HR systems is the same or, at the very least, in some way interdependent in terms of accuracy. The more complex the processes are and the more HR data the company has, the more critical it becomes to ensure smooth information flow between HR and payroll systems. For HR and payroll processing to share processes, both parties and the management must understand the importance of the arrangement.
This is why I would like to remind you that even in ancient Greece, the philosopher Heraclitus said that the only constant in life is change. Some 2,500 years later, successful Finnish businessperson Risto Siilasmaa stated that change has never been as fast as it is now – nor will it ever be as slow as it is now. In other words, no company or organisation can afford to get stuck with obsolete operating methods.