Payroll Complexities – How People Can End Up being Underpaid, Overpaid or Not Paid at all

Recently there have been quite a few news articles about the Phoenix payroll system that was designed to replace aging payroll systems across the public service departments in the Canadian federal government. The contract bid was originally $5M when the project started in 2009. 39 amendments were made and by 2016, the cost was up to $310M. And it is still not working, leaving federal employees being underpaid, overpaid or not paid at all. Now auditors are saying it will take an additional $540M to fix the issues. So what can those of us in the HR and Payroll industry learn when big projects like Phoenix go wrong?

There is no doubt that the Canadian federal government payroll is complex. The new payroll system was to incorporate approximately 100 different departments and about 80 different collective agreements. Thousands and thousands of payroll rules needed to be configured and tested. So besides magnitude of size and complexity, what are some of the common reasons that payroll implementations go wrong?

Here are some of the common reasons for payroll system implementation problems and failures:

  1. Incomplete project scope by internal stakeholders and lack of support for the project by key stakeholders.
  2. Poor system selection processes and procedures. It is important you get the right system for your needs now, as well as a system you can grow into.
  3. Unrealistic timelines for rollout.
  4. Communication failures caused by too many stakeholders with competing priorities.
  5. Inability or lack of desire to reduce and consolidate rules and requirements (where possible) in the planning stages.
  6. Budget pressures and/or changes causing corners to be cut during configuration and testing.
  7. Trying to replicate inefficient procedures rather than taking the opportunity to re-design and improve procedures in the planning stages.
  8. Lack of project management expertise as well as HR and Payroll expertise to guide and drive the project as needed.
  9. Lack of training to onboard everyone affected by the system.
  10. Incorrect or missing data caused by faulty data migration or entry processes. This can be exacerbated if not caught early in the project due to a lack of thorough testing procedures or lack of time to do proper testing.

And once a payroll system goes wrong, there are implications for employees beyond the inconvenience of not getting paid what you are owed on time.

So what are the consequences of paying employees incorrectly or not at all?

First of all, not paying employees on time is violation of the law to be rightfully compensated for the work done for an organization. Without timely payment of compensation, employees’ and their families’ lives are affected directly, but there are also tax implications to the errors.

Tax implications of incorrect pays:

  • Underpaid: Since the employment income system is based on actual amounts paid and received in a calendar year, an incorrect lower amount will reduce the tax owed. Once the employee is paid back, taxes will increase accordingly. If these errors and corrections span 2 or more years, the employee could move up tax brackets simply because they are getting paid back all at once. Tax could even out but it is not likely to match perfectly to what they should have paid in tax if they had been paid correctly. Plus, many employees will not have wiggle room in their budgets to accommodate this fluctuation.
  • Overpaid: Overpayments need employees to return the money that was in excess of the money they were entitled. Again, there will be tax fluctuations and individual’s budgets may not easily accommodate the need to outlay cash for a re-payment. Added administration of payment plans may have to be put in place to assist the employee in paying back amounts owed. This is a hassle for both the employer and the employee.

All the HR policies and efforts to engage and retain employees become ineffectual if employees are not paid or consistently paid incorrectly. Payment is a fundamental part of any employment contract and the payroll system you chose to implement should be given as much consideration as the organization’s HR systems and policies. Rip and replace projects come at a huge switching cost and the only way to avoid being an organization that doesn’t pay employees their right share of wages is to use experts in their field who know how to avoid pitfalls when implementing complex payroll requirements.

If you need a system that can handle complex payroll requirements from union contracts, government regulations, retro pays and complicated calculations that keep changing with time then talk to us today !

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About the Author:

Marnie Larson is the CEO of StarGarden Corporation and oversees its operations in Canada, US and New Zealand. She has over 20 years’ experience in the software industry and specializes in HCM, Business process automation and Workflow technology.

Follow Marnie on Twitter: @mblarson