Making Payday a piece of cake

After spending a morning at an employer seminar explaining pay and leave rules around the new Holidays Act and KiwiSaver, I couldn’t help but feel relieved I’m not an employer. I commiserated with employers at the seminar over the sheer complexity of accurately calculating leave and payroll for each staff member – a process that now includes calculating four weeks of annual holidays along with sick leave, holidays in advance, pay-as-you-go holiday pay, KiwiSaver contributions (from April 2008 employers must make a one percent contribution to employee KiwiSaver schemes, increasing to four percent by 2011) and the ever-confusing calculations over who is entitled to what over public holidays. Add to this the fact that an employee on a fixed term or part time contract may have different pay rates and leave allowances to a permanent employee, and it’s easy to see why most employers now use a software system or service for automated payroll processing instead of labouring over manual timesheets and pay slips. But spare a thought for the developers of these systems – whether designed to be installed and managed by the business, used by an outsourced payroll bureau, or accessed over the Internet, not only do payroll system developers need to tweak or majorly overhaul their products every time new legislation or slight amendments are released, they must also ensure their systems generate absolutely accurate calculations and reports for employees in every kind of employment situation. Pay and leave errors are not borne well, and can significantly damage an employment brand, while the Department of Labour will take an unwelcome interest in an employer experiencing payroll discrepancies that mean staff may be owed more than they have been paid. On the KiwiSaver front, employers are expected to correctly deduct KiwiSaver contributions from employees’ before-tax pay, for each pay, and then pass that information on to the IRD. Inland Revenue then transfers each person’s contribution to their chosen KiwiSaver scheme provider. Payroll compliance According to Matt Lynch, managing director for accounting and payroll software provider MYOB, there are presently 13 important employment-related statutes payroll systems providers and professionals need to be familiar with to ensure their clients maintain payroll compliance. “Since the compliance changes came into effect, we’ve seen a significant increase in the number of payroll users, and membership of our business support programme has grown as well,” says Lynch. He says until employer contributions become compulsory, some employers and employees have also agreed to ‘salary sacrifice’ arrangements, in which the employee sacrifices part of their salary in exchange for a KiwiSaver contribution from the employer (and there is currently some tax advantage for the employer in doing so.) Payroll systems need to be able to accurately calculate such arrangements, and the increasing demands of payroll compliance, coupled with the development of online services means more employers are using online payroll tools. “MYOB Comacc mystaffinfo allows employees to log in to a secure website to book leave, check balances and read payslips. Employees and managers can help themselves by accessing and managing the relevant information,” says Lynch. Online odyssey The historical mindset of small businesses has been to maintain in-house control of payroll systems, but as broadband performance improves in New Zealand, the use of online payroll services is growing. Access to software systems hosted online – sometimes termed Software as a Service (SaaS) – means businesses can access their own payroll information online instead of managing installed software on an internal business network. Payroll processes and compliance steps can then be fully or partially automated by the online provider, depending on the level of service the business buys. Kelvin Chen, director for online payroll provider CrystalPayroll, says online providers can act as an IRD agent on behalf of an employer and also have the flexibility to roll with sudden legislation changes. He says changes to Crystal Payroll’s service over the past 12 months have included automated timecards to bypass manual timecards; and the ability to enter in individual days and hours along with overtime, and start and finish times for broken hours. Meanwhile, around 30 percent of CrystalPayroll client employees have signed up for KiwiSaver (proportionately in keeping with the national KiwiSaver membership tally of around 317,000 employees at the time of writing). Because KiwiSaver has produced a number of new payroll hassles for employers, the response from certain online payroll providers has been to automatically forward KiwiSaver contributions to the IRD together with the related K1 and PAYE forms. In fact, the advantages of using an online payroll service are pretty straightforward – as long as the provider receives the correct information from the business at the correct time, the responsibility for system hosting, payroll data storage and security; upgrades and possibly compliance filing belong solely to the online payroll provider. All payroll and leave calculations are completed automatically and the relevant documentation forwarded to the business, IRD and other agencies. A further advantage is that employees can log on from any Internet connected computer and access their own payroll and leave information, which significantly cuts down the time an internal payroll employee spends fielding employee enquiries. The downside of using an online system includes fears (somewhat groundless) over the ongoing data security of the payroll information hosted off-site. Less groundless are concerns over Internet connection performance when there is a large volume of payroll to be processed; as well as whether payroll information backed up and stored online will be made available to the business if it later decides to go back to managing payroll in-house. These are the questions businesses need to be asking online providers. Another ‘downside’ is that if there is a general power failure or the Internet connection is lost, access to payroll and leave information are correspondingly affected. However, online champions argue few Internet connections go down for long, and payroll systems arguably do not need to be accessible 24/7 if a connection glitch occurs. Alternative options Given the accessibility, convenience and automated benefits of using an online system, why do many small businesses still prefer to buy and install and manage their own payroll software? There are three key reasons: tradition; the desire to keep payroll information internal; and cost. Installed payroll software licenses typically cost a few hundred dollars and another couple of hundred per year to cover support and upgrade costs. Comparatively, online system providers charge between $1 and $5 per person, per payroll (depending on the provider and any IRD discount). A business with 50 employees will therefore pay between $50 and $150 per payroll. Even if the cost is $50 per payroll via a ‘self-managed’ online system, an employer paying weekly will pay $2600 per year. And a full bureau service which collects payroll information from the employer, pays everyone, and does all IRD filing, charges around twice the amount of an online system service. However, the number of employees in a business using an online payroll system is usually less than 15. So a business with seven employees paying $1.99 per person per weekly payroll will pay around $724 a year – closer to the cost of buying an in-house system and maintaining it. The convenience and time savings resulting from using an online system may also make any extra costs worthwhile. Phil Erikson, director for Ace Payroll, raises a good point when he says Holiday Act and KiwiSaver processing is now reasonably well automated within most software systems. So whether a business prefers an installed system (such as Ace Payroll offers) or an online service, is probably less important than the standard of customer service and support and ongoing education the payroll provider is prepared to offer. Erikson says good payroll system provision is increasingly not about selling either a software program or a bureau service – rather, businesses want to deal with payroll professionals who can offer a comprehensive service based on knowledge.  “People don’t want to call three different companies to learn about the computer side, the payroll side and the legal side – they want to deal with [a provider] who knows about all three sides and can quickly get their payroll back on track, right then,” says Erikson. It’s a good message: by all means decide which payroll product features suit your business best, but then choose a provider according to the effort they make to understand your unique business needs and their ability to offer education and support around ongoing payroll issues and new legislation. Vikki Bland is a freelance IT writer. Email [email protected] Relevant websites: www.myob.com www.crystalpayroll.co.nz www.ipayroll.co.nz www.acepay.co.nz